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!  

Semi trucks parked in loading docks of a warehouse play a key role in good supply chain management

Your supply chain is the backbone of eCommerce operations. It ensures your products are high quality, available when needed, and ready to ship out seamlessly. It also affects costs, storage, and your customer experience.

Running out of stock means you lose sales, reputation, loyal customers, or even a sales channel. Amazon, for example, penalizes listings that sell out through listing placement penalties and restock limits.

At the same time, overstocking is risky. If demand drops, you’re stuck with excess or slow-moving inventory. High storage and warehouse expenses can hurt your bottom line.

Effective supply chain management ensures an optimized amount of inventory per sales channel at any given time. With it, you can keep each SKU stocked according to projected demand, and deliver it quickly and without hassle to happy customers.

Streamlining your supply chain will help you maintain sales, marketplace presence, and profitability — whether you’re manufacturing your own products or outsourcing overseas.

What Goes into a Good Supply Chain?

A seamless supply chain includes a few core components, ranging from production to delivery. Here are the different stages to analyze in your supply chain, along with a few questions to pinpoint any issues.


This ties into your inventory management systems, which should track how much inventory you have on hand and how quickly different SKUs move. Using that information, you can forecast how much of each SKU you need to order and when to avoid last-minute crunches.


Look at who your suppliers are, including their location, reliability, and on-time delivery rate. If you make your own items at a warehouse, consider where you get your raw materials. If you outsource your entire product, assess those supplies.

Do you have local sources nearby? Or do you import goods from overseas and have to work around customs, international holidays, and other logistics?


Next, we turn to the actual production of your items. What goes into the manufacturing process? Are you using the most cost-effective materials and procedures? Does your process result in an item that’s durable, high quality, and easy to ship? If not, you may face more returns than your margins can handle.


What happens to your items after creation? Usually, they aren’t ready as-is to go into a fulfillment network or storage center. They need to have barcodes, sometimes warning labels, and they have to be packaged so they don’t break in transit. Sometimes, you may also want to bundle certain goods together to create a unique offering, and to ensure your items aren’t commingled with other sellers’.

This can be time consuming to coordinate by yourself or even with a small team, especially if you plan to scale and grow your business. Start working with a prep center as soon as you hit volumes of a few thousand per month so you don’t spend all your time on prep work.

Tip: Learn how to choose a prep service


Is your inventory distributed in accordance with logistics and deliveries? For example, do you have a prep warehouse near your suppliers, or close to a dock where your items first land? Do you have your items distributed across the USA so you aren’t delivering to some zip codes in two days, and others in two weeks? You also want to ensure your storage facilities stay on top of your inventory needs, like cold storage or FIFO stocking.


Once your items are ready, we then shift to transportation. Your inventory earns nothing sitting on the shop floor. You need to be able to deliver those items to your buyers quickly and efficiently.

Strategic placement of your storage and inventory shortens the distance your items have to travel once someone places an order. Ideally, your product will already be sitting at a warehouse or prep center nearby.

Then, partnering with the right 3PL means you don’t have to worry about late deliveries or broken goods causing negative reviews and returns. Just be sure to triple check their pricing structure so you don’t get stuck with any hidden fees.


Unfortunately, customers change their minds, realize they can’t afford their purchase after all, or maybe find an alternative they like better. Whatever the reason for the return, when it comes to your supply chain management, it’s important to know how to handle them.

You should have a process in place to accept returns and issue refunds, or offer store credit. If you sell high-value items, you could invest in an inspection process to see if the item is fit for resale. If it would cost more to inspect and reprocess your items, you should establish procedures to donate or dispose of your returned goods.

Tip: Track the reason for returns so you can see if something’s wrong in your supply chain or production process, if your marketing materials promise more than you can offer, or something else. This provides great insight to help you optimize your sales funnel.


Last comes tracking, which ensures everything on paper mirrors reality. Does your actual inventory match your records? How often should you run counts, quarterly or monthly? Do your warehouses and fulfillment centers have accurate numbers for your inventory? How successful has your forecasting been?

6 Ways Your Logistics Power Your Sales Flywheel

Your supply chain management extends into other aspects of your business. It supercharges your logistics processes, and your logistics fuels your sales flywheel. Here’s how.

1) Avoid stockouts and old inventory

If you sell out of an item, your sales stumble and your rankings fall. However, if you overstock, your bottom line could suffer with steep long-term storage costs.

Efficient logistics and inventory projections help prevent stockout events and avoid overstocking. That leads to a steady stream of sales, while reducing total warehouse costs.

2) Provide excellent customer service

What happens when someone bought an item from you, loved it, but then forgot about it? They might check their order history to figure out what they purchased, or reach out to customer service to rediscover it.

You don’t want their customer service experience to be, “Sorry, we don’t have that in stock,” or, “We can’t sell you that just yet, but you can put it on backorder.”

Similarly, what happens when someone reaches out and says they need an item yesterday? The best you can offer shouldn’t be standard shipping, it should be priority — or, better yet, make two-day delivery a standard across your SKUs and customer base.

This all contributes to excellent customer service and a great buyer experience.

3) Protect product quality

A great brand experience is ordering something, getting your item quickly, and opening up your package to find a high-quality deliverable in perfect shape. That’s the bare minimum you need to provide to encourage repeat sales.

4) Foster healthy brand reputation

Breaking the first three steps down, the blockers to a good customer experience are going out of stock, slow delivery, and damaged goods.

Going out of stock does more than hurt your sales — it blocks them. If someone can’t buy a product, you risk getting a bad review or leaving them with a poor perception of your brand. That last impression will follow your reputation whenever they chat with their network about your company.

A slow delivery process could drive customers elsewhere to find what they’re looking for. It could also mean more work for your customer support team, as buyers reach out after two to three days asking, “Where’s my order?”

Also, it’s frustrating having to wait for an item to come back into stock, waiting five to seven business days to get it, and then receiving it only to find it’s damaged. If a buyer experiences this, you can expect plenty of angry reviews and badmouthing.

5) Maintain business resilience

You know what a healthy logistics process gets you? Access to more sales channels. Those, in turn, expand your streams of revenue, which give you business resiliency.

If you lose your income on one channel, you still have other streams of income, so you don’t have to halt your production suddenly or cancel your ads because you can’t afford them.

Here is a key scenario that unlocks sales, despite a sales channel closing down on you: Imagine you have a long-time customer on a marketplace who buys your deodorant whenever they run out. Suddenly, they can’t find your store in their order history list, but they know your brand by now, so they do a quick Google search. They locate your D2C store and buy directly from you.

This triggers a few results:

  • You’ve bypassed marketplace fees, putting more money directly into your business for further marketing, product research, and more.
  • You now have their information and can promote to them directly by offering subscription refills, asking if they’d like to get a reminder with a coupon when it’s time to reorder, or sharing additional items they’d like to try.
  • Based on your marketing success, you can increase their average order value, frequency, and reward them for their loyalty.

All because you invested in your logistics, and ensured business resilience.

6) Keep selling, even when the global supply chain is disrupted

Strong supply chain management ensures you avoid taking on too much inventory risk. That entails opening a diverse stream of sales and supply channels.

This helps you to maintain inventory even if the global supply chain gets disrupted. In turn, your brand earns a reputation for being truly reliable in the face of anything.

Plus, distributing your inventory across multiple sales points and warehouses improves your ability to navigate marketplace changes that pop up during “unprecedented times.”

How to Achieve a Healthy, Reliable Supply Chain

We’ve covered the what and why, now let’s get into the how.

Keep organized and transparent records

Record-keeping is a tedious but necessary part of running any business. A robust supply chain starts with an organized record-keeping process, whether it’s for digital files or hard copies. Without a clear data process in place, your flywheel won’t turn. You could lose track of entire shipments, or get into arguments with your suppliers about unpaid invoices or agreed-upon prices.

You should have clear visibility into when your items will be ready for sale, weak links in your supply chain, and alerts for reorders and sales volume. These all help you stay ahead of deadlines and prevent stockouts.

Most of this can be done with software that integrates across your sales channels and warehouses, but be sure to keep track of things like receipts, contracts, and SLAs in folders that are easy to filter through and find.

Be strategic about your inventory placement

Strategic inventory placement impacts your delivery speeds, inbound and outbound costs, and prep efficiency. By distributing your items close to demand, you save on warehousing and avoid unsold inventory having to be transported to other locations. You also help speed up delivery, whether it’s going from your warehouse network into FBA, or directly to your buyers.

Developing your inventory placement plan requires an understanding of how quickly items leave your different warehouses. It also means analyzing sales per channel, SKU, zip code, and time period. This allows you to calculate how much stock you need for each platform, for that quarter, and in which regions, which reduces overordering and prevents stockouts.

Maintain efficient warehouse processes

If you manage your own warehouse, you’re responsible for moving products in and out the door in a timely, repeatable, and traceable fashion. This means establishing standard practices in your warehouses. For most eCommerce stores, that includes a few key things.

  • Integrate barcode scanners. Scanning products in and out helps you keep track of items in an organized and traceable manner.
  • Set up a clear process for adding inventory. Inventory should go through the same procedure every time it comes into the warehouse. That might mean: Inspection, labeling, scanning, and storing your items in the right area. You might also need a more complex FBA prep process if you don’t use a prep service.
  • Use clear pick and pack processes. Pick and pack processes have to be clear, strict, and expandable to every item type. In most cases, it can be built into a simple checklist like:
    • Select the product based on order SKU
    • Inspect the product
    • Scan the barcode
    • Pack the product
    • Inspect the packaging
    • Print shipping labels
    • Seal the package
    • Label the package
    • Place the package in a postage pickup area

It could also mean choosing a pick and pack type that works for your throughput. For example, if most orders contain the same products, you might want to set up a batch picking process. If batch picking isn’t sufficient to meet volume, another strategy like wave picking might be ideal. The important thing is to have a clearly defined process for every order.

Nail your delivery and distribution logistics

Logistics can take the form of dropshipping, delivering yourself, automated delivery, partnering with a carrier, or outsourcing to a 3PL. They all have their pros and cons, and which one fits you will depend on your business model.

For most eCommerce stores, self-fulfillment isn’t sustainable or scalable. Marketplaces like Amazon, Walmart, and eBay all demand fast shipping. Shipping products across the U.S. in a day can be challenging, but 3PL and automated solutions like FBA can take the entire process out of your hands.

Although it costs slightly more upfront, in the long run, it could be more cost effective than investing in a distribution network at your volume of sales. It’s always important to look at your options, do the math, and switch to a solution that balances cost versus investment.

Have clear inventory tracking

Most eCommerce stores sell across multiple platforms. Unless you’re delivering everything through a third-party logistics (3PL), that means splitting inventory.

For example, many stores use FBA, a warehouse, and a fulfillment center. In this case, you have three inventory locations to track — that’s without calculating any geographic spread. A seller with this setup needs to track sales velocity across geographic areas and determine how much inventory they need in different locations versus how much is available today.

Tip: Look for logistics partners who provide their own dashboard with inventory reports, so you can see exactly how much inventory you have with any one provider.

Invest upfront in customer service

When operating distribution, you’ll also have to handle reverse logistics and customer service. If you move your entire inventory to FBA, Amazon will handle this for you. With merchant fulfillment, you’ll have to accept returns, record customer complaints, and issue refunds and returns.

You need a platform in place to track, manage, and enable this data processing. In many cases, solutions like partnering with a 3PL can be advantageous.

For example, they can distribute products with return shipping labels. You aren’t billed for return shipping unless they’re used, and customers have an easy and convenient way to return products if they so choose. This eventually improves your customer service, boosting sales in the long term.

Wrapping up — How Good Supply Chain Management Fuels Your Sales Flywheel

Supply chain management involves a lot of moving pieces. You have to stay on top of every aspect of your inventory at all times, from where and how it’s made, to where it’s stored and how it’s delivered.

But, as complicated as good supply chain management is, it enables every other aspect of eCommerce. It’ll boost your brand reputation, give your customers a great buying experience that keeps them coming back, and help you optimize your spend to boost your profits.

If marketing drives the sales flywheel, supply chain management is the oil that keeps all the components moving smoothly.

Amazon third-party seller

On Amazon, third-party sellers (commonly referred to as “3P sellers”) are any company selling on Amazon’s marketplace other than Amazon itself. Amazon owns its marketplace, so Amazon is a “first-party” seller, while everyone else is a “third-party.”

You can divide Amazon third-party sellers into two main subcategories: private label sellers and retailers. By private label, we mean that the seller is also the manufacturer; the same company manufactures and sells the product. Retailers, on the other hand, buy the product from manufacturers at wholesale cost, then resell it for the retail price on Amazon. There are over 6 million of third-party sellers on Amazon as of 2021.

Amazon is both a private label seller and a retailer because they sell original products, such as their Amazon Basics line, while also retailing products of major companies. Kaspien operates similar, retailing products for hundreds of brands, while also curating several private label brands as well, which we use as guinea pigs to test new strategies and marketplaces. We then apply our findings to retail partners’ strategies.

Many brands choose to work with a third-party retailer to sell their products on Amazon because of the work it requires. Producing a product is one thing. Selling it on Amazon is another. Both require a great deal of expertise and infrastructure, so oftentimes brands will focus on product creation and partner with another company to handle logistics, marketing, sales, and customer service.

If you’re shopping for third-party sellers, discerning which is the best fit for your brand can be quite difficult. To help you narrow down the third-party sellers worth your time and your business, here are 3 questions we recommend asking to quickly identify the top candidates. 

1 – How Much Does It Cost to Have You Retail My Products? 

If you partner with an Amazon third-party seller solely to retail your products, there are no upfront costs. Instead, third-party sellers typically purchase from you at wholesale cost and retail your product for a thin margin. Costs enter the equation only if you choose to utilize other services they offer. 

Almost all third-party sellers offer the standard services of storing, listing, and distributing. Many differentiate themselves by offering additional services, such as digital marketing, brand protection, and logistics support.  

These services will vary in cost. Payment structures range from a flat fee, hourly rate, discounts on purchase orders, and so on. Usually, these services are optional, although in some select cases, brands may be asked to pay a retainer upfront. Retainers are usually charged when the margins on a product are low, such as when launching a new product and investing heavily in marketing to spread the word.  

It’s important to be aware of these costs before you sign on to work with a third-party seller. When you approach a potential third-party seller, ask them a few questions about their cost structure, such as: 

  1. What are your upfront costs? 
  2. What is the payment structure for your services? 
  3. Will we have to pay a retainer? 


2 – What are the Benefits of Working with You as Our Amazon Third-Party Seller? 

One of the main benefits of partnering with a third-party seller is that they can leverage economies of scale. The economics of scale are cost advantages that companies reap as they combine volume with heightened efficiency. As companies produce more goods, the cost per good generally decreases. This is one reason why you can find better rates when buying in bulk. When third-party sellers work with many brands and/or products, they enjoy a similar situation, facing a higher total price, but better rates. They can pass on these better rates to the brands they partner with in the form of better margins

Some third-party sellers also offer a variety of different products and services that their partners can leverage to improve results. As previously mentioned, many 3P sellers offer digital marketing services, creative services, brand protection services, and logistics & supply chain services. These areas of specialty are important for growth and scaling your brand, and you can outsource them to your third-party seller instead of taking on the expense of an Amazon agency or full-time employee. 

There is also the financial situation to consider when planning your online strategy. By working with a third-party seller and employing their additional services, you save on the costs of hiring new staff, building out new processes, purchasing software, and a host of other costs. These actions might not be feasible for your organization, especially during the COVID-19 pandemic. 

For many brands, leveraging a third-party seller is much simpler and more affordable than developing in-house capabilities. 

3 – What Expertise/Tools Do You Have and How Will They Grow My Brand? 

In addition to asking what a third-party seller could do for you, you should also reflect on what you can do for yourself.

  1. What capabilities, expertise, and core competencies do you have in house? 
  2. What capabilities couldn’t you develop in-house? 
  3. What software and services does your potential third-party seller have and how will they supplement your business? 


By asking these questions, you can identify the gaps that could be filled with a third-party seller. For example, many newer brands have a limited understanding of selling on the Amazon marketplace, how to optimize their online channels (which differs significantly from brick and mortar), and the overall impact of scaling on Amazon. For a newer brand like this, it would make sense to find a 3P seller who has a long history selling on the Amazon platform. 

Focus on Your Brand 

There’s a lot to deal with in the world of ecommerce. Climbing marketing costs, low visibility, a saturated marketplace, and more create challenges for established and emerging brands. Working with a third-party seller may be the best way to gain the kind of traction your brand is looking for, freeing your time to focus on developing great products that consumers want. 

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How FBA works

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: 

  1. Manufacturer ships product from factory to Amazon fulfillment center 
    • The shipment may need to go through several regulatory checkpoints along the way
  2. Goods are received and logged at the FBA center 
  3. Amazon’s systems update the product listing to show that inventory is in stock 
  4. Shoppers order product from 
  5. FBA center ships the product to the customer, with expedited delivery options available 
  6. The FBA center will process any product returns, when/if they occur 
  7. 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: 

  1. Do not ship any boxes over 50 lbs. unless your products are considered oversized and packed one unit/box
  2. Do not ship any boxes with a side over 25″ unless your products are considered oversize and packed one ASIN/box
  3. Do not shrink wrap, strap, tape, or bind boxes together.
  4. Outer shipping cartons cannot contain a scannable manufacturer bar code (other than the bar code on the FBA box label or shipping label)
  5. 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
  6. 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: 

  1. FBA handles all shipping logistics once they receive your inventory 
  2. 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
  3. FBA centers handle product returns 
  4. FBA often provides the fastest delivery option for Amazon customers 
  5. 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: 

  1. First and foremost, Amazon has repeatedly restricted storage limits for FBA since early 2020. If you don’t have enough inventory space to meet demand, you’re losing sales
  2. Storage fees and fulfillment fees add up, making accurate demand planning a necessity if you wish to optimize your bottom line
  3. 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.

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 
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.  

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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! 

There are certain milestones in an Amazon business’s lifecycle, one of the most thrilling of which is breaking $1 million in annual Amazon sales for the first time. However, that milestone can also become a plateau. Doing the basics well has brought you here, but to climb further, the basics will no longer suffice.  

What does it take to grow an Amazon business from $1 million in annual sales to $5 million, or even $50 million? In short, what does it take to scale to the next level? 

Kaspien has served over 4,000 brands in our lifetime and generated over $ 1 billion in retail sales. Along the way, we’ve learned a thing or two about successfully scaling brands on Amazon. In this post, we’ll highlight some of the most common obstacles to overcoming a sales plateau on Amazon. 

Common Causes of an Amazon Sales Plateau 

One of the most common reasons we see a brand’s sales plateau after a certain point is that they’ve spread themselves too thin. They work with too many tools and partners, each of which works in siloes. They may work with a Creative Services agency for photography and video, an advertising agency to run their Amazon marketing, a freelancer to write copy for their website, and a software company for their inventory forecasting 

As is often the case, brands reach this point gradually and over a long period. They hired specialist agencies and freelancers as individual needs came up. This strategy was cost-effective and practical, but only to a certain point. There comes a time in a brand’s lifecycle where having many small partners becomes a constraint instead of a boon 

Here are just a few of the issues that can be created by this model: 

Communication Gaps and Delays 

Multiple agencies or freelancers aren’t communicating, and instead projects are relayed by internal stakeholders. As a result, too much time is wasted on bringing new stakeholders up-to-speed, clarifying misunderstandings, and passing messages back and forth. 

Growth Slows or Stagnates 

Because there are communication issues and teams are siloed, your business units will not be able to coordinate to the degree needed to improve efficiencies. Inventory forecasting relies on accurate sales prediction from marketing. Amazon advertising is harmed by stock-outs. Website content and voice may differ from branding on other sales channels. 

These issues impede growth. Imagine a rowing team where each member works without consideration of the rower in front or behind them. They quickly fall out of sync, slowing the boat and falling behind the competition. By consolidating supportive services under one unified partner, you position your team to work in synchronization, maximizing sales velocity. 

Being Spread Thin Impedes Automation 

Not only do siloed freelancers and agencies slow progress on initiatives, they also make it more difficult to automate different facets of the business. Automating processes effectively across a growing organization means having a shared source of truth and interconnected systems. When each partner has their own data and processes, effectively automating your operations, which is an essential part of scaling a business, is quite challenging. 

The Costs Exceed Those of a Holistic Agency 

One reason that brands typically hire specialists instead of a full-service partner as they grow is because of costHowever, there comes a time when you end up paying for the sum of specialists than you would for a single partner. This time comes earlier than one might expect by simply summing the numbers. 

If you consider the fact that a single partner eliminates the issue of communication gaps, siloes, and automation obstacles, the single partner can actually accelerate growth even faster, further increasing the return-on-investment to the point that working with a single partner becomes more profitable than working with many specialists earlier than expected. 

Case Study: Growing Lorex’s Amazon Sales by 521% 

Let’s take a look at one of our partners who chose to work with Kaspien as their full-service Amazon agency. Lorex is an electronics brand known for their high-quality security systems. They partnered with Kaspien to transition their business away from Amazon Retail and start selling their products on Amazon themselves.  

As their agency, we built new listings and enhanced existing listings, created A+ Content, an Amazon Store, and launched sponsored ads on Amazon. In the years since, we’ve grown their annual Amazon sales from thousands to millions. 

Our Results 

  • 521% increase in total sales 
  • 13% average ACOS 
  • $4MM+ lifetime Amazon ad sales 

Learn More About Amazon Strategy 

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Brands selling on Amazon can choose to sell wholesale to Amazon’s first-party seller division, Amazon Retail (1P). At first glance, the prospect of working directly with Amazon sounds ideal. They own the platform, so they’ll provide the most valueAs is often the case, the reality is a bit different.  

 Too often, the vendor experience is frustrating one as Amazon makes unilateral decisions that go against the brand’s wishes. With a mammoth $490 billion GMV in 2020, $300 billion of which comes through the third-party seller marketplace, Amazon isn’t afraid to throw its weight around. It’s not an equal partnership.  

Pricing, iparticularis a common pain point we hear from brands selling through Vendor Central. Amazon Retail either drops their prices or even raises their prices against the brand’s wish. While Amazon is one making the decision, it’s the brand that suffers the consequences. 

Why Does Amazon Retail Lower Pricing Against Vendor Wishes? 

Amazon Enforces Pricing Parity 

Amazon is committed to offering consumers the lowest price available, and it takes quick action to live up to that promise. If your product is offered for a lower price by another seller on Amazon or ecommerce site, Amazon Retail will drop their price to match, even if that means dropping below your MAP or MSRP. 

This is an issue that can be largely avoided by integrating Amazon into your overall brand strategy, making sure that your brand and products are represented consistently across all sales channels. Doing this effectively requires a secure distribution network – if unauthorized sellers can easily obtain your product, it becomes far more difficult to enforce consistent pricing. If a rogue seller drops their price, Amazon Retail will follow suit.  

Why Does Amazon Retail Increase Pricing Against Vendor Wishes? 

Amazon is the Sole Seller 

While Amazon Retail has earned a reputation for price slashing, there are times that it increases prices, even to the point of price gouging 

Amazon does this by taking advantage of a technicality: Offering the lowest price available doesn’t necessarily translate to the lowest price possible. When Amazon is the only seller in a listing, they sometimes take advantage of the situation and increase prices to increase their margin. Ithe price is higher than MAP or MSRP but you’re the only one selling it, it’s still offered at the lowest price available. 

Some brands are frustrated by Amazon’s unilateral decision making, especially because it is their brand that receives the brunt of shoppers’ frustration at higher prices. 

How to Make Amazon Retail Stop Price Gouging 

Brands who want Amazon Retail to lower their product price have limited power, but there is one way to take back control. Amazon Retail’s ability to raise prices is based on them be the sole seller. Brands can remove that power by partnering with a trusted distributor and third-party seller, ideally one that has Seller-Fulfilled Prime (SFP) so they can continue offering the same delivery speeds 

When Amazon Retail raises their prices and refuses to heed the brand’s request to lower them, the brand can ask their distributor to send a set amount of inventory to the third-party seller. The third-party seller will then list the product at the price that the brand desires, and Amazon Retail will be forced to follow suit to uphold their promise. 

In this model, the brand reclaims control of their pricing policy and the third-party seller enjoys sales from the limited purchase order. Of course, this strategy requires partnering with a trustworthy distributor and third-party seller. Without shared trust (perhaps reinforced by signed agreements), this strategy could cause new problems. 

Additional Benefits of Using a Third-Party Seller while Selling via Vendor Central 

In addition to restoring a brand’s control over their pricing, strategically partnering with a distributor and third-party seller has several other notable benefits. 

It Protects Against Out of Stocks 

If Amazon Retail runs out of stock at FBA, the third-party seller can step in to start fulfilling orders from their inventory. Some sellers can also integrate dropship order management systems with a brand’s warehouse, so they can fulfill orders even if they do not have inventory at FBA. 

As 2020 showed us, it’s best practice to have multiple fulfillment methods available, in the event that FBA experiences category restrictionsIPI increases, or other issues that jeopardize your ability to store and fulfill orders. Diversification is a proven risk-mitigation tactic, and that extends to ecommerce. 

It Protects Against Amazon Retail Not Renewing their Purchase Order 

Amazon Retail is not obligated to place new purchase orders, and they may decline to replenish inventory for a number of reasons. This notably occurred in 2019, when Amazon Retail stopped placing purchase orders with vendors who sold less than $10M annually on Amazon. Thousands of vendors were reportedly blindsided by the move, and while Amazon resumed placing purchase orders for many of them a week later, some vendors never received a new purchase order. 

Partnering with a third-party seller while still using Vendor Central provides a safety net, allowing brands to continue selling on Amazon uninterrupted even if Amazon Retail stops buying their product. 

It Protects Against Amazon Retail Dropping Prices 

We mentioned earlier that Amazon Retail will slash prices to match those offered anywhere else on the internet. This is problematic for brands that struggle with rogue sellers and retail arbitrage. If an unauthorized seller lists a product for well below MAP, Amazon will also drop below MAP. This can harm brands’ relationships with their brick & mortar sellers and creates a risk of smaller purchase orders due to lower profits.  

If a brand is partnered with a trusted third-party seller, they can stop selling to Amazon while Amazon Retail refuses to abide by MAP. Once Amazon Retail sells through inventory, the brand will reclaim control over their pricing, at least through their authorized sellers.  

Partnering with a third-party seller doesn’t solve the unauthorized seller problem, though. Unauthorized sellers typically arise from leaks in the distribution network, when distributors sell inventory to anyone who comes asking. The best way to plug these holes is to sign new agreements with distributors that limit to whom they are allowed to sell product.  

For more info, check out our blog post about brand protection strategies. 

The Importance of Trust 

Throughout this post, we keep returning to trust. Brands need to be able to trust their distributors and sellers to act in their best interest. That trust is built easiest when the partnership is mutually beneficial between parties that both wield power 

Ithe case of Amazon Retail, that’s rarely the case. Amazon is a $490 billion gorilla, and they make unilateral decisions that harm your brand if they think it will entice consumers.  

While Amazon Retail may be too rich an opportunity to pass up now, it‘s far too great a risk to be overly-dependent on them. Seek complementary and supplementary ways to capture sales on Amazon, whether that’s through a third-party seller or equipping your brand to fulfill direct-to-consumer. 

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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 billion data points processed daily and machine learning algorithmsOur 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-stocks have other implications as well: 

  • Marketing performance suffers. When a product is out-of-stock, product rank deteriorates. 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 our price & seller tracking software or take more aggressive steps through unauthorized seller removal. 

Brands should also enroll in Amazon’s Brand Registry program, which grants them access to additional marketing and brand protection tools, including specifying which sellers have approval to edit listing content. 

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 requirementsFailing to satisfy these requirements can result in inventory being refused, returned, or repackagedThis 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 DSPcoupons, 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 softwareChannel Auditor, reimburses FBA sellers 2% of topline channel sales. Especially for sellers moving a large inventory, 2% of topline sales is no small 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 when FBA 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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Amazon is never idle, but after a global pandemic, the ecommerce leviathan is experiencing one of its most intense growth phases yet.  

Snapshot: The State of Amazon 

  • 38% Growth 
    in annual net sales 
  • 66% Growth 
    in annual advertising revenue 
  • 1.3M 
    sellers joined Amazon in 2020 
  • 19 Countries  
    with Amazon marketplaces 
  • $3 Billion  
    invested in Amazon brand acquirers as of March 2021 
  • “S-Team” Changes 
    Jeff Bezos, Jeff Wilke, and Jeff Blackburn exit their roles 

Like what you’re seeing? Download the complete State of Amazon: 2021 Report. 

Key Updates from 2020 

Amazon Sales Soar  

Ecommerce sales reached between 14% and 21% penetration of all retail sales in 2020. US ecommerce sales grew to nearly $800 billion in 2020, accelerating ecommerce growth by over 2 years. 

Amazon was a major winner in this ecommerce growth, reporting annual net sales of $386.1 billion in 2020. Amazon’s annual net sales grew 38% year-on-year, a massive figure for a company of Amazon’s size.  

As the ecommerce titan grows, having a brand presence on Amazon is becoming less of an option and more of a necessity for brands who want to remain competitive.  

Amazon’s Competitors Ride the 2020 Wave 

Amazon’s fulfillment issues in late spring and early summer allowed competitors to secure a stronger foothold in the space, which doesn’t seem to be slowing down. WalmartTargetShopify, and more posted double-digit and triple-digit growth in 2020. Amazon still dwarfs all of its domestic ecommerce competitors, but 2021 may present the greatest challenge to its dominance seen in the last decade. 

In a survey, Kaspien found that 43% of respondents ranked as the online marketplace that they are most interested in expanding to within the next 1-2 years, followed by Walmart at 41%.  

Read our breakdown: Walmart vs Amazon 

Walmart vs Amazon: How the two companies compare

Amazon’s Share of Ecommerce Shrinks? 

Competitors’ success may have eroded Amazon’s market share in US ecommerce. According to Digital Commerce 360, Amazon’s market share diminished from 44% in 2019 to 31% in 2020. However, eMarketer reports contradicting numbers, estimating Amazon’s market share grew from 37% in 2019 to 39% in 2020. 

Whatever the reality, Amazon’s subscription service retains a comfortable lead ahead of competitors’ subscription services. A January survey by PYMNTS shows that 64% of respondents have Prime memberships, while only 21% have Walmart+ memberships. 

Amazon is irrefutably the dominant marketplace in the US, but the reduction in market share indicates that other online marketplaces are gaining steam. Brands would be wise to plan for an omnichannel approach to ecommerce for the coming years. 

Amazon Facing Antitrust Scrutiny 

Even before the global pandemic, Amazon was facing increased scrutiny from regulatory bodies. On March 2, 2020, the SHOP SAFE Act was introduced to Congress and referred to the US House Committee on the Judiciary. The act would hold Amazon and other online marketplaces accountable for counterfeits sold on their platforms.  

Jeff Bezos also testified before Congress in July of 2020, and Amazon submitted written answers to follow-up questions in September. In October, the committee published a 450-page report with their findings from a 16–month antitrust investigation recommending antitrust actions be taken. 2021 may see some of those actions introduced to Congress.  

Jeff Bezos Passes the Reins 

In addition to potential legislation, the year will also witness several major changes in Amazon leadership. Founder and CEO Jeff Bezos stated that he will step down from his role to become the Executive Chair in Q3 2021. He will be replaced by Andy Jassy, the CEO of Amazon Web Services (AWS). Jassy has been with Amazon since 1997. 

Jeff Wilke, CEO of Amazon Worldwide Consumer, also announced he would retire in Q1 2021. Wilke was replaced by Dave Clark, who has a background in operations. A third Jeff on Amazon’s senior leadership team announced his departure in February 2021. Jeff Blackburn, who served at Amazon for over 20 years, is leaving the company.  

As reported by Geekwire, Blackburn’s and Wilke’s departures will enable new CEO Andy Jassy to reshape more of the Amazon leadership team. 

Third-Party Seller Services Grow 

These changes in senior leadership suggest that Amazon will shift its focus to expanding and improving its platform instead of growing its direct retail relationships with brands. Expanding its platform would increase its value proposition for third-party sellers and advertisers operating on its marketplace, which generated $300 billion of Amazon’s $490 billion GMV in 2020, according to Marketplace Pulse 

If this is the case, all but the largest brands will be expected to sell on Amazon as their own seller or through third-party sellers. This shift has been trending for some time, with third-party seller services growing 57% year-on-year in 2020. 

Amazon also acquired a Shopify competitor called Selz in January 2021. Like Shopify, Selz serves as a central hub through which sellers can manage multiple ecommerce sales channels. Amazon’s acquisition of Selz, especially after Shopify’s stellar performance in 2020, demonstrates Amazon’s continued investment in enabling brands to represent themselves on the marketplace. 

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Amazon Expands Advertising Services 

Amazon’s advertising revenue has been one of its fastest growing segments for the last several years. In just Q4 2020, ad revenue grew 64% year-on-year, reaching $7.95 billion! Amazon also continually expands its advertising capabilities, releasing new features and ad types to Seller Central in recent years. 

Brand Acquirers Raise $3 Billion 

Over $1 billion were invested in companies focused on buying and growing brands on Amazon in 2020. By March 2021, total funding in this space was over $3 billion. Thrasio, Perch, and Heyday practically became household names in the ecommerce industry. Taliesen Hollywood, founder of Hahnbecktold Digital Commerce 360 that brand acquirers typically pay 2.5 to 4.5 times a brand’s EBITDA. 

Consolidation is a natural part of business lifecycle in emerging industries, and it seems Amazon has finally reached that stage. The impact of brand acquirers is yet to be seen. How many will be able to successfully grow brands? Will their immense funding translate into brands becoming share leaders? How many will flounder? 

International Marketplaces 

Amazon’s international net sales grew to $104 billion in 2020, up from $75 billion in 2019. Amazon currently has 19 active marketplaces, having launched Amazon Netherlands and Amazon Sweden in 2020 and Amazon Poland in 2021. Latin America also drew much attention, growing ecommerce sales by 37% in 2020. However, the biggest winner in the region has been the online marketplace MercadoLibreaccording to Euromonitor. 

Amazon advertising also saw strong growth in international marketplaces. In 2020, Kaspien drove strong year-on-year growth in advertising sales in multiple marketplaces, including:

  • US: 55% increase YOY  
  • CA: 201% increase YOY
  • UK: 1,434% increase YOY

Winning Categories 

Certain product categories saw particularly strong sales growth in 2020 as the global pandemic influenced buying decisions. Online grocery sales soared, with eMarketer reporting 2020 sales reached $89.22 billion, an increase of $30.86 billion.  

Online grocery sales are expected to continue to climb, with estimates predicting online grocery sales will reach nearly $130 billion by 2023, accounting for nearly 10% of total grocery sales in the US. Euromonitor forecasts higher growth than eMarketer, predicting that food and drink ecommerce will expand by 8% in 2021. 

Kaspien also saw other categories benefit from the wild year. In particular, Pet Supplies, Sports & Outdoors, and Toys & Games each grew substantially. All of these categories involve entertainment and recreation, suggesting shoppers looked for respite from an exhausting year. 

Download the Complete State of Amazon Report 

We’ve only scratched the surface. Download our State of Amazon: 2021 Report to learn about other significant changes in 2020, as well as insights into what 2021 will bring.