Past Their Prime:  How to Get Around High Amazon Fulfillment Costs

May 29, 2018 by Amware Fulfillment

It’s just a few weeks before Amazon Prime’s $20 price increase goes into full effect, and according to a recent study from Atherton Research, approximately 60% of Amazon Prime’s 90 million U.S. customers are so unhappy about this prospect  they may not renew their memberships.

Likely, some of these customers will probably wind up changing their minds.  However, the mere fact that so many are even contemplating a churn confirms what many of us have known all along:   Sometimes paying for Amazon’s fulfillment costs means spending more than you should for less than you deserve. 

Amazon Fulfillment CostsAs evidence, consider the case of Fulfillment by Amazon.  While FBA can indeed get goods shipped to customers quickly and reliably, it also has some expensive and rigid strings attached.  These include:

  • Uncompetitive Storage Rates. Amazon’s huge and highly-mechanized warehousing network wasn’t cheap to build, and it’s not cheap to operate.  One way Amazon is working to recoup the costs is by charging ambitious warehousing rates, many of which might surprise customers who are expecting large economies of scale (as evidence, check out Amazon’s online storage price sheet and see how these and other Amazon fulfillment costs compare to other fulfillment providers’ prices).
  • Substantial Seasonal Price Increases. Depending on the size of your products, it costs nearly three-to-four times more to store items at Amazon’s fulfillment centers between October and December, a fact that can make it difficult for your company to preserve a healthy profit margin during the busy holiday season.
  • Long-Term Storage Penalties.  Time is not your friend at an Amazon warehouse. Any inventory that is stored there six months or longer will be assessed a long-term storage fee, and the expense associated with that fee will substantially increase after inventory has resided there for a year.  For more details, see this link.
  • Limited Opportunity For Branding. Much like Henry Ford was willing to sell people a car of any color “as long as it was black,” Amazon is more than willing to send your goods in a branded box – as long as the brand name on the box is Amazon.  Its fulfillment model doesn’t allow for any other packaging option except a blank box, and your company will have to pay an additional fulfillment fee of $1 per shipment in order to get that.  Don’t expect any internal packaging customization either, because it’s simply not available.

Should these drawbacks deter you from selling on Amazon altogether?  Absolutely not.  After all, there are many reasons why Amazon is an excellent sales channel.  However, they should inspire you to reacquaint yourself with other ways you can fulfill your company’s Amazon orders – and to carefully weigh the pros and cons of each against what FBA offers in order to make a more educated buying decision.

To help, here’s a quick run-down:

  • Seller Fulfilled By Merchant. With this option, your company sells products through Amazon but handles all aspects of fulfillment, and shipping in-house throughout the country.  Plus, it allows for full customization of things like fulfillment.  It can be a cheaper way to go if your company already has a warehouse network that allows for timely delivery packaging, allowing you to provide a more fully branded experience.  However, it also can be complicated and time-consuming to pull off, especially as your Amazon sales grow.
  • Seller Fulfilled Prime By Merchant. Like the above, this option involves your company handling all fulfillment in-house (and enjoying all of the same advantages), with the added twist that all of your Amazon orders must be in customers’ hands for free within two days.   The upside is that your company gets to display the “Prime” shipping badge that often generates substantial extra sales without footing the bill for some of the extra aforementioned Amazon fulfillment costs.  The downside is you have meet strict Seller Fulfilled Prime (SFP) requirements (see our blog about this for more detail) to qualify.  It can also be expensive, because you’re obligated to make good on the two-day, free-delivery promise, even if it costs your company an arm and a leg. 
  • Seller Fulfilled Using A Third-Party Fulfillment Partner OR Seller Fulfilled Prime Using A Third-Party Fulfillment Partner: These options involve using a third-party fulfillment provider (3PF) to provide the storage, fulfillment and shipping portion of your Amazon orders. Working with 3PFs can make it easier and more economical for your company to participate in Seller Fulfilled Prime, because many of them already operate extensive national networks with two-day delivery capability. Other potential advantages include the fact that 3PFs should be able to beat Amazon’s fulfillment prices while also providing the opportunity to customize every aspect of your Amazon fulfillment down to details like selecting packaging materials and choosing the best time of day to ship.  The caveat is, in order to realize these advantages you need to make sure you’re working with the right 3PF, because some have stronger eCommerce fulfillment capabilities than others.    

Need a 3PF Partner?

When selling on Amazon, it’s tempting to push the “Use FBA” button to simplify the process. But, much like paying an extra 20 percent to remain a Prime member, it might not be the best or more cost-effective decision in the long run. 

National fulfillment companies like Amware Logistics regularly advise companies about how to successfully support Amazon sales and other channels, and they would be more than happy to provide the same level of expert advice to you. 

Contact us today to discuss your challenge.  Or check out our range of eCommerce capabilities.

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Filed Under: Fulfillment by Amazon (FBA), eCommerce Fulfillment