Any retailer worth their weight in gold already knows the critical importance of selling on Amazon. Or, more specifically, of selling on Amazon Prime.
The marketplace giant’s Prime program plays a starring role in day-to-day operations of brands and retailers of all shapes and sizes. In fact, with 100 million Prime members worldwide spending an average of $1,400 a year — compared to the $600-per-year average spent by non-members — Prime is a market you’d be crazy not to tap into.
Two programs give you access to those lucrative Prime shelves: Fulfillment by Amazon (FBA) and Seller Fulfilled Prime (SFP).
But while both programs allow you to sell on Amazon Prime, that’s about where the similarities end. FBA and SFP are fundamentally very different, and each one has features that pretty much guarantee it will appeal to certain businesses depending on size, profitability and aspirations.
To help you determine which program may be best for your business, here are five key differences between having your goods fulfilled by Amazon or using the Seller Fulfilled Prime program:
The most striking difference between FBA and SFP is the way your items are fulfilled.
As the name suggests, Fulfillment by Amazon means your inventory is completely fulfilled by Amazon. They take care of it all. You send a portion of your inventory to Amazon’s fulfillment centers, where it’s stored until a customer decides to buy it. Amazon then picks, packs and ships the items to your customers, while you sit back and profit (in theory — see our next point).
With Seller Fulfilled Prime, fulfillment is in your hands. Customers will purchase through Amazon Prime as usual, but your company ships the items directly with no intervention from Amazon. You use the Amazon Prime brand name and shipping rules, but it’s up to you to pick, pack and ship to your customers.
So … what’s the catch with SFP?
Shipping! A huge difference between having items fulfilled by Amazon and using SFP is that you have to pay for shipping. This can drastically eat away at your margins and possibly result in a negative sale if you’re not careful.
Shipping adds another logistical layer as well. Shipping information must be purchased through Amazon’s Buy Shipping Tool, which means you have to log in to Amazon just to generate and print shipping labels. This can be a huge hassle, you’ll likely need to use a third-party that integrates with the Amazon Buy API to automate this process.
Sit back and profit, we said. This is too good to be true, you thought. If poorly managed, you may be right.
This is thanks to FBA’s fees. As anyone who has been part of the Fulfillment by Amazon program knows well, Amazon’s fulfillment fees can change at any time. These rate structures and policies are updated yearly — and sometimes even more frequently. Fail to stay on top of the latest inventory storage fees, and those costs will quickly eat into your profit.
In all fairness to Amazon, they do everything for you. So you can expect them to ask for something in return. Of course, that comes at a cost.
For example, consider a lightweight standard-size t-shirt. The marketplace can charge over $4 per unit for handling, picking and packing. And if those t-shirts sit on shelves for more than six months, you’ll start to incur long-term storage fees, too. Regardless of what you’re selling, these costs can escalate fast.
SFP users, on the other hand, are able to avoid these fees. Since you’re not sending anything to Amazon to be stored, handled, packed or returned, there is no reason for them to invoice you with eye-watering fees. It’s more work, naturally — plus you have your own shipping costs to deal with — but that bit of margin is yours to keep.
The storage of your inventory is another area that highlights the differences between these two Prime programs.
Fulfillment by Amazon is a compelling proposition for retailers selling strictly on Amazon. But for the rest of us, we choose to sell on as many sales channels as possible. Why? Because multichannel customers are more profitable! Of course, you could use Amazon’s multichannel fulfillment services, but then you lose control of your precious inventory.
To use Seller-Fulfilled Prime, you’ll need your own warehouse to control inventory and fulfillment — which can be costly to acquire, maintain and staff. In addition, as a seller fulfilled (or merchant fulfilled) Prime member, you HAVE to ship Prime orders same-day. This means your warehouse must be streamlined to process orders at high efficiency.
4. Inventory Control
Inventory control certainly ties in with the storage issues we just highlighted, too.
With Fulfillment by Amazon, after you’ve sent your inventory to Amazon’s fulfillment warehouses, it’s gone. This sounds like an obvious statement, but the impact of this means you’ll be limited when running promotions on other marketplaces or your own .com. In some cases, you may have to recall inventory from Amazon or be prepared to pay for the marketplace’s multichannel fulfillment services.
Having Amazon house your inventory can also make things tricky when it comes to determining exactly what’s in stock and when inventory is getting stale. As mentioned above, Amazon charges penalty fees for inventory stored in a fulfillment center for longer than six months.
The difference when it comes to SFP is that you have complete control over your stock — no split inventory between Amazon’s warehouses and your own. All your inventory can be stored in one central location, meaning you have complete power over your stock. This is a big plus if you sell on multiple sales channels or have a brick-and-mortar location. The benefits are even more evident when it comes to events such as Prime Day or the Cyber Five, when there’s no limit on how much you can sell.
When your inventory is fulfilled by Amazon, the marketplace handles returns on your behalf and provides their “top-class” customer service. This is very useful for smaller businesses, which will benefit from the time and resources it can save.
With SFP, your company handles all returns. This means you’ll need to have your own highly operational returns and customer service departments. However, this brings its own benefits because — whereas Amazon sends FBA members a general box of returned goods — things are certainly less vague with SFP. You can easily identify exactly which returned item ties to which order, greatly reducing the risk of potential customer fraud.
Keep in mind, however, that Amazon requires SFP sellers to abide by the same rules that apply to orders fulfilled by the marketplace itself. That means items are automatically authorized for return at the seller’s expense, without the seller being contacted first.
Plenty to Consider
These five differences certainly highlight the main variations between Fulfillment by Amazon and Seller Fulfilled Prime programs.
It’s clear that both SFP and FBA have certain advantages and disadvantages, and they will appeal to different businesses with different aspirations.
Two final parting thoughts may help clear things up a bit more:
First, it’s worth mentioning that becoming eligible for Amazon’s Seller Fulfilled Prime program comes with its own set of strict requirements. There will still be inventory to update, shipment notifications to watch and invoices to maintain.
Second, sellers that benefit most from SFP tend to leverage their inventory across multiple channels instead of selling solely on Amazon. In fact, many sellers won’t necessarily see big savings — and may even see their fulfillment costs increase slightly. But being able to sell more at higher volumes across multiple channels can make up for any costs incurred through SFP.
We know it’s not easy to determine which program is best for your business, and ChannelAdvisor is here to help! Drop us a line with any questions you have, or if you want to learn more about our solutions for first-party order support, fulfillment integrations and more.
Editor’s Note: This post was originally published on November 3, 2017 and has been updated for accuracy and comprehensiveness.