Wednesday, August 27, 2008

Consider FBA (Fulfillment by Amazon) This Christmas!

As you make your plans for the 4th quarter of 2008, it might be beneficial to take a look at Fulfillment by Amazon this holiday season.

I've been using FBA for almost a year now and have zero complaints. Amazon's service frees me up to do other things and I actually take home more money than if I shipped the items myself.

I would recommend you at least test the service this holiday season for several reasons:
  • With FBA, customers get access to all of Amazon's world class services (Prime, Super-Saver Shipping, Gift Wrapping, etc.)
  • You can ship all the way up to Dec 23rd for arrival on Christmas Eve. When I ran Glacier Bay, we didn't offer any expedited services, so we had to cut-off Christmas orders by the 18th of Dec. each year. With FBA, your customers can order on Dec. 23rd for delivery on Christmas Eve -- that is 5 more days of sales.
  • You can charge more for the product and still get the sale.
  • If you are an eBay seller you are fully aware of the customer service issues that dominate the holiday season. Well, if you use FBA, Amazon handles the customer service for you. No need to spend your days before Christmas answering emails from customers wondering where their product is.
  • FBA saves you money and exposes your product to a completely different customer base on Amazon. Prime members cannot buy from marketplace sellers without having to pay extra for shipping because the seller ships the product. Only FBA items are eligible for Prime members.

Here is how everything works on a standard DVD using FBA as compared to shippig the item yourself. Your costs will vary depending on the type of product you sell.

Self-fulfilled DVD for a seller with an office/warehouse and staff:

  • Sale price - $10.00
  • S&H reimbursement from Amazon - $2.98
  • Total revenue: $12.98
  • Amazon commission 15% on the sale price only = $1.50
  • Amazon variable fee per DVD $0.80
  • Avg cost to ship a DVD, including DC and packaging - $1.80 estimate
  • Now add up all of your monthly overhead that is directly related to fulfillment and customer service and divide it by the avg.number of items shipped per month. At Glacier Bay that per item cost for me was: $0.45 and I had to ship a lot of product to keep that number from getting to high.
  • Total Net Revenue: $8.43

FBA fulfilled

  • Sale price - $12.97 (I beat the lowest total price by one penny so I show up at the top of the list) With FBA there is no S&H reimbursement.
  • Total Revenue: $12.97
  • Amazon commission 15% = $1.95
  • Amazon Variable fee - $0.80
  • FBA Handling fee - $0.50
  • FBA weight based fee - $0.07
  • FBA warehouse fee - $0.01
  • Avg. cost for in-bound freight to Amazon warehouse (Including direct labor @ $8 per hour) - $0.16
  • Total Net Revenue: $9.48

The savings for using FBA over self fulfillment in this example is $1.05 and I do not have to worry about customer service, returns, employees not showing up for work, warehouse space, utilities, benefits, payroll, etc.

This is of course a best case scenario with an ideal product, so I would love it if I could get some feedback from readers who sell heavier, bulkier items. I'm not promising anything but if I can get some info, I may create a Google Spreadsheet so you can determine your own costs.

Also for companies that are in the middle of a warehouse lease, or sell through multiple channels there are other issues to consider, but I can't see any reason you would not test FBA to see if it can improve your business.

So in a nutshell:

  • FBA gets my product in front of buyers I wouldn't have access to any other (Prime, Super-Saver).
  • Lets me ship all the way up to Christmas.
  • Saves me money therefore makes me more money.
  • Saves me time and hassle. No more running to the post office or answering emails.
  • I can concentrate my efforts on getting product, which is what I'm best at.

Why wouldn't you at least test this? Fulfillment by Amazon

One more thing. Regular MyBlogUtopia reader and Twitter friend Cliff Aliperti has a fantastic take on Amazon FBA, warts and all. I recommend his post highly and I also recommend Scott Pooler's Trading Assistant Journal for great ecommerce info.

Just because I haven't had any issues with FBA doesn't mean it is always "peaches and cream". In fact Cliff started small using the Easy Sell program and thought the costs were high. I hope my Amazon readers pay special attention to some of his issues.

Just my 15%

16 comments:

Anonymous said...

Wow! is it really that good? Sounds like a dream! I would love to ship all my product out and have someone else worry about shipping, customer complaints and STORAGE!

Too bad I can't list my collectables there! Makes me want to switch to books and media. lol

Randy Smythe said...

Anonymous, actually you don't need to sell on Amazon to use FBA but I haven't used their Basic Fulfillment service for other marketplaces or your website yet.

Those costs are a little more expensive.
---
Any of my readers out there have experience with FBA Basic Fulfillment?

Anonymous said...

Randy, how does one send you an email regarding our experience w/fba?

Randy Smythe said...

The best way to reach out to me is emailing me at rksmythe at yahoo

Or click on the email link on my profile.

Henrietta said...

Certainly an interesting cost comparison and I would imagine the stress levels are minimal, compared to the Evil Empire.

Cliff Aliperti said...

Hey Randy,

Thanks for the mention.

I do want to make clear that while it wasn't a silky-smooth transition for me, that I continue and will continue to sell through Amazon FBA.

Anyone considering it and needing swaying should really concentrate on Randy's bullet points above, these are the reasons I gave it a try.

Thanks,Cliff

Frank In Montana said...

Ditto what Cliff said. It has not been a totally smooth transition. There are issues that still are unresolved but the positives of FBA more than outweigh the negative.

The most enjoyment I get is looking at the growing list of my sales and knowing I don't have to do a thing about them. Amazon is already taking care of it. And I get more for each sale with FBA than I would packaging and shipping myself. Come on in, the water is fine!

frank

Andy Geldman said...

There was quite a decent Amazon vs eBay piece on TheStreet.com today.

http://www.thestreet.com/story/10435115/1/amazon-vs-ebay-seven-point-comparison.html

Surprisingly accurate for mainstream media!

Anonymous said...

Hi Randy,

I'm new to the ecommerce world and had a few questions.

Is there any way to make money on Amazon or eBay if you dont buy thousands and thousands of dollars worth of product at a time? I have a DTC setup with a "super" distributor but they charge quite a bit for their products and I'm at the point where I will likely only be ordering specialty type items from them, ie. vinyl.

This particular distributor also competes with their retail customers on Amazon I recently found out. Combine that with the sellers on eBay who price product close to the price your able to get it from most distributors is there any way to make money? Even if I did decide to risk it and dropship on eBay there's no way I'd be able to make money, I'd end up negative. I have a website and even though it's not fancy, I might just end up pushing that really hard.

Randy Smythe said...

Anonymous,

That is a big problem with selling media purchased through distribution. It was great basck in the day but unless you can move tons of volume it is very difficult anymore.

Some folks do well with it on eBay becasue they've built up a great customer base (MovieMagicUSA) but for the most part it is not the way to make money.

That is the real reason I decided not to restructure a second time. The model is broken for the small guys.

Now, I buy used product where I can have a greater margin ans still be competitive.

I would suggest finding a niche and working on your website.

Anonymous said...

Hi Randy,
I just signed up with FBA. And, something seems terribly wrong. I had a rep take me through my first shipment(1 cd LOL) and since the minimum shipping requirement is 1 pound for in-bound freight to Amazon warehouse, I ended up being charged through Amazon's UPS shipping $3.61 for 1 pound!!!
Even when this rate is adjusted with a weight of 3 ounces for a CD, that comes to approx. 72 cents per CD. This is certainly not the Avg. cost for in-bound freight to Amazon warehouse (Including direct labor @ $8 per hour) - $0.16 that you mentioned.
What am I missing? Any advice would help.
Happy Thanksgiving!
Thank you,
Bridget

Randy Smythe said...

Bridget,

UPS charges by the pound so since a CD is only 4-5 ounces it is going to be expensive to send via UPS.

Also the first lb. is the most expensive. I ship 100 or more at a time to get the .10 per item price.

Anonymous said...

Oh I see. Thanks Randy. I don't do much UPS shipping.

So, you are sending @25 -30lbs at a time to get that rate.

I guess I need to get a few more cds and dvds before my next shipment. :)

Take care,
Bridget
PS If I have a few more questions about CDs and DVDs, would you mind if I email you?

Randy Smythe said...

Hi Bridget,

Sure, go ahead and email me directly at rksmythe at yahoo

Anonymous said...

What repricer do you use with FBA? I just switched over and I am having issues with my old one.

Randy Smythe said...

Anonymous,

I use Seller Engine.