Amazon’s scale is staggering. In 2018, the company’s valuation surpassed $1 trillion. At the start of 2021, the company’s valuation hovered around $1.6 trillion and Amazon employs over 1.1 million workers.
One of the most important factors in Amazon’s astounding success is its operations. Specifically, its fulfillment network, which now enables customers to receive goods within hours of placing an order on Amazon. This fulfillment network is called Fulfillment by Amazon.
What is Fulfillment by Amazon?
Fulfillment by Amazon (FBA) is a global network of warehouses owned and operated by Amazon. These warehouses are used to store products and fulfill orders made on the Amazon marketplace. FBA offloads the burden of shipping goods to end consumers from sellers on its platform. There are over 110 Amazon fulfillment centers throughout the continental United States, mostly in medium and large cities, and Amazon continues to announce new fulfillment centers regularly. In just December 2020, they announced 7 new fulfillment centers.
FBA enables sellers to offer rapid shipping, including same-day delivery in eligible cases, and it simplifies customer returns. Sellers get storage, fulfillment, and returns processing in one convenient package. Amazon sellers do not have to use FBA to sell in the Amazon ecosystem, but Amazon has certainly tried to make FBA the most appealing option for end consumers.
How Does Fulfillment by Amazon Work?
In practice, FBA looks something like this:
Manufacturer ships product from factory to Amazon fulfillment center
The shipment may need to go through several regulatory checkpoints along the way
Goods are received and logged at the FBA center
Amazon’s systems update the product listing to show that inventory is in stock
Shoppers order product from Amazon.com
FBA center ships the product to the customer, with expedited delivery options available
The FBA center will process any product returns, when/if they occur
When inventory levels are low, the manufacturer ships more product to the FBA center
In many cases, brands partner with third-party sellers to retail their product on Amazon. In these cases, the third-party seller places a purchase order (PO) for a certain number of units. The manufacturer is responsible for shipping the products to the designated Amazon fulfillment center(s).
Fulfillment by Amazon Product Preparation Requirements
Amazon has strict product preparation requirements that continue to evolve, and Amazon refuses to accept shipments that fail to comply with these requirements. These include:
Do not ship any boxes over 50 lbs. unless your products are considered oversized and packed one unit/box
Do not ship any boxes with a side over 25″ unless your products are considered oversize and packed one ASIN/box
Do not shrink wrap, strap, tape, or bind boxes together.
Outer shipping cartons cannot contain a scannable manufacturer bar code (other than the bar code on the FBA box label or shipping label)
For pallets, boxes cannot overhang by more than one inch. All pallets must be shrink wrapped. Pallets must be standard size (48″ x 40″) unless a single box will not physically fit on a standard-size pallet
Always apply FBA labels on outer carton
Pros and Cons of Fulfillment by Amazon
Benefits of Fulfillment by Amazon
For most brands selling on Amazon, FBA is one of the best ways to grow. Here are a few benefits of FBA:
FBA handles all shipping logistics once they receive your inventory
Amazon has major discounts with the largest United States carriers, such as the United Postal Service (UPS), so fulfilling through FBA is often the most cost-effective option
FBA centers handle product returns
FBA often provides the fastest delivery option for Amazon customers
Amazon’s Multi-Channel Fulfillment (MCF) service allows brands to store and fulfill inventory via FBA even for items that are sold through non-Amazon sales channels
Disadvantages of Fulfillment by Amazon
Like any service, there are drawbacks. Here are a few disadvantages of FBA:
Storage fees and fulfillment fees add up, making accurate demand planning a necessity if you wish to optimize your bottom line
Manufacturers must prepare products correctly or the FBA receiving team may reject them
Fulfillment by Amazon Product Preparation Services
Not all manufacturers have the time, personnel, or resources available to satisfy FBA product preparation requirements. If the manufacturer cannot prepare products themselves, they can send inventory to FBA product preparation facilities. These facilities are operated by third-parties who specialize in prepping products for Amazon.
Kaspien has FBA product preparation facilities across the United States. Having numerous locations means that we can reduce shipping time and costs to get inventory to these facilities and then to Amazon fulfillment centers.
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 webinarabout 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.
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
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 29thdropship webinar will learn even more about:
Why you should set up dropshipping capabilities as a supplement to Amazon FBA.
How to run Amazon dropship at scale effectively to capture additional sales and validate new products for FBA.
Ideal use cases for dropship, including oversized products, slow sales velocity, Amazon Business, and more
Back-to-school sales have long been established in brick-and-mortar stores, and they’ve bled over into ecommerce. Consumers expect to see exciting deals on Amazon, just like they do when they walk through a physical store.
Of course, preparing for seasonal events on Amazon is a little different than preparing for the same event at brick-and-mortars. To help you prepare for the Back-to-School season on Amazon, we’ve compiled a list of best practices.
Amazon Categories Supported by Back-to-School Sales
Let’s start with which product categories benefit the most from this period.
The end of summer brings much with it for Amazon sellers, including Back to School sales, Labor Day weekend trips, and the first whispers of the holiday season. During this period, we see several product categories enjoy a sales boost driven by the seasons of life.
Back to school shopping often includes new clothes. Children have outgrown their old clothes, literally and figuratively, by the time the next school year rolls around.
AKA school supplies. Kids need new binders, paper, pens and pencils. And when the kids restock, parents and teachers do too.
Amazon Business also provides opportunities here, as schools may also place bulk orders for supplies. In Amazon’s 2021 B2B conference, re:Shape, they even included a university’s use of Amazon Business as a case study.
Arts & Crafts
Who doesn’t love an old fashion school project? Well, like them or not, they’re quite common, and so parents and teachers alike are buying students all sorts of art supplies.
Sports & Outdoors
By August and September, Sports & Outdoors sales are past their peak, which typically hits in June and July. However, with summer coming to a close and a three-day weekend afforded by Labor Day, some shoppers make a last hurrah, buying items for one more summer adventure before transitioning to fall and winter sports.
Toys & Games
As Sports & Outdoors exits the spotlight, Toys & Games is preparing to enter. Truthfully, Toys & Games sales don’t start to soar until November, but the end of summer marks the period when brands should be finalizing marketing plans for the holidays.
Amazon Inventory Management & Fulfillment for Back-to-School
Of course, to capture seasonal sales on Amazon, you must have inventory. Surprisingly, that has become a point of uncertainty as Amazon continues to impose stricter inventory quantity limits for FBA. Shoppers expect brands to be on Amazon, so you need to be there to meet that expectation, with or without FBA.
To that end, here are a few tactics we’re recommending to our partners.
Establish Dropship as a Backup Plan
Dropship proved itself to be invaluable in 2020 as Amazon’s fulfillment network struggled to handle the sudden surge in customer orders and seller shipments. When Amazon blocked entire product categories from shipping inventory into FBA, brands that could dropship were able to continue fulfilling orders.
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.
As FBA volatility continues, Kaspien is encouraging all our partners to establish dropship capabilities. By setting up Amazon dropshipping, our partners are able to continue satisfying their customers, regardless of any FBA curveballs.
Leverage Seller Fulfilled Prime (SFP)
While dropshipping is an invaluable safety net, it doesn’t automatically guarantee the same shipping speed as FBA. This can be a significant issue for shoppers who procrastinate and find themselves scrambling to get their school and office supplies in time.
Fulfilling orders through FBA negates this issue, but it’s currently volatile. On the dropshipping side, brands can explore Seller Fulfilled Prime (SFP). SFP is an Amazon program where the brand fulfills the order while providing a Prime-equivalent experience. Products fulfilled through SFP feature the Prime badge on the search results page and product listing.
Amazon verifies every SFP seller to ensure quality control. In February 2021, Amazon withdrew SFP credentials from some sellers after an internal audit found that many SFP sellers were not consistently meeting the requirements (largely due to being closed on weekends).
Given the strict criteria and indefinitely closed application process, getting SFP authorized is almost impossible. To gain SFP capabilities, you’ll need to work with a third-party seller or third-party logistics provider who is already authorized.
Enroll in Amazon Small & Light
Moving away from FBA issues and dropshipping, there’s another Amazon program that deserves our attention: Small & Light.
School supplies, arts and crafts, and apparel can be quite light and inexpensive. To make products like this still viable to sell on its marketplace, Amazon created the Small & Light program, which reduces fulfillment fees for products that are sold via FBA, priced under $7, and sell at least 25 units per month.
Moving on, let’s delve into Amazon marketing tips and tricks you can use to increase traffic and conversions. We’ll start with free marketing tools and practices.
Review Listing Content
Periodic content audits are always a good idea, and doubly so for seasonal products. Conduct keyword research again to see what new keywords should be incorporated into the frontend and backend of your listing, and which terms might be worth cutting.
Read customer reviews to see if there is a common question or misunderstanding about the product. If so, update the copy and/or add an image or video to provide clarity.
Finally, review your images. Are they still up-to-snuff and relevant, or have they become outdated?
Use Brand Store Versions
Amazon added a feature for Brand Stores that allows you to create multiple versions of a given page. This tool can be used to create holiday or event themed pages, which you can schedule to run during a specific date range before automatically reverting to the default page version.
If applicable to your product catalog, create a Back-to-School version of your Brand Store’s home page. You can also create a dedicated Back-to-School page and include it in your Brand Store nav bar if you have a large enough catalog to warrant it. And of course, this practice works great for any holiday that’s relevant to your offerings.
Create Variation Listings
Any time that you offer multiple sizes, quantities, colors, or patterns of a product, it’s worth checking if you can create a variation listing. Variation listings provide an intuitive and convenient shopping experience for your customers, helping them identify the right version of your product for their needs and eliminating the guess work. Variation listings are a great option for many product types, but are especially useful for office supplies, apparel, and arts & crafts.
Use A+ Content Comparison Modules
If you are unable to create variation listings, another way you can showcase more of your product line is through the comparison module for A+ Content. There are no limitations for which types of products you showcase in this section, so the products can be complementary, substitutes, or completely separate from the product of the given listing (Although we do recommend showing substitutions or complementary products since it’s a nice shopping experience).
For example, if the listing is for a backpack, the comparison module could show other school supplies. If the listing is for a bike, the comparison module could show helmets and bike lights.
Amazon Advertising for Back-to-School
Review Last Year’s Data
Just as with organic marketing, your paid marketing efforts should start with a review of what worked and what didn’t in the past.
If products performed worst than expected, review the metrics. If click-through-rate (CTR) is high but conversion rate is low, it indicates that shoppers were interested in the ad, but weren’t persuaded by the listing content. In that case, you may need to update the listing images, text, and A+ Content.
If the number of clicks are low but conversions are high, you may need to increase your ad budget.
If all metrics performed well, double down this year and allocate an aggressive marketing budget for those products’ ad campaigns.
Create and Launch Ads Early
Amazon ads take time to build relevancy, which is why we almost never recommend turning off your Amazon ads, even during slower seasons. Reducing an ad budget as demand and competition wanes is one thing, but turning off your ads for months at a time means you’re sliding back down a hill that you’ll have to climb again when the sales season returns.
Generally, we recommend launching ads or increasing ad budget about one month prior to your sales season, giving you time to build momentum and refine search term optimizationso you can hit the ground running.
Of the four main Amazon ad types, we recommend focusing on Sponsored Product Ads, which have the highest conversion rate of any Amazon ad type. These are the best known ads on Amazon, appearing alongside organic results on the search results page.
Sponsored Brand Adsand Sponsored Brand Videos are great options for products with high sales velocity (the single placement per page means these ad types are highly competitive, so the odds of winning the placement for a product with low sales velocity isn’t great).
Last but not least, Sponsored Display Ads appear on related product listings, including yours and competitors’. While the concept of capturing sales from competitors at the last minute sounds exciting, many shoppers have already made a decision by that point. Instead, Sponsored Display Ads are best used to target complementary and substitute products, similar to the comparison module for A+ Content.
Use Amazon Deals if You Have Strong Performers
Shoppers are looking for back-to-school deals, right? Well, Amazon happens to allow sellers to run three types of deals: Deal of the Day, Lightning Deals, and 7-day Deals. Each of these are short-term promotions that can be used to accelerate sales velocity. Deals can be especially effective during major holiday events, Prime Day, and your peak seasons.
Of course, there’s a “but.” While deals can deliver fantastic results, you should know that Amazon will determine the deal price, the minimum inventory order quantity, the duration of the deal, and deal fees. As such, Amazon deals tend to work best for products with a strong performance record.
Pair Ads with Amazon Coupons
If you don’t qualify to run an Amazon, you can still achieve the effect of a deal through Amazon coupons. coupons also indirectly support product rank improvement. Like any type of paid marketing on Amazon, higher sales indicate to Amazon’s algorithm that shoppers like the product. Since Amazon is a customer-centric platform, the algorithm will rank the product better. This increases the product’s visibility and organic sales, creating a cyclical effect. According to Amazon, coupons increase sales by 12% on average!
If you run an Amazon ad for a product that also has a coupon, the coupon tag will appear in the ad. This has a one-two punch effect: the ad means more shoppers will see the product, and the coupon incentivizes shoppers to click into the ad and convert.
Is Amazon DSP Right for Back-to-School?
Last but not least, there is Amazon Demand Side Platform, better known as DSP. Amazon DSP allows brands to use Amazon’s first-party data to target shoppers with ads on Amazon.com, Amazon devices and applications such as Fire TV or tablet, Amazon-owned sites like IMDB.com, or affiliate websites and apps in Amazon’s network.
These ads extend your reach, re-engage shoppers, and support new customer acquisition. In 2020, we ran a two-month DSP campaign for Strider, a leading kids’ toy company known for their revolutionary bikes. That campaign generated over $250,000 in sales, 5.9 million impressions, reached nearly 200,000 unique shoppers, and boasted a 4.9 return on ad spend (ROAS). 84% of orders also came from shoppers who had not previously purchased Strider products on Amazon.
Clearly, DSP offers huge potential. It also has a high cost, with Amazon requiring a minimum budget of $35,000. As such, you’ll need to consider which season you want to make that investment. If back-to-school sales are not your peak sales season and you have a limited budget, you should reserve DSP for your peak season.
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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!
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 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.
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.
Small Standard (10 oz or less)
Small Standard (10 to 16 oz)
Large Standard (10 oz or less)
Large Standard (10 to 16 oz)
Large Standard (1 to 2 lb)
Large Standard (2 to 3 lb)
Large Standard (3 to 20 lb)
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.
January – September
October – December
January – September
October – December
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.
Arts, Crafts, & Sewing
If total sales price is under $10, referral is 8%
Base Equipment Power Tools
If total sales price is under $10, referral is 8%
Camera & Photo
Cell Phone Device
Clothing & Accessories
For any portion of the total sales price that exceeds $100, referral is 8%
Furniture & Decor
For any portion of the total sales price that exceeds $200, referral is 10%
Grocery & Gourmet Food
If total sales price is under $15, referral is 8%
Health & Personal Care
If total sales price is under $10, referral is 8%
Home & Garden
Industrial & Scientific
For any portion of the total sales price that exceeds $250, referral is 5%
For any portion of the total sales price that exceeds $300, referral is 8%
Patio, Lawn, & Garden
Shoes, Handbags, Sunglasses
Sports & Outdoors
Tires & Wheels
Tools & Home Improvement
Toys & Games
Video & DVD
For any portion of the total sales price that exceeds $1,500, referral is 3%
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 Retailserves 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.
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.
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.”
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.
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.
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 priceso that the product could enroll in Small and Light, the savings from the lower fulfillment fee actually increased the product’s net profit margin. Thanks 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 errorsadd 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 ourFBA 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 usingdropship 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 providefast 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 ourpodcast 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
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Amazon Business hit $25 billion annual sales in 2020, just 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.
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., whenAmazon 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 wheredropship 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
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 comprehensiveblog postreviewing how Amazon Business works and some of the key benefits. According to Amazon, the top five benefits of Amazon Business are:
Business pricing: The ability to offer prices only available to customers on Amazon Business.
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.
Certifications: Claim quality, diversity, and ownership certifications that help companies stand out to business customers who wish to learn more about their suppliers.
Tax exemption: Extend tax exemption on qualified purchases to customers that participate in the Amazon Tax Exemption Program, such as nonprofit organizations.
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.
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The Importance of Amazon Supply Chain Management
Inventory issues can tie up your Amazon sales, harm short-term and long-term marketing performance, and erode profitability, all of which makes inventory management a critical piece of a healthy Amazon business.
Kaspien’s supply chain network spans 9 countries across 3 continents and includes access to warehouses, distributors, freight carriers, product prep facilities, and marketplaces. Our logistical infrastructure is supported by data analytics from over 1 billion data points processed daily and machine learning algorithms. Our retail partners benefit from our enterprise resource planning (ERP) software, warehouse management system (WMS), listing tools, and other integrations.
To put it shortly, we know a thing or two about optimizing the Amazon supply chain. In this post, we’ll share a little bit about what goes into managing Amazon logistics successfully.
Managing the Amazon Supply Chain Effectively
Managing Amazon inventory effectively requires a combination of proactive and reactive strategies, leveraging tools that are directly related and adjacent to supply chain management. There’s a lot to unpack, so let’s dive into some of the most important pieces.
Accurate Inventory Forecasting
Accurate inventory forecasting is essential because it protects brands from running out of stock without severely overstocking. Amazon’s fulfillment centers charge storage fees and fulfillment fees. When manufacturers ship too much inventory into FBA centers, inventory stagnates, driving up storage costs that erode profitability.
When brands send in too little inventory, they run out of stock. In addition to losing sales, out-of-stockshave other implications as well:
Marketing performance suffers. When a product is out-of-stock,productrankdeteriorates.Because product rank influences both organic and paid marketing performance, running out of stock harms sales, even after inventory is replenished.
Market share decreases. Shoppers turn to competitors when a product is out of stock. This compounds the impact to product rank, with competitors improving rank while your rank deteriorates. As a result, competitors are well positioned to seize and retain market share.
At Kaspien, we combine historical data from $1 billion retail sales, proprietary algorithms, and human expertise to ensure optimal inventory coverage.
Maintain Inventory Control with Distributors
Too many brands have learned the hard way that allowing anyone to sell their product can erode their brand integrity in both digital and physical spaces. Any seller carrying a brand’s product can list their inventory under the brand’s listing on Amazon. Once in the listing, the seller has free rein over listing content, including text and images. These can lead to inaccurate and low-quality content that tarnishes your hard-earned brand image.
To protect against this, brands should (re-)negotiate contracts with their distributors that limit to whom they can sell product. By maintaining an active relationship with trusted authorized sellers, brands retain inventory control and through it, control over their brand’s online representation. Brands currently facing difficulties with unauthorized sellers can leverage ourprice & seller tracking software or take more aggressive steps throughunauthorized seller removal.
Prepare Products Compliantly for Amazon’s Fulfillment Centers
Over 85% of top Amazon sellers use Fulfillment by Amazon (FBA), and with good reason. Products fulfilled through FBA are able to offer Prime shipping, which can be 2-day, 1-day, or same-day depending on location. Fast shipping speed is one of the most important factors for online shoppers, and FBA provides sellers with the infrastructure to provide it.
Of course, Amazon’s FBA centers have specific and stringent product preparation requirements. Failing to satisfy these requirements can result in inventory being refused, returned, or repackaged. This is a simple, yet essential step for selling successfully on Amazon.
If your brand lacks the capability to prep products compliantly, there are many FBA product prep providers able to assist. Kaspien offers such product prep services as well for FBA, WFS, and DTC.
Keep Inventory Moving
Amazon marketing is another key ingredient for maintaining healthy inventory. Marketing helps keep inventory moving, which grows sales, minimizes storage fees, and reduces unsellable inventory. Amazon advertising is the go-to tool for driving sales, but Amazon DSP, coupons, and Deals are all exceedingly useful tools for moving large amounts of inventory quickly.
Remove Unsellable Inventory
Speaking of unsellable inventory, it’s really not great for your account’s health. Unsellable inventory includes product that has been damaged, expired, or is otherwise unable to be sold. Unsellable inventory is a greater issue for products that are fragile, seasonal, or have a short shelf life.
To maintain inventory health and reduce storage fees, it’s best practice to proactively remove unsellable inventory. When an inventory removal order is requested, Amazon processes and ships the specified inventory within 14 business days, though this can extend to 30 business days during peak shopping seasons.
These practices are reactionary. Leveraging previously mentioned tools, like inventory forecasting and Amazon marketing, can greatly help to minimize unsellable inventory in the first place.
Amazon has penalized sellers for exploiting removal orders to send product to customers and influencers. Penalties include accounts being blocked from requesting removals in the future and even account suspensions.
Identify Inventory Reconciliation Cases
Amazon’s fulfillment centers regularly mishandle inventory without reimbursing sellers. While Amazon catches many of these errors and automatically reimburses sellers, they don’t catch all of them. Sellers who don’t want to lose money unfairly to Amazon’s mistakes have to manually identify and file inventory reconciliation cases.
You may think these errors are few and far between, but they quickly add up. On average, our inventory reconciliation software, Channel Auditor,reimburses FBA sellers 2% of topline channel sales. Especially for sellers moving a large inventory, 2% of topline sales is nosmall figure.
As such, inventory reconciliation for FBA is absolutely essential for sellers looking to maximize their Amazon channel profitability and optimize their inventory management.
Diversify Fulfillment Solutions
We’ve talked a great deal about FBA so far, but another critical piece of managing inventory effectively is having supplementary fulfillment solutions.
In early 2020, thousands of sellers were caught off guard whenFBA buckled under the strain of the surge in online sales. Amazon restricted non-essential categories from shipping inventory into FBA, and the great titan Amazon was proven to not be indominable.
Sellers learned then the importance of having other fulfillment solutions. Those capable of fulfilling orders through Fulfillment by Merchant (FBM) or dropship were able to continue to meet consumer demand, while those who depended entirely on FBA were scrambling to find new solutions.
Similarly, sellers who use “just-in-time” inventory were also put at risk. While the practice minimizes fees and thereby maximizes profits, it left such sellers exceedingly vulnerable in what proved to be a surprisingly fragile supply chain. Holding larger storage volumes would have helped shield them from the worst of the disruption, as would having back-up fulfillment solutions.
Diversification is a long-proven tactic for risk mitigation, and it applies just as readily to ecommerce fulfillment as anywhere else.
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At the end of 2020, Amazon boasted a $1.6 trillion valuation and employed more than 1.1 million people. In a blog post by Jeff Wilke, Amazon’s former CEO of Amazon Worldwide Consumer, Amazon reportedthat they delivered over 1.5 billion products worldwide during their biggest holiday season ever. According to Marketplace Pulse, nearly 200,000 new third-party sellershopped onto the Amazon bandwagon in 2020.In 2020, investors sunk over $1 billionintocompanies focused on acquiring Amazon-centric brands, such asThrasio, Heyday, and Perch.
With Amazon’s scale and the shift toward consolidation within the marketplace, brands not yet on Amazon may be wondering if they’ve missed the boat. Is 2021 too late to enter the Amazon game?
No.But, the boat isvery crowded. Gone are the days when you could “build the plane on the way down.” In 2021, you have to enter Amazon ready to hit the ground running.
My company has served over 4,000 brands and helped launch thousands of products on Amazon. Drawing on that experience, here are5 critical steps that I would suggest your brandtake before you’re ready to start selling on Amazon in 2021.
#1 Select Your Catalog
The first step is deciding what you want to sell on Amazon. How you decide may differ depending on whether you are expanding an established brand to Amazon or launching an Amazon-exclusive line.
Ifstarting with an established brand, you could take your top sellers and evergreen products to Amazon. Alternatively, you could differentiate your Amazon offerings from your other sales channels, listing different colors or sizes than what’s available elsewhere, online-exclusive bundles, or new products. Youcould even use Amazon for liquidation, selling end-of-season products and excess stock.
If you’re launching an Amazon-exclusive product line, then you can take the traditional route of researching consumer interest, competition, and costs to identify which products and features offer the greatest potential.
#2 File Paperwork
Perhaps the least glamorous step, filing the appropriate paperwork is nevertheless critical for success. As soon as you’re able, you shouldfile for a trademark with the United States Patent and Trademark Office, as it takes around 6 months to complete. While you’re at it, also file for a patent, if applicable. Having a trademark will enable you to enroll in Amazon’s Brand Registryprogram, which provides access to additional marketing services and brand protection tools.
You should alsoobtain universal product codes (UPCs or colloquially, bar codes) for every product in your catalog through GS1.
Last but not least, you must conduct safety and product testing. Amazon’s compliance requirements are often stricter than federal requirements. In my company’s experience, the most restricted Amazoncategories are Baby, Beauty, Health & Personal Care, and Grocery.You should have your product tested in a reputable lab, such as Intertek, UL, CTT, or Bureau Veritas. Such labs often provide a regulatory analysis that can help you determine all relevant compliance requirements for your product.
#3 Determine Inventory Logistics
Next, it’s time to map your supply chain. Connect with your manufacturers to discuss lead times and material accessibility so you can account for it in your demand planning.
From the manufacturer, the product’s next stop is a warehouse, which means you need to secure a warehouse solution that can store inventory and take returns. The obvious choice here is Fulfillment by Amazon (FBA), but as 2020 showed us, it’s dangerous to keep all your eggs in one basket. You’d be wise to create secondary solutions that can supplement FBA in the event of Amazon-imposed shipment restrictions to FBA warehouses. This may involve creating a dropship solution or using a third-party fulfillment provider.
#4 Create an Amazon Account
You’ve selected high opportunity products, filed the necessary paperwork, and planned your supply chain. Now, you’re ideally positioned to create an Amazon Seller account. Though they are infamously easy to ignore, you should take the time to read Amazon’s Terms of Service so you understand your rights as a seller.
Once your account is created, you can start creating product listings on Amazon. Create these listingsin advance, but don’t publish them until your first round of inventory is in stock.
#5 Prepare a Marketing Strategy
As you near the finish line, it’s time to focus on your marketing strategy, which is essential to your success on this crowded marketplace.Start with the basics: Research 5-15 competitors on Amazon, then perform a SWOT analysis to identify opportunities. What features do they highlight in images and copy? How many reviews do they have and what do they say? What are their prices? Are they running ads?
Once you understand the landscape, create content that highlights your differentiating factors. Amazon is only growing more saturated, so you need high–quality images, videos,and search engine optimized copy to stand out. A+ Content and Amazon Stores are also helpful assets. To help generate brand awareness quicker, you should create an active social media account for audience engagement.
You should also allocate a sizable marketing budget for Amazon advertising. Sponsored Product Ads are the highest converting ad types on Amazon, but Sponsored Brand Ads and Sponsored Display Ads are also useful for increasing brand name recognition. Using a mix provides the best results for new brands, in my experience.
Success Takes Time
Launching on Amazon is exhilarating, and you’re likely eager to see some immediate results. But still, be patient; building relevancy for SEO and advertising takes time. Amazon is a flourishing platform that hasenabled tremendous growth for many brands. Starting with these five steps is a great way to become another one.
2020 accelerated the adoption of ecommerce.Companies that are obsessed with customer experience are among the most successful, with Amazon being a prime example. This is true for brands selling on Amazon as well: with more choices than ever before for both products and marketplaces, online shoppers have high expectations for product selection, shipping speed, listing content, price, and more.
Many of the trends that emerged in 2020 and persist into 2021 can be traced back to how well customer expectations are met.
Kaspien’s CEO, GM of Retail, and VP of Business Development sat down for a roundtable discussion of how 2020 changed the ecommerce landscape and what’s likely to come in the year ahead. You can watch their conversation below or keep reading for a summary.
Trends & Predictions for Ecommerce in 2021
Ecommerce Growth Rates Will Slow
With all its turbulence, 2020 did bring strong tailwinds for ecommerce. As that turbulence gradually subsides, so too will the tailwinds. We expect that US ecommerce sales will continue to grow throughout 2021, albeit at slower rates than seen in 2020.
Greater Fulfillment Diversification
2020 exposed the surprising fragility of ecommerce fulfillment networks, with FBA taking the spotlight. A sudden spike in demand for certain goods led Amazon to temporarily restrict entire categories from shipping new inventory into FBA. Amazon also temporarily prioritized Fulfilled by Merchant (FBM) orders over Fulfilled by Amazon (FBA) orders. Impacted brands that lacked alternative fulfillment methods were left out to dry.
Many brands learned the hardway not to be dependent on only one fulfillment strategy. This lesson will likely persist into 2021, with brands diversifying their fulfillment strategies through FBM, dropship, and third-party logistics providers.
This situation also led to the emergence of local fulfillment providers who stepped in to fill the excess demand. It will be interesting to see if these local fulfillment providers maintain a foothold as larger networks restabilize (Amazon increased warehousing space by 50% in 2020).
In a similar vein, many brands saw shoppers trying to buy products in different quantities than their standard unit sizes. We expect that more brands will cater to their audience by updating their product preparation capabilities to allow for more options.
Omnichannel will Become More Important
COVID-19 showed that Amazon FBA is not impervious. Delivery times were delayed by weeks on Amazon in late spring and early summer, and shoppers turned to other marketplaces to fill the gaps. Capitalizing on Amazon’s stumble,Walmart, Target, Shopify, and more experienced strong growth in ecommerce sales in 2020.
Modern commerce is a game of meeting shoppers where they are at. As more shoppers use more marketplaces, the most successful brands will be those that are there to meet their target audience, regardless of platform.
Brand Representation Matters More
With more brands, more sellers, and more marketplaces to choose from, shoppers have a plethora of options. To win them over in 2021, brands need to make strong, positive first impressions. The best way to do that is through high-quality copy, images, and videos that help shoppers understand important product details, like color, size, ease of use, etc.
If shoppers cannot easily understand such details when they are unable to inspect products in person, they’ll seek another product. It’s also critical that brands provide a consistent experience no matter where shoppers encounter their products, as inconsistency can lead to confusion or doubts about authenticity, resulting in lost sales. This includes consistent branding across direct websites, social media, and marketplaces.
Retention Strategies will Grow
Because shoppers have more choice, the cost-of-acquisition will continue to increase. To counteract rising customer acquisition costs, brands will develop more robust retention strategies to keep customers in the family. This will include dedicated efforts for retargeting campaigns, customer newsletters, nurturing engaged social media communities, and more.
Amazon Prime launched a movement of 2-day deliveries, which has shifted from a competitive advantage to an expectation today. Walmart has Walmart TwoDay Delivery, eBay has eBay Fast ‘N Free, Wish has Wish 2-day, and even individual D2C websites are sporting 2-day delivery tags.
Marketplaces and independent shops across the web leverage fast delivery as a standard practice of business.
If you’re selling online, fast delivery is quickly moving from nice-to-have to increase sales, to must-have to maintain sales. Understanding why can help you to evaluate fast delivery as part of your own sales strategy, while delivering the right delivery speed offerings to provide results.
The Prime Effect
When Amazon first introduced discounted 2-day delivery in 2005, it was to a relatively small audience of new “Amazon Prime” subscribers. Few then would have thought that a bookstore, which had been in business since 1995 and turned its first profit of just 1 cent per share in 2001, would define eCommerce as we know it.
Today, Amazon owns 52.4% of eCommerce sales in the U.S. and 13.7% globally. Much of that massive success is attributed to Amazon’s take on fast delivery, allowing eCommerce to move from an inconvenient necessity for out-of-the-way consumers, to quick gratification for shoppers worldwide.
With more than 112 million Prime subscribers, Amazon now nets more than $13.3 billion in subscription fees alone, and a large percentage of subscribers use the service for its fast delivery benefits.
That success prompted eCommerce giants to take on fast delivery in an attempt to compete in the space.
Google Shopping has also introduced a fast delivery option, wherein products are tagged with “Free 2-day” or “Free 1-day” delivery badges to highlight fast delivery options to shoppers.
While these eCommerce giants introduced fast delivery to compete with Amazon, you also have to do it to compete with them, and to succeed on their marketplaces.
Customers Prefer Fast (and Free) Delivery
Anyone looking for a product on Amazon can easily check a little box in the sidebar, indicating a preference for 2-Day delivery. eBay, Target, and Walmart now do the same, allowing customers to filter out products that won’t arrive as quickly as they expect.
76% of customers say they’re more likely to order items if they can get same or next-day delivery.
85% are more likely to buy a product with 2-day delivery, but 88% will pick “free” over “fast” in most cases.
COVID-19 resulted in changing expectations for delivery. 45% of customers now expect longer wait times but slower delivery actively reduces brand loyalty. Exceeding expectations and delivering in 4 days or less boosts customer loyalty.
47% of customers are willing to pay $2.99-$5.99 for 2-day delivery, but most expect to see a free delivery option as well.
52% of shoppers list fast delivery as extremely important in making a purchase decision.
Essentially, the cost and speed of delivery can dramatically affect sales. With customers actively filtering for fast delivery on some marketplaces, not offering it can reduce total exposure and sales. In other cases, lack of free, fast, or transparent delivery options directly contributes to shopping cart abandonment.
While fast delivery contributes to increased sales, it also contributes to customer loyalty. For example, customers consistently leave better reviews when products arrive within 3 days.
Consumers value fast delivery. That’s important in a world where, until recently, brick and mortar accounted for more than 85% of all sales in the U.S. Quick gratification is essential to the customer experience. It also increases the likelihood of impulse purchases, because customers looking for a quick shopping fix also want fast delivery.
Free Delivery vs Fast Delivery
While fast delivery is crucial for almost half of consumers, many also want free delivery. Balancing the dual demands for fast and free delivery can prove costly for small businesses, especially as big marketplaces offer more and more ways to qualify for faster and cheaper or free delivery.
While, obviously, the golden standard is the fast and free used by Walmart, Target, and Amazon, many small businesses simply can’t afford it without heavily cutting into profit margins.
In many cases, the best alternative is to rely on an outsourced fulfillment partner to simplify and reduce costs. 3PLs leverage economies of scale to reduce total warehousing costs. Many also utilize inventory and warehouse management to reduce distribution times and costs by better allocating inventory.
Eventually, most small businesses won’t be able to grow and scale while keeping fulfillment completely in-house. At the same time, using marketplace solutions, like Fulfillment by Amazon, can be restrictive to separate channels.
Finding a fulfillment partner like Deliverr, that offers infrastructure as a service and keeps your SKUs close to demand to speed up delivery times, is a great option.
Offering fast delivery is a great way to increase conversions, delight your customers, and stay competitive in the current landscape. You need to ensure you can keep up with increased demand and high-velocity seasons.
With 95% of consumers increasingly considering next-day delivery to be “Fast” and 2- or 3-day delivery to be “normal,” it’s increasingly important to offer fast delivery across your marketplaces. Instead of running to keep up with your competitors, go on the offense and offer lightning-fast delivery affordably with the right partner.
Deliverr’s FBA-like multi-channel fulfillment comes with clear pricing, easy onboarding and a hassle-free experience so you can focus on growing your eCommerce business.
As a First-to-Market (FTM) brand, you carry the exciting burden of readying your products for a successful expansion onto the marketplace. Being the captain of your fate can be equal parts exciting and overwhelming, especially when breaking ground in a foreign market.
If we’ve learned anything from 2020, it’s that anything can happen. It’s important to understand that there’s no ‘silver bullet’ for launching a new product or brand, but there are proven tactics recounted here to help you successfully navigate the ecommerce seas.
Amazon is turning into a marketplace that is well positioned for brands, as having made strides to keep brands safe on the channel through programs like Brand Registry. Amazon seems to understand and hold stock in the fact that brands invest in research and development, advertise through other media outlets, engage with customers, and create a shopping experience that excites folks so they come back for more.
The Two Types of FTM Products
An FTM launch will look different for each brand, but we can divide the launch types into two very broad buckets: emerging products and established products.
Often, an Amazon launch consists of a manufacturer creating a product or products with specific intent to sell them on the Amazon channel only. We would call this an emerging product.
Established products, on the other hand, are products that have been selling for years in small brick and mortar stores, large box stores, Etsy, direct websites, and even farmer’s markets, and the brand now wants to transition their catalog to online marketplaces.
Brand genesis is an important factor that will play into a brand’s overall FTM strategy, so it’s an important distinction.
For those brands who do have some form of exposure already, be it online or in a physical store, step one will be determining which products from your catalog will be added to Amazon.
With the pandemic forcing many brands to look to online platforms to maintain profitability, there’s been a rapid and unique shift in the ecommerce landscape, so again, remember that the FTM strategy will look different for all brands.
For manufacturers that are looking to create a product line exclusively for Amazon or ecommerce marketplaces, there are fewer ‘keeping everyone happy’ hoops and more ‘what products can I rely on to sell’ hoops, which is just as tricky of a situation.
With roughly 12 million items on Amazon.com, you need to know who and what is out there before you drop your anchor. There is a range of free and paid options to help research product opportunities, which are highly recommended for existing brands and new products alike.
Company owners often turn to index & rank checkers and search volume tools to ascertain what products currently sell well on the channel, then further research whether the items are viable for production, and then finally, launch.
Getting That Paper. (Not the Green Kind. Yet).
We’ll be the first to admit that this isn’t the sexiest section of this guide, but it could be the most important. Having your general business in order is key to avoiding frustrating lag times during set up.
The enclosed checklist is a fantastic aid for maneuvering through this section, since the majority of the tasks discussed below will require you to work with government agencies and third parties to compile the necessary paperwork. We’ve included helpful links that will take you exactly where you need to go.
Secure your trademark with USPTO. In totality, this process can take 6 months, so the earlier you begin, the better. You will need to have a trademark in order to file for the Brand Registry program on Amazon.
Secure UPC codes (synonymous with barcodes and international EAN) for every unique product in your catalog. This includes product variations, like size or color.
Certain products require testing and material information in order to be approved for resale on Amazon.
Set up processes for tracking, storing, and filing sales and use tax. Once you are a registered business within that state, you will need to file a report annually with the Secretary of State and track the expiration date of your license so you can renew, as needed.
Pull together allcontact information, identification, and accounting paperwork necessary for opening an Amazon Seller Central account.
Determine your fulfillment strategy, as the route you take will determine whether you get the highly sought-after Prime delivery badge.
Next up, it’s time to plan how you’re going to get inventory from point A to point B in the most effective and secure way possible. This became quite a bit trickier in 2020, which strained supply chains at every juncture. As such, approaching these steps with care is even more important.
Plan Early with Your Manufacturer
Start planning with your manufacturer early to confirm availability of raw materials and start calculating cost of goods. Confirm lead-times with your manufacturer to assess timing for your initial shipments into Amazon, as well as align your future inventory planning ability for stock replenishment and gauging timing for any new product development.
Apply Amazon-Compliant Packaging during Production
For sake of efficiency, having your product packaging modified for Amazon compliance during production is highly recommended. Be sure to include expiration dates, shelf-life, age restrictions and UPC/barcode on the product packaging for Amazon.
If you plan to launch on Amazon Global marketplaces in the future, include multi-language packaging and product directions
If you sell temperature sensitive products, note that Amazon removes any meltable product from warehouses April-October
The actual product packaging (the box the product comes in), it doesn’t have to be pretty! Feel free to shave off some costs and use a plain brown box that has a scannable barcode on the outside. Or, if you choose to polybag the product, then you’ll need to make sure your warehouse can apply all product prep to be acceptable at FBA.
Secure Your Distribution Contracts
For brands that are established in the market already but looking to expandinto the Amazonmarketplace, you should notify your distributors and develop parameters to ensure other resellers do not become instant competition. Having iron clad online distribution policies and strict MSRP will be extraordinarily useful as your brand gains momentum on the channel and outside parties become interested in claiming a piece of the pie.
There are legal resources and consulting partners that specialize in strategy development to keep online channels clean, such asAmazon Sellers Lawyer, that can help you understand your legal options and reduce the chances of channel conflict or price degradation post-launch.
Create a Warehousing Plan
Begin building relationships with a warehouse solutions partner quickly. Many brands will use an independent warehouse solution to hold stock that has been manufactured domestically or imported to reduce monthly storage fees to Amazon. Most often, independent warehouse partners will have a competitive fee structure compared to Amazon FBA.
Product that sits at FBA longer than 12 months will be subject to increased fees under their Long-Term Storage policy. Other brands may lean on established supply chain partners like Deliverrto facilitate storage and shipping which guarantee Amazon compliance.
Send a Small Initial Shipment
Your initial shipment into Amazon should be small to help troubleshoot any unforeseen issues and reduce fees as you ramp up sales velocity. Roughly 20-50 units should suffice, with a secondary shipment sent 1-2 weeks after. Once product has been selling on Amazon for 30days, subsequent shipments should include roughly 4-6 weeks of coverage, increasing upwards of 8-12 weeks during relevant seasonality.
Time Your Launch Strategically
Having time is a luxury. But timing is a necessity. Do not rush a launch for sake of excitement. Examine your product and pick your launch timing with intent. Will your catalog align with the back to school season, Valentine’s Day, Father’s Day, etc.? Kick off the main event when the opportunity is greatest.
Before 2020, ecommerce had been steadily growing its share of all retail. But when the coronavirus hit and countries around the world issues stay-at-home orders,it forced consumers and businesses to turn to online sales channels in numbers never seen before. As a result, we’ve seen an acceleration in brand and consumer adoption of ecommerce.
Road Bumps Along the Way
But, 2020 also saw brands face many hurdleson online marketplaces. Amazon struggled to keep pace with the surge in purchases, and they had to restrict which types of products they would accept into their fulfillment centers for a time. Amazon’s first-party(1P) division, Amazon Retail, and third-party sellers (3Ps) alike struggled to remain in stock as supply lines locked down, manufacturing was interrupted, and consumer demand skyrocketed for products well outside of their typical peak season.
Charting a New Course
After the turbulence of 2020, many brands are reconsidering their approach to ecommerce. To help brands make an informed decision, we’ve put together a list of the key factors that brands should consider when deciding if they should work with an Amazon retailer (1P or a 3P) or transition to working with an Amazon agency.
Should You Work with an Amazon Retailer?
Now that we’ve covered the primary options, let’s dig into key factors for making a decision about working with an Amazon retailer, an Amazon agency, or transitioning from one to another.
What is an Amazon Retailer?
Starting from the top, when a brand partners with a retailer, the retailer buys product from the brand at wholesale prices, then sells it for retail prices on Amazon.
The brand’s profits are payment for their product, minus the cost of manufacturing. The retailer’s profit is the consumer’s payment for the product, minus the wholesale expenses and channel management costs, which includes things like shipping, storage, fulfillment, commission, and marketing fees.
When it comes to Amazon, brands that sell through a retailer can partner with Amazon directly (first-party or 1P) or with a third-party seller (3P). Learn about their key differences in our blog post, Amazon 1P vs 3P.
Many brands choose to sell through a retailer because it provides cash up front, and the brand doesn’t have to get involved in the hassle of actively managing an Amazon channel.
Pros of an Amazon Retailer
Let’s start with the pros for partnering with an Amazon retailer (1P or 3P):
Paid upfront via a retailer’s purchase order, which can be useful for funding manufacturing costs
Not responsible for managing consumer-facing sales channel (fewer infrastructure costs)
They handle online sales tax
They are already registered for international value-added taxes (VAT), making international expansion much faster
They provide the expertise and resources
Perhaps the simplest way to start selling on Amazon
Cons of an Amazon Retailer
Now for the potential cons of working with an Amazon retailer (1P or 3P):
Limited control over your brand’s representation online
Limited control over product pricing
Limited visibility into channel performance
It’s worth noting that some of the cons of working with a retailer can be mitigated by partnering with a trustworthy partner. If you’re interested in this business model but concerned about the cons, seek out a retailer that’s committed to building a healthy relationship with your brand.
Costs of an Amazon Retailer
As mentioned, in a retail model, the retailer pays the brand for their product. However, retailers may ask for various discounts from the brand so they can pay the numerous Amazon fees (commission, shipping fees, tiered storage fees, and fulfillment fees) while still having some margin left over to generate revenue for themselves.
Making a Decision
Work with an Amazon retailer if:
You want to focus on the manufacturing and brick and mortar side of your business, while they handle taking your products to market
You don’t want to be responsible for paying shipping, storage, fulfillment, and commission fees
Your business’s cashflow model relies on large purchase order payments
You want to expand sooner rather than later into foreign markets
Should You Work with an Amazon Agency?
If you’re not interested in starting with a retailer or you’re working with a retailer and want to take more ownership of your Amazon channel, you may consider working with an Amazon agency.
What Value does an Amazon Agency Add?
Now, let’s say a brand doesn’t want someone else representing them on Amazon; they want to sell their products themselves. That’s an increasingly popular decision, and one that we’ve seen more and more brands transition to in recent years.
However, there’s a challenge in representing yourself. Managing an Amazon channel requires three things that can be hard to come by:
Personnel: You need bodies dedicated to managing your Amazon channel. If you’re using existing personnel, what projects are you pulling them off of? If hiring new personnel, you need the budget for salaries and benefits.
Expertise: At over 25 years old now, Amazon is a mature marketplace that requires complete attention. With millions of sellers on the platform, you must enter the platform with a strong understanding of the landscape and strategies if you want to succeed.
Time: If you manage your brick-and-mortar relationships, do you have time to also manage your ecommerce relationships (and critically, keep the two in balance so that one relationship doesn’t sour the other)?
If you lack in any of the above, then you may need outside help to fill in the gaps. That’s where Amazon agencies come in.
What is an Amazon Agency?
Amazon agencies can typically offer services in two ways: complete Amazon management or selected services. The former means that they provide everything needed to run every aspect of your Amazon channel. The latter means they provide only a handful of services that you specifically need help with, such as managing your Amazon advertising campaigns, while you handle the rest.
Pros of an Amazon Agency
Pros for partnering with an Amazon agency:
More control over your brand’s representation online
More control over product pricing
Increased visibility into channel performance
Your profit margin may exceed that of a retail model
They provide the expertise and resources
Cons of an Amazon Agency
Cons for partnering with an Amazon agency:
You’re paying the agency instead of having a retailer pay you
You may be responsible for inventory and supply chain management (some agencies offer this service, but not all)
Since you are selling through your own Seller Account, you are responsible for collecting and remitting online sales taxes
You’re also responsible for VAT in international markets, slowing your ability to expand internationally
When determining if you’re willing to pay for an agency’s help, think of it as an investment. If you pick the right investment, it may set you back at the start, but soon, it will pay for itself and then some.
Costs of an Amazon Agency
In an agency model, the brand pays for all the Amazon fees themselves (commission, shipping, storage, fulfillment, marketing), but you have more margin to work with. Because the brand holds the inventory risk in an agency partnership, the agency fee can be significantly lower than the retailer’s margin. The agency then collects either a monthly retainer or a commission.
Making a Decision
Either start by working with an Amazon agency or transition to one if:
You want more control of your brand’s representation online
You want a greater share of product margin
You need additional personnel, expertise, time, or resources to effectively manage your Amazon channel
Your budget allows for you to pay a retainer or commission
Your business’s cashflow model can adapt to using revenue from end-consumer sales
Should You Sell Yourself (Direct to Consumer)?
If you want to represent your brand yourself on Amazon and you have the personnel, expertise, time, and resources to do so, then you don’t need to partner with a retailer or an agency.
This route is the end goal for many brands, but it has by far the most and greatest requirements. As such, we often see brands start in retail or agency partnerships, then transition toward selling themselves.
In this post, we’re focused on comparing working with a retailer to working with an agency, but you can learn more about a Direct-to-Consumer model in this blog post.
Amazon Retailer vs Amazon Agency: Which is Better?
The annoying but honest answer is that it depends.
Retail is generally the better choice for brands that need immediate cash flow to fund their manufacturing. Working with a retailer also simplifies domestic and international taxes, as brands do not need to deal with VAT or sales tax when selling online through a retailer; the retailer handles it for them. This also enables brands to expand into foreign markets quicker, since the legal infrastructure is already in place.
Agency is generally the better choice for manufacturers with tight margins, want larger margins, and/orwant more ownership over their brand’s presence in online marketplaces.
Service That Grows with You
Kaspien holds a unique position in brand services for online marketplaces, as we’re able to serve brands in both capacities: We can be a brand’s Amazon retailer, Amazon agency, or help them migrate from one to the other. Through our platform, brands can continue building upon the same foundation of data, products, services, and solutions, no matter how their ecommerce needs evolve.