Amazon Dropshipping Services

Dropshipping can be a powerful tool for ecommerce companies – if it’s utilized well. Amazon dropshipping, especially at an enterprise-level, can protect against supply chain volatility, mitigate warehouse storage fees and inventory limits, and aid in a variety of other operational hardships that come with traditional FBA fulfillment. This was demonstrated most recently when Amazon released FBA Amazon restrictions right before Prime Day 2021.  

“Dropshipping” can conjure a few different images, so what exactly do we mean by “enterprise-level dropshipping?” It’s largely a matter of the scale and scope of the operation.  

Three Scales of Amazon Dropshipping 

Retail Arbitrage 

Think of your next-door neighbor’s side hustle. They buy product for cheap at Costco, list it for sale online at a higher price, and wait for orders to come in, flipping the product to make a profit. Retail arbitrage is all about the buy-low-sell-high model, and is typically done on a smaller scale by individuals rather than large companies (there are, of course, exceptions).  

Retail arbitrage does not require interaction between brands and sellers, which can make it into dangerous for brands by creating a threat to their reputation. The brand has no say in the marketing, customer service, etc. of their product, because the seller is completely separate from the brand itself. That lack of say can be alarming, and rightly so. 

Niche Dropshipping 

Niche dropshipping focuses on exactly what it sounds like: a niche. This type of dropshipping hones in on a single product category, looking at overall supply and availability for that particular area. The niche dropshipper can range in size, from a one-man side hustle to a small or medium business with multiple employees. 

These sellers are often the manufacturer or have a formal relationship with the manufacturer. They use dropship to fulfill orders because they sell across many sales channels, sales volume may not justify the costs of using FBA or a third-party logistics provider, and/or their sales come primarily through word-of-mouth marketing at events. 

This approach typically requires more customer interaction than retail arbitrage, as the dropshipper is attending events, promoting their brands through social media, directing customers to a website, etc.  

Dropshipping for Enterprises 

Dropshipping for enterprises is what we do here at Kaspien. We set up dropship capabilities for brands when products do not have high enough sales volume currently, are ineligible for FBA, sell products that are subject to significant fluctuations in sales velocity, or do not have enough inventory space allotted at FBA.  

This tactic allows us to offer our partners’ full product catalogs on Amazon while minimizing risk of stagnant inventory fees, as well as protect against stock-outs when Amazon restricts FBA inventory.  

Dropshipping at this scale is an integral part to creating a stable foundation from which your brand can grow on Amazon. By diversifying fulfillment strategies with a combination of FBA and dropship, brands gain the agility needed to pivot quickly in a still turbulent marketplace.  

Benefits of Working with Kaspien as a Brand-Extension Dropshipper 

Mitigate Risk & Labor Expense 

As one of the largest third-party sellers on Amazon, Kaspien already operates in economies of scale. We have a 13+ year old seller account with a long history of fulfilling via FBA and dropship for thousands of brands.  

Because of this, our team and technology are well equipped to handle any late shipments, order defects, reduce tracking issues, review product compliance, collect and remit sales tax, and provide customer service easier than a seller would be able to do on their own, resulting in a more efficient business and altogether better experience for customers. 

Additionally, if your brand were to experience any issues ODR, VTR, or LSR while dropshipping on your own seller account, you could face immediate ramifications. Because Kaspien dropships for many brands on our seller account, any issues you experience will have a diluted impact on our seller performance metrics. That means that we have time to correct the issues before you face any penalties from Amazon. 

Working with Kaspien’s dropship team allows you to be paid directly through invoices, rather than waiting on Amazon. Additionally, when selling through Amazon, you run the risk of Amazon shutting down or freezing your account if issues arise, creating some major cash flow troubles. Dropshipping through Kaspien and being paid through invoices helps avoid this risk. 

Dropship for Amazon Business 

Using dropship in addition to your other fulfillment tactics can be extremely beneficial for both you and your customers, especially when selling B2B on Amazon Business 

Dropship is a naturally scalable model; as units increase, you are able to sell each unit for less, offering customers a better price. The B2B marketplace provides a natural venue for quantity discounts, as businesses typically purchase in higher volumes.  

Given the slew of FBA inventory restrictions since the start of the COVID-19 pandemic, storing adequate inventory at FBA for bulk B2B orders can be… problematic. Dropshipping allows brands to make those sales, without being limited by FBA. 

Amazon incentivizes B2B customers by offering longer payment terms, which means that we, as sellers, get paid slower. This is another area where dropshipping through Kaspien and being paid through invoice benefits your brand. 

Marketing Services for Dropship Listings 

As you look for companies to partner with for your dropshipping strategy, they should add much more value to your brand than merely dropshipping. A brand-centric partner can add marketing support to your listings, which is an absolute must in the saturated and competitive Amazon world.  

A good partner will optimize your listing to increase your product’s discoverability. This can be done through keyword optimization, CPC advertisementsdisplay ads, your brand storesocial media marketing, social media advertising, and influencer marketing (just to name a few). All these marketing tactics drive traffic to your listing and increase consumer exposure to your brand.  

A good partner will also boost your product’s buyability. Once consumers enter  your listing, they need to be met with a persuasive page. To do this, a good partner will create rich listing content through quality copy and photo assets, create A+ Content, optimize content reviews, and optimize the organization of your listing. By highlighting your product’s differentiating features and benefits, you enhance consumer knowledge and trust of your product, supporting conversions.  

Amazon Dropshipping FAQ’s 

Do “Dropship” and “FBM” Mean the Same Thing? 

Yes and no. FBM, or Fulfilled by Merchant, is any fulfillment model where a non-Amazon party manages order fulfillment for a sale that occurred on Amazon. Dropship is one of these methods, and perhaps the most common. 

FBM can also include cases where inventory is stored at a third-party warehouse, so brands still pay warehousing and storage fees like they would at FBA. Some of these third-party warehouses are able to provide Seller Fulfilled Prime (SFP), which is when they are certified as being able to provide a Prime-equivalent shipping experience (including speed, quality, returns, and customer service) through a FBM model. 

Does FBM sell worse than FBA? 

Typically, products fulfilled via FBA sell better than FBM. This is due to the fact that consumers often prefer the fast and free shipments offered through Prime. Prime also impacts SERP placement. If a product is offered through Prime, the Amazon algorithm is more likely to place this listing above an FBM listing on the results page.  

Notably, this changed when COVID-19 first strained FBA infrastructure in the spring of 2020, and Kaspien observed FBM listings being prioritized over FBA listings. 

Even though FBA does tend to sell better, you can’t capture sales with an FBA listing if you stock out of FBA inventory. With continued inventory restrictions, this is a very real risk. Likewise, products with a low sales velocity can rack up storage fees at FBA, reducing their profitability. For these and other aforementioned reasons, dropship remains a valuable tool for your Amazon toolbox.  

Does FBM cost more for brands than FBA? 

This depends on a multitude of factors, and the answer will vary for each product and each brand. For some warehouses and logistics, FBA is cheaper and for others, FBM is cheaper. These numbers are dependent on the size, weight, etc. of your product. If you are curious about where your product would lie cost-wise, our team would be happy to go over this with you! 

Does FBM put you at higher risk of a seller account shut down than FBA?  

When comparing the two options, FBM is riskier. Order Defect Rate and Late Ship Rate are two important factors for rating seller account health. In FBA, Amazon owns these. In FBM, the seller is responsible for keeping them at healthy rates. As such, we pay close attention to these metrics for each of our dropship partner accounts. 

What are some indicators that a dropship product should transition to FBA? 

Determining if your product should transition to an FBA fulfillment method should be based upon your data and margins. The most important indicators are:  

  • Will you have enough margin left after storage and fulfillment fees? 
  • Does your product sell at high enough velocity that you won’t face long-term storage fees? 
  • Do you have enough inventory space allotted at FBA so you won’t stock out? 

Fortunately, Amazon provides ample information about FBA costs, so if you have the data, you can run the numbers. In most cases, we encourage brands to keep dropship enabled as a safety precaution any time they transition a product from dropship to FBA. 

Is there a way to automatically switch from FBA to FBM (and vice versa)? 

Because a brand has to ship products into FBA and manually set up logistics in Seller Central, there is no way two automatically switch between the two fulfillment methods.  

Do storage limitations shift when you switch from FBA to FBM? 

FBA storage limits will not change based if you add FBM capabilities. If you find yourself in a situation where you are not able to stock enough inventory through FBA, FBM would be beneficial to you. This is especially true when you expect your velocity to exceed the inventory you have on hand.  

Does Kaspien offer 3PL services as a part of the dropship program? 

While we do not offer full 3PL services, we are able to purchase and store inventory. This is our traditional retail partnership. 3PLs are generally more expensive than FBA, so if margins are already tight on Amazon, it may be difficult to move forward with a strategy that would induce even tighter margins.  

What is some advice that sellers should know if they are looking to switch to FBM? 

If you are looking to dropship for yourself, you should really have a grasp on Amazon’s requirements and fee structure prior to starting. You should also be extremely cognizant of your product dimensions and weights. If you do not measure correctly, you can run up to a $1,000 shipping charge due to abnormal shipping sizes.  

Are You Ready to Start Dropshipping on Amazon? 

When deciding whether or not your product is ready for dropship, consider: 

  • Is your warehouse or other facilities in your supply chain capable of shipping directly to consumers? 
  • If the answer is no, dropship may not be your best fulfillment option.  
  • Do you know how many days of handling time you need? 
  • Do you have a single-threaded leader who can be your primary contact for orders, inventory, etc.? 

These questions will allow you to better understand your product’s dropship viability, protect your brand’s Amazon listing, allow you to keep your 100% uptime. 

How to Set Up Dropship for Amazon with Kaspien 

If you are already selling with Kaspien, talk to your Account Manager today! If you don’t yet work with Kaspien, start the conversation with us today. 

You’ll need to complete a brief questionnaire, allowing our dropship team to understand the potential risks of dropshipping your product. Before you begin the questionnaire, be ready with a full catalogue of products available for dropship, and their dimensions, weights, and UPCs.  

From the information you provided and the knowledge they have for success, they will decide whether or not your product would be a good candidate. That being said, our team is willing to be immensely creative in protecting your brand and doing what we can to best serve you.  

As your product gets passed for dropship, we will conduct a manual dropship test, working out any kinks that may take place. Following this test period, you can choose to go live or remain dormant as a backup just in case any volatility in the marketplace occurs. From here you can also move forward with automated DS integration.  

Sell on Amazon with Kaspien 

If you’d like to explore Amazon dropshipping or FBA with Kaspien, reach out. For more Amazon news and strategy, subscribe to our weekly blog newsletter!  


Amazon Dropshipping Webinar

On May 24th, Amazon once again imposed new inventory restrictions for FBA sellers. This new round of restrictions is the latest in a series of inventory limits dating back to March 2020, and comes as a result of FBA centers reaching capacity ahead of Prime Day. 

While Amazon’s response is wholly understandable – they only have so much space at their fulfillment centers – their inventory restrictions still hurt FBA sellers. If sellers cannot stock enough inventory to meet consumer demand, they are actively bleeding sales. 

So, what can sellers do to capture these sales that they will otherwise miss? Enterprise-level dropshipping. And as it so happens, we’re hosting a webinar about exactly that on June 29th 

Whom is this Webinar For? 

This webinar is made for both small & medium businesses and enterprise brands that sell on Amazon. If your online sales rely on FBA, you should strongly consider leveraging dropship as a supplementary solution.  

Just take a look at how we used dropship to support MyMedic, a brand in the First Aid category, overcome FBA volatility: 

Mini Case Study 

In 2020, quantity restrictions at Amazon FBA put MyMedic at risk. Their product was in high demand, but they did not have enough FBA inventory space to meet that demand. We partnered with them to fulfill orders through dropship, enabling MyMedic to continue capturing sales even if FBA ran out of stock. 

The results? In a 3-month period, MyMedic sold an additional 2,100 units through dropship – that’s on top of their FBA sales! Without dropship, those are sales they would have simply lost. 

How Else is Amazon Dropshipping Useful? 

Historically, dropship has been seen as a less ideal option than FBA for Amazon sellers, and that’s still more or less true. Generally, FBA will be the preferred option. However, there are certain times when dropship may be preferable to FBA. Here are just a few examples: 

Dropship Is Better For Amazon B2B 

Generating over $25 billion in annual sales, Amazon Business offers rich potential. However, large volume orders, combined with FBA quantity limits, often makes dropship a better match for B2B orders. 

Dropship Is Superior For Some Products 

Not all products are suited for FBA. Plenty of types of products can be fulfilled more cost-effectively through dropship than FBA. This can include: 

  • Oversized products, such as instruments, sports equipment, or furniture  
  • Newer products that do not yet have the sales velocity to meet our PO thresholds  
  • Clothing and other products subject to rapidly changing trends 

Gather Purchasing Data 

Dropship can serve as a testing ground for FBA, allowing us to learn how products perform in the Amazon marketplace. We apply those learnings to successfully transition products to FBA. 

We took this approach with PlexiDor Performance Pet Doors. After a poor experience with a third-party seller, PlexiDor was hesitant to entrust inventory with another FBA seller. They asked Kaspien to start with selling via Amazon dropship instead of FBA to prove we could drive sales and uphold their brand integrity. 

We used dropship as a testing ground, building our understanding of PlexiDor’s products within the context of the Amazon marketplace. As we drove sales and earned PlexiDor’s trust, we transitioned products from dropship to FBA. We retained dropship capabilities for all FBA listings, which allowed PlexiDor to capture additional sales when Amazon reduced FBA storage limits. 

Our Results 

  • 100% of product catalog represented on Amazon  
  • 30 SKUs transitioned from dropship to FBA  
  • 75% sales growth year-over-year 
  • $185K Amazon ad sales at 6% ACOS 

Amazon Dropshipping Case Study

Attend our Dropship Webinar to Learn More 

These are just a few examples of how dropship can be used effectively to grow your Amazon business. Attendees to our June 29th dropship webinar will learn even more about: 

  1. Why you should set up dropshipping capabilities as a supplement to Amazon FBA. 
  2. How to run Amazon dropship at scale effectively to capture additional sales and validate new products for FBA.  
  3. Ideal use cases for dropship, including oversized products, slow sales velocity, Amazon Business, and more 

 

Sign Up


May 24th was a normal Monday morning like any other for FBA sellers, until they saw their storage limits had been slashed in half. While the inventory restrictions are an immediate pain point, the news may also be a canary in a coalmine:  

If Amazon is tightening inventory restrictions ahead of Prime Day, we can expect that inventory restrictions will impact Q4 as well. Brands that are overly dependent on FBA will be poorly positioned to capitalize on Amazon sales opportunities. Investing in diversified fulfillment solutions, such as dropship, will be critical for overcoming the volatility in the marketplace. 

Why did Amazon Restrict Inventory Limits? 

An Amazon representative told Kaspien this move was in response to limited fulfillment center capacity. There is simply more inventory being sent to Amazon FBA centers than Amazon can handle. 

Amazon quantity limits are affected by past and future sales, current inventory levels, new selection, and FBA capacity. Quantity limits are also affected by sellers’ IPI scores. IPI is impacted primarily by inventory movement. The faster inventory cycles through FBA, the better, so long as you never stock out. If inventory sits stagnant in FBA centers, a seller’s IPI score will suffer. Likewise, if a seller runs out of inventory, their IPI score can take a hit. 

In 2020, Amazon temporarily restricted which product categories could send shipments into Amazon fulfillment centers. Amazon also increased the inventory performance index (IPI) threshold several times. Sellers who failed to meet the new score thresholds were subject to more severe inventory limits. 

There was hope that Amazon would lift the restrictions in 2021. However, earlier in the year, Amazon transitioned from Amazon Quantity Limits to storage utilization quotas. Many brands saw even stricter limits with this transition, and the recent reductions only made it worse. 

Fool me Once…. 

Amazon’s repeated inventory restrictions brings to mind an old axiom: Fool me once, shame on you. Fool me twice, shame on me.  

At this point, it’s clear that brands need to be ready to pivot their Amazon strategy at the drop of a hat. Amazon makes unilateral decisions that negatively affect your Amazon business and without warning far too often to sit idly by. Your customers expect your products to be available on Amazon, and you need to take steps to meet that expectation, whether it’s through FBA or not. 

So, what alternatives and supplements can brands use for FBA? 

Dropship Directly to Consumers 

Many people know of dropshipping as something a high-energy “entrepreneur” on social media talks about as a great side hustle for easy money. It can be that. But dropshipping can also be much more than that when applied at a larger scale.  

This was seen clearly in early 2020 when Amazon imposed category restrictions for inbound shipments. Affected brands turned to Amazon dropshipping to continue selling even after FBA inventory ran out. There was even a period where Amazon prioritized FBM and dropship orders over FBA orders!

Dropship was crucial during this time. For example, in a three-month period, one of our partners sold an additional 2,134 units through dropship on top of their FBA orders! Without dropship, they would have simply lost those sales because their FBA inventory cap was too low. 

Since 2020, dropship has consistently proved to be an invaluable safety net against volatile supply chains. And as this latest update shows, Amazon is still experiencing the aftershocks of that volatility.  

Types of Amazon Dropshipping 

Dropshipping, in its simplest terms, is when the manufacturer ships product directly from their warehouse to the end-consumer, instead of sending it to a fulfillment center.  

For Amazon dropshipping, that translates to using Fulfilled by Merchant, or FBM, instead of FBA. An even better version of FBM is Seller Fulfilled Prime, or SFP. Let’s explore each of these a bit further. 

FBM from Your Warehouse 

FBM is exactly what it sounds like. Rather than an Amazon warehouse shipping orders to consumers, the merchant’s warehouse does. FBM requires the seller to have a warehouse in which they can store and fulfill inventory. It also does not come with guaranteed 2-day shipping. As such, Amazon favors FBA listings over FBM listings. 

FBM from a 3P Warehouse 

If you don’t own a warehouse, there are third-party logistics providers who provide similar services to FBA (including yours truly). You can partner with one of these providers to create FBM offerings, but they too will be treated as lesser options to FBA by Amazon’s algorithm. 

SFP from a 3P warehouse 

If the idea of Amazon favoring FBA over FBM irks you, you’ll likely be interested in SFP. SFP functions practically identically to the FBM model, except that the provider has been certified by Amazon as being able to consistently provide a Prime-equivalent shipping experience for Amazon shoppers.  

The SFP program has been closed to new applicants for well over a year, so if you are not enrolled in SFP already, you’ll need to seek a third-party seller or third-party logistics provider who is.  

The Benefits of Amazon Dropshipping with Kaspien 

One downside to dropshipping on your own is that you are responsible for tax logistics and customer service. If you partner with Kaspien to dropship on Amazon, the sales pass through our Seller Account instead of yours, which means we’ll handle the taxes and customer service for you. We’ll also pay you on a weekly basis, unlike Amazon, which pays dropshippers twice per month. 

Above and beyond that, we take a brand-centric approach to our partnerships. We’ll use dropship in whatever way serves your brand best. That could involve using dropship as a safety net, using dropship as a testing ground for new products to prove that we can drive success for them, and adding your full product catalog to the marketplace. 

Co-sell with Another FBA Seller 

Dropshipping is a great solution, and more brands are recognizing its value after the turbulence of 2020. However, it’s not the only solution for those impacted by Amazon’s inventory restrictions. In addition or alternatively to dropship (though it really should be in addition), you could authorize another FBA seller. 

By adding another FBA seller, you effectively increase the storage space allocated to your products at FBA. From your customers’ perspective, there’s little in their shopping experience. They see the same the same listing, they get the same shipping speed regardless of FBA seller, etc.  

From your perspective, you’re receiving another purchase order, which is always lovely. You’re also allowing another seller to access to your listing content and impact how your brand is presented to shoppers. That’s a big deal, so you should only partner with a seller you can trust.  

Kaspien has been serving as brands’ trusted Amazon partner since 2008. Our commitment to true, mutually beneficial partnerships earns feedback like this, shared by SRAM:  

Kaspien has been instrumental in our success on the Amazon platform with their commitment to SRAM. The time and energy the Kaspien team puts towards our brand’s needs extend beyond the SEO, marketing, and sales aspect of the business; they also ensure that we are communicating constantly and remain aligned and informed on our position on the Amazon Marketplace. We are proud to partner with Kaspien. 

Sell on Amazon with Kaspien

If you’d like to explore Amazon dropshipping or FBA with Kaspien, reach out. For more Amazon news and strategy, subscribe to our weekly blog newsletter! 


Minimize Amazon Seller Fees

Amazon fees have steadily climbed over the years, eating into profit margins. Many of these costs rose even higher in 2020 as the pandemic triggered supply shortages and shipping delays across industries. 

If you’re finding that your profit margins are narrowing, you’re not alone. But while misery loves company, we’d rather leave that particular crowd behind. So, in this post, we’re reviewing which factors drive up costs the most, then we’ll delve into several tools and tricks you can use to minimize your costs and Amazon seller fees. 

What Factors Affect Amazon Net Profit Margins the Most? 

Material Costs  

Material costs have risen dramatically across industries since the start of 2020. The global pandemic resulted in lay offs and furloughs, so sourcing and production slowed or even stopped. When production resumed, fewer workers were able to return working due to companies’ financial uncertainty, health and safety regulations, fear, or a number of other factors. Meanwhile, demand rebounded relatively quickly or even increased. With limited supply and high demand, prices have gone up. 

Safety Testing 

Amazon has steadily increased its requirements for safety testing, sometimes asking brands to go above and beyond government requirements. At Kaspien, we’ve seen numerous cases of brands being asked to conduct safety tests that aren’t legally required for their product. If brands don’t comply, Amazon can suspend their listing, cutting off Amazon sales for that product. As such, most brands find it easier in the end to pay for the additional testing, although it remains an intensely frustrating experience that chips away at the brand’s revenue. 

Supply Chain Costs 

Once a product is manufactured and has passed all the required certifications, there’s still the matter of transporting the product from the factory to the end consumer. That may involve freight, shipping, and storage fees. Supply chain management is complex and dynamic, so much so that it deserves an entire blog post. And, oh, would you look at that! Here it is.

Amazon FBA Fees 

Over 85% of top Amazon sellers use Fulfillment by Amazon, and with good reason. It’s simple, convenient, and provides increasingly faster delivery times. Of course, it’s not free. Sellers must pay fulfillment fees for product that pass through their centers. The fee is based on product size and shipping location. 

Product Size Non-Hazmat Hazmat Clothing
Small Standard (10 oz or less) $2.50 $3.43 $2.92
Small Standard (10 to 16 oz) $2.63 $3.64 $3.11
Large Standard (10 oz or less) $3.31 $4.06 $3.70
Large Standard (10 to 16 oz) $3.48 $4.23 $3.81
Large Standard (1 to 2 lb) $4.90 $5.47 $5.35
Large Standard (2 to 3 lb) $5.42 $5.86 $5.95
Large Standard (3 to 20 lb) $5.42+ $5.86+ $5.95+
Small Oversize $8.26+ $8.98+ $8.26+
Medium Oversize $11.37+ $11.22+ $11.37+
Large Oversize $75.78+ $87.14+ $75.78+
Special Oversize $137.32 $157.12+ $137.32+

Amazon Storage Fees 

Amazon also charges monthly storage fees for products as well as long-term storage fees. Like fulfillment fees, storage fees also change periodically, typically once per year. Before are the fees per cubic foot. 

Non-Hazmat  Standard Size  Oversize 
January – September  $0.75  $0.48 
October – December   $2.40  $1.20 
Hazmat     
January – September   $0.99  $0.78 
October – December   $3.63  $2.43 

Amazon Referral Fees 

Amazon’s not done yet! They also charge Amazon sellers referral fees – essentially, a commission for transactions that occur on the Amazon marketplace. Amazon referral fees are based on MSRP and product category. 

Amazon Category Standard Fee Minimum Fee Exceptions
Arts, Crafts, & Sewing 15% $0.30  
Automotive 12% $0.30  
Baby Products 15% $0.30 If total sales price is under $10, referral is 8%
Base Equipment Power Tools 12% $0.30  
Beauty 15% $0.30 If total sales price is under $10, referral is 8%
Books 15% $0.30  
Camera & Photo 8% $0.30  
Cell Phone Device 8% $0.30  
Clothing & Accessories 17% $0.30  
Consumer Electronics 8% $0.30  
Electronics Accessories 15% $0.30 For any portion of the total sales price that exceeds $100, referral is 8%
Furniture & Decor 15% $0.30 For any portion of the total sales price that exceeds $200, referral is 10%
Grocery & Gourmet Food 15% If total sales price is under $15, referral is 8%
Health & Personal Care 15% $0.30 If total sales price is under $10, referral is 8%
Home & Garden 15% $0.30  
Industrial & Scientific 12% $0.30  
Jewelry 20% $0.30 For any portion of the total sales price that exceeds $250, referral is 5%
Kitchen 15% $0.30  
Major Appliances 15% $0.30 For any portion of the total sales price that exceeds $300, referral is 8%
Music 15%  
Musical Instruments 15% $0.30  
Office Products 15% $0.30  
Patio, Lawn, & Garden 15% $0.30  
Personal Computers 6% $0.30  
Pet Supplies 15% $0.30  
Sexual Wellness 15% $0.30  
Shoes, Handbags, Sunglasses 15% $0.30  
Sports & Outdoors 15% $0.30  
Tires & Wheels 10% $0.30  
Tools & Home Improvement 15% $0.30  
Toys & Games 15% $0.30  
Video & DVD 15%  
Video Games 15% $0.30  
Watches 16% $0.30 For any portion of the total sales price that exceeds $1,500, referral is 3%

Pricing Parity 

Amazon is known for offering the lowest prices available online. One way that it enforces that reality is by requiring pricing parity. Pricing parity means that any product sold on Amazon must be offered for the same or lower price as products offered elsewhere online. If the product price on Amazon is higher, Amazon will roll up the Buy Box 

When the Buy Box is rolled, shoppers have to click several more times to see prices and sellers for the given product. The abnormal experience is enough to make shoppers bounce from the listing, costing you sales. This penalty is simple but effective.

Pricing parity can affect net profit margin because it forces brands to price products the same across online marketplaces (or suffer the consequences), regardless of each ecommerce platform’s unique fees. While not always the case, this can impact a brand’s wholesale costs or retail price.  

Amazon Retail (1P) Fees 

If your brand sells through Vendor Central and Amazon Retail serves as your online reseller, you’ll pay percentage-based fees for services such as marketing co-op, damage allowance, early payment, chargebacks, and shipping. If you use optional services like marketing, you’ll also be responsible for the bill. These fees are typically dependent on how vendors negotiate their contracts with Amazon, and larger vendors have greater negotiation power. 

Third-Party Sellers 

Many brands choose to sell on Amazon through third-party sellers like Kaspien. In these cases, the third-party seller pays Amazon’s fees instead of the brand. However, these fees do affect the seller’s margins, which can lead to negotiations about wholesale cost, but not always. Besides possible discussions about wholesale costs, most third-party sellers don’t charge any type of fee since they are buying product from the brand. 

Amazon Agencies 

Instead of selling their product wholesale to Amazon Retail or third-party sellers, some brands prefer to sell their product on Amazon themselves with the assistance of an Amazon agency. In this situation, a brand hires an agency to manage the day-to-day of running their Amazon seller account, and the agency charges either a percentage-based commission or a flat monthly fee. If you’re curious about this model, check out our post, “How to Decide If You Should Work with an Amazon Agency.”  

Amazon Marketing 

Finally, we come to Amazon marketing. With millions of sellers and tens of millions of products on the Amazon marketplace, marketing has truly become a requirement for Amazon success. And, marketing requires a budget. 

Now, that said, Amazon marketing should NOT affect your net profit margins. Marketing is meant to increase sales, and if isn’t generating a profitable return on investment, then whoever is running your marketing is not doing a great job. Marketing is a cost, certainly, but it is one that should pay for itself and more.  

Discover the Costs of Selling on Amazon 

In this free eBook, we explore the costs associated to selling on Amazon through Amazon Retail (1P), third-party sellers (3P), and direct-to-consumer (DTC). Download now to learn which option makes the most sense for your business needs! 

Download the eBook

How to Minimize Costs & Amazon Seller Fees 

Now that we’ve covered what factors can decrease your net profit margins for Amazon, let’s delve into how you can minimize any of those expenses to maximize your profitability. You’ll note that most of the below tips are based around supply chain management.  

Product Sourcing 

If we’re trying to minimize costs, let’s start at the beginning. Our GM of Private Label, Denise Abraham, wrote a fantastic blog post about international product sourcing, including how to do so cost-effectively. She goes more in depth about the process, so we’ll just summarize a few key points here: 

  • Get multiple quotes and samples. You need to find the right balance of costs and quality. 
  • Know your product specs intimately. When sourcing internationally, it’s easy for vendors to take advantage of you and use cheaper materials or skip testing. Those issues will bleed into sales to consumers and future fees, so don’t let yourself fall into that position. By knowing your product front, back, and center, you’re able to spot potential issues earlier.
  • Research and understand your purchasing options, including ex-works (EXW), freight on board (FOB), and landed duty paid (LDP) / delivery duty paid (DDP). Each purchasing option has significant implications that can effect your costs. 

Inventory Forecasting 

To avoid long-term storage fees at FBA centers, you must strike a balance between sending in enough inventory, but never too much. To do so effectively, you need to understand how long each piece of the supply chain takes, which as we all know, has changed quite dramatically since COVID-19. Our Purchase Order Manager, Emily Spokas, wrote a handy blog post about inventory forecasting, which you can read here.

You can break your forecasted lead time into smaller pieces, including how long it takes you to prepare a shipping order after receiving a purchase order from a retailer and how long it takes to then ship that order from your factory to the fulfillment center. If you sell your products yourself, you could even factor production time into the calculation. 

The marketplace is dynamic, so your inventory forecasting model should be too. Your lead times will likely fluctuate with seasonality, environmental factors, inventory quantity limits, and other external factors, so carefully monitor and update your forecasts accordingly. 

Efficient Product Packaging 

Amazon FBA has specific criteria for product packaging requirements. If products do not have the required labels and compliant packaging, Amazon may refuse, return, or repackage the inventory. In each of these cases, the seller is losing money, either in processing returns or paying fees for repackaging. To minimize these fees, make sure that your products are prepped in accordance with Amazon’s policies. 

As for storage fees at FBA, Amazon charged fees based on cubic feet or number units. This issue is partially mitigated through inventory forecasting, but it can be further mitigated by using the most space-efficient packaging for your product. Going down a box size or using an envelope can help reduce volume and thereby fees. Of course, do not reduce packaging size at the expense of product survival. If product is damaged during transit or storage because of smaller packaging, the savings of the packaging won’t justify the loss of the product. 

Amazon Small and Light Program 

Speaking of optimized product packaging, we’d be remiss if we didn’t talk about Amazon’s Small and Light program. Small and Light is an FBA that reduces fulfillment costs for products under a certain size or weight threshold. To enroll in the program, products must be sold via FBA, be priced under $7, and sell at least 25 units per month. If your products are eligible, Small and Light is a no brainer.  

One of our partners met every eligibility requirement for Small and Light except for product price. Due to margin considerations, their product was priced just over $7. We found that if we lowered the price so that the product could enroll in Small and Light, the savings from the lower fulfillment fee actually increased the product’s net profit marginThanks to Small and Light, the product was more affordable for consumers (which boosted sales) and margins were greater.   

FBA Seller Reimbursements 

FBA centers make mistakes, and Amazon doesn’t always fully reimburse sellers for inventory that is lost, damaged, or otherwise mishandled. Over time, these un-reimbursed or under-reimbursed inventory errors add up, eroding your bottom line.  

That’s neither tolerable nor necessary. To correct this issue and get back what you’re owed, you’ll need to file FBA reimbursement cases with Amazon. This process can be done manually or partially automated through software (Amazon policies forbid fully automating the process).  

At Kaspien, we’ve successfully reimbursed over $5 million to FBA sellers that they would have otherwise lost. On average, we see FBA sellers recover the equivalent of 2% of topline sales when they use our FBA reimbursement software. That adds up, especially as your sales volume climbs. 

Dropship Products Not Suited for FBA 

Let’s say you’re selling oversized products or your sales velocity is still low. In such cases, using FBA may not be the most cost-effective choice. Instead, you may consider using dropship to fulfill orders yourself instead of relying on Amazon.  

By dropshipping, you avoid Amazon’s storage fees, packaging requirements, IPI threshold requirements, and inventory quantity limits. The downside is that you may not be able to provide fast shipping, which is now a key component of a good customer experience.  

Amazon’s algorithm also tends to favor sellers who fulfill products via FBA, so if you’re in a listing with multiple FBA sellers, your chance at winning the Buy Box goes down. If you are the only seller in the listing, this issue matters a bit less, though you are still contending with competitor products. 

Amazon Global Logistics 

Amazon Global Logistics (AGL) is an Amazon program that allows sellers to direct-import from China into different markets. Typically, importing from overseas requires multiple checkpoints and multiple service providers, creating a lengthy and costly supply chain. Amazon Global Logistics streamlines the process, reducing touch points and costs for sellers. 

At Kaspien, we’ve seen Amazon Global Logistics reduce lead times by 20 days! By its nature, Amazon Global Logistics is most cost effective when transporting large volume, which is one of the perks of working with a large third-party seller like Kaspien. Because we have hundreds of partners that import from overseas, we can combine orders under a single account, thereby reducing costs and lead times for each involved brand. 

To learn more about Amazon Global Logistics, check out our podcast episode with our Chief Operating Officer, Director of Retail Operations, and Director of Purchase Order Management. They discuss best practices for Amazon Global Logistics, including which product types benefit the most from the service, how to leverage economies of scale, and how to navigate Amazon’s quantity limits. 

Find the Right Partner 

Last but not least, finding the right partner for your Amazon business can play a huge role in your profitability. Amazon is a massive market in and of itself, creating a whole industry of third-party sellers, Amazon agencies, third-party logistics providers, software providers, and more. As a result, you have plenty of options in finding the right partner and/or tools to grow your Amazon business. 

Do your research. Find the partner or tool that will give you the capabilities, attention, resources, and expertise you deserve. Their efficacy (or lack of) can have a major impact on your brand integrity, stability, and profitability.  

Learn More about Amazon Business Strategy 

There’s always more to learn about Amazon. To make sure you stay in-the-know, subscribe to our weekly blog newsletter!


Amazon B2B Marketplace

Amazon Business hit $25 billion annual sales in 2020just 5 years after its inception. To put things into perspective, it took Amazon’s B2C marketplace twice as long to hit the $25 billion milestone, although Amazon B2B certainly has the advantage of building off Amazon’s existing brand and infrastructure This incredible growth isn’t enjoyed by only Amazon either: More than half of these sales came from third-party sellers. 

Suffice it to say that Amazon Business is considered very high potential right now, with lower competition than Amazon’s B2C marketplace. Given this opportunity, it’s starting to draw more attention. 

Just What Is Amazon Business? 

Amazon Business is Amazon’s marketplace intended for business-to-business transactions, as opposed to business-to-consumer transactions. Businesses tend to buy in much larger quantities than individual consumers, so the separate marketplace provides a platform for those types of transactions. Listings on marketplace can offer bulk quantities, tiered discounts, flexible payment terms, and other perks not seen on the B2C marketplace. 

Amazon Business was founded in 2015, 20 years after Amazon’s inception, and its rise to success has been nothing short of meteoric: 

  • 2015: Amazon Business launches 
  • 2016: The marketplace posts $1 billion in global annual sales 
  • 2018: The marketplace posts $10 billion in global annual sales 
  • 2020: The marketplace posts $25 billion in global annual sales 

In a blog post, Amazon wrote that Amazon Business now serves nine countries, 45 U.S. states, and 80 of the Fortune 100 companies. Baird Equity Research predicts it will surpass $80 billion in annual sales by 2025, just 10 years after its founding. 

Amazon is Drawing More Attention to Its B2B Marketplace 

If you haven’t heard much about Amazon Business before 2021, you’re not alone. Amazon Business has garnered far less media attention than Amazon’s B2C marketplace, in part because Amazon itself has historically put less emphasis on promoting B2B.  

That seems to be changing, however. In March 2021, Amazon hosted a free virtual event all about Amazon B2B called re:Shape. The event featured speakers from Uber, Citi, Him & Hers, and other major brands. Representatives from schools and hospitals also spoke, sharing how they leverage Amazon B2B to supply their needs. The event focused heavily on the logistical benefits of B2B, citing examples of bulk orders for school supplies that could be syndicated to students as schools adapted to virtual classrooms due to COVID-19 and hospitals receiving much needed medical supplies.

How to Sell B2B on Amazon 

Amazon built their empire by making the customer experience as seamless as possible, and that holds true with Amazon Business. To create an Amazon account for B2B selling, simply create a Seller Central account. 

That’s it.  

Whenever Amazon sellers create their account or add new products, those products are automatically added to both the consumer and the business marketplace. Where things get a little more complex is in supply chain management, including warehousing and fulfillment. 

Dropshipping for Amazon Business 

Amazon FBA is often seen as the gold standard for fulfillment, and not without reason. Amazon FBA set the standard for 2-day shipping, and now 1-day shipping and same-day shipping are becoming increasingly available. From an end-consumer’s perspective, FBA is pretty grand. 

The Limits of FBA

However, from a seller’s perspective, FBA can sometimes be constraining. When it works, it works great. But Amazon has also earned a reputation for making unilateral decisions that significantly impact sellers on its platform without offering alternatives. This was painfully obvious at the onset of the COVID-19 pandemic in the U.S., when Amazon restricted inbound shipments 

Amazon FBA also doesn’t permit certain products or charges higher fees, including hazmat, meltables (during certain times of year), and oversized products. Some of these prohibited products are the same type of products that businesses might buy in bulk.  

Perhaps more importantly, FBA charges long-term storage fees and has quantity restrictions, so storing sufficient inventory at Amazon for large volume business orders isn’t always possible or financially sound. 

Dropship Products That Aren’t Ideal for FBA

That’s where dropship comes into play. Dropshipping is the practice of listing a product online without storing inventory at a fulfillment center. When an order is placed, the seller passes the order back to the manufacturer’s warehouse, which then ships the product directly to the customer. In this way, dropship products skip the middleman. There are some serious pros and cons to dropshipping, but that deserves its own blog post. 

How Amazon Dropshipping Works

How dropship works

Given the storage fees, quantity limits, and product restrictions at FBA, dropship makes a ton of sense for Amazon Business. As just one of many examples, in late 2020, Kaspien fulfilled a large Amazon Business order worth over $120,000 through dropship! Such an order would not have been nearly as viable on the consumer marketplace or with FBA. 

Amazon Business Account Benefits 

Conveniently enough, Amazon published a comprehensive blog post reviewing how Amazon Business works and some of the key benefits. According to Amazon, the top five benefits of Amazon Business are: 

  1. Business pricing: The ability to offer prices only available to customers on Amazon Business. 
  2. Quantity Discounts: Access to pricing features that make it easier for customers to buy in quantities starting at tiers of just two items, and to request special pricing on even larger purchases. 
  3. Certifications: Claim quality, diversity, and ownership certifications that help companies stand out to business customers who wish to learn more about their suppliers. 
  4. Tax exemption: Extend tax exemption on qualified purchases to customers that participate in the Amazon Tax Exemption Program, such as nonprofit organizations. 
  5. Enhanced seller profile: Showcase your logo, tell buyers more about your company, and display your quality and diversity certifications. 

Amazon Business Prime 

The last notable piece of Amazon’s B2B marketplace is Amazon Business Prime, which is a separate membership from Amazon Prime. Business Prime comes with its own set of perks, according to Amazon: “Business Prime offers unlimited, FREE shipping on eligible orders and more business purchasing benefits, like Spend Visibility, which lets you create custom visual dashboards powered by AWS cloud computing technology.” 

Business Prime members also gain access to Guided Buying, which helps direct a company’s purchasing team to the products and sellers that comply with their purchasing goals, as well as the ability to get extended terms for Pay by Invoice. 

Stay Up-to-Date with Amazon Services

Amazon Business is but one of many exciting growth opportunities coming into the spotlight. Fortunately, we discuss many of those opportunities in our blog, whitepapers, eBooks, podcasts, and more. Subscribe to our weekly blog to never miss a beat! 


Dropshipping Business for Amazon

Since the outbreak of COVID-19, you may have been hearing more about Amazon dropshipping, and for good reasonWhen the pandemic hit the US and shelter in place orders went into effect, several things happened in quick succession: 

  • Online purchases surged as shoppers turned to ecommerce instead of brick and mortar stores 
  • Some product categories experienced out-of-season sales peaks, resulting in out-of-stocks 
  • Amazon’s fulfillment centers buckled under the strain of new orders, and to recover their footing, they restricted inbound shipments 

As a result of the out-of-stocks, brands needed to ship more goods into Amazon’s fulfillment centers so they could resume selling to Amazon shoppers, but Amazon’s category restrictions prevented them from doing so quickly enough. 

That’s when many brands and sellers discovered the enormous benefits of Amazon dropshipping. 

What does an Amazon Dropshipping Business Look Like? 

Dropship is a selling and fulfillment model wherein a brand acts as the manufacturer, fulfillment provider, and potentially also the seller. It can be a key component in creating a dynamic fulfillment network. Let’s take a look at the most common dropship approach vs. the fulfillment by Amazon (FBA) model: 

Dropship Model 

  1. Manufacturer and seller agree to dropship together, which involves creating an EDI connection between their inventory management and warehouse systems 
  2. Seller lists product on marketplace 
  3. Shopper orders product and seller is paid 
  4. Seller places order with manufacturer and manufacturer is paid 
  5. Manufacturer ships product from their warehouse directly to the shopper 

 

Fulfillment by Amazon (FBA) Model 

  1. Manufacturer and seller agree to FBA together 
  2. Manufacturer is paid as seller places a purchase order, then manufacturer ships inventory into Amazon fulfillment center 
  3. Seller lists product on marketplace 
  4. Shopper orders product and seller is paid 
  5. Amazon fulfillment center ships the product to the shopper 

 

TL;DR: Dropship differs from FBA in two significant areas: when sellers and manufacturers are paid and who provides fulfillment services. In FBA, the seller pays the manufacturer upfront via a purchase order. FBA also requires inventory to be on-hand in the Amazon fulfillment center before consumers can buy the product. Dropship does not require this. Instead, manufacturers double as fulfillment centers. 

Pros and Cons of Dropshipping on Amazon 

Pros of Amazon Dropshipping 

1) Expand catalog selection.
Through dropship, brands can list products on Amazon for which sellers won’t place a product order. For example, if a brand wishes to offer a large product selection, but a seller cannot justify buying a large volume of product due to slow sales velocity, dropship enables sellers to still list those slow-moving products without taking on inventory risk. Then, if products perform well in dropship, they can be migrated to FBA.  

2) Easier prep requirements. 
Because inventory is not shipped into Amazon fulfillment centers, brands do not have to meet Amazon’s strict product preparation requirements. This eases the burden on brands and opens the door to sell products on Amazon that exceed Amazon’s FBA size or weight thresholds. 

3) Mitigates FBA-dependency.
As mentioned previouslydropship provides a degree of agility and resilience to a brand’s fulfillment strategy. If they have a dropship infrastructure already established, sellers can respond quickly to unexpected consumer demand since brands don’t have to send inventory to Amazon first or be limited by Amazon’s inventory restrictions. 

Cons of Amazon Dropshipping

1) Shipping speed depends on you.
Dropship sellers are not guaranteed a Prime badge or 2-day shipping on Amazon because the manufacturer is fulfilling orders. This can result in fewer sales, especially if you’re operating in a saturated category, as consumers are more likely to purchase products with 2-day shipping than products without.  

2) You handle customer service.
In dropship, brands are responsible for promptly shipping out orders, processing returns, and addressing customer inquiries. This requires committing additional resources, not the least of which are time and personnel. 

3) Requires constant maintenance.
Dropship on Amazon requires an always up-to-date connection between the manufacturer’s warehouse and the marketplace listing. If the brand is working with a seller, this means that the seller’s inventory system must be in sync with the manufacturer’s inventory system. Being in sync involves connecting technology, but also that manual inputs are being maintained. If this is not done, it can result in out-of-stocksharming sales velocity and creates a poor customer experience. 

When Should You Dropship on Amazon? 

Amazon Dropshipping is generally seen as an excellent backup to FBA because FBA offers so many benefits for brands, sellers, and consumers. However, we saw dropship become a massive asset in March 2020, when Amazon’s fulfillment centers ran out of stock of essentials. Through dropship, we were able to help our partners continue fulfilling orders even when they were restricted from replenishing inventory levels, resulting in a 3.25x increased in Amazon orders year-over-year 

In short, dropship is an excellent safety net and a great way to expand your product selection on Amazon as your grow your channel. If you’re looking for someone to help in your Amazon dropshipping efforts, check out our dropshipping services. If you’re interested in learning about other fulfillment options for ecommerce, check out our post, Walmart Fulfillment Services vs Amazon FBA.