Fulfillment By Amazon (FBA) and Seller Fulfilled Prime (SFP) are two different roads in the journey of online selling and e-commerce, each with its twists and turns. Usually, many sellers ignore fulfillment, which can hurt their business.
Their customers would want to switch to other competitors in the market who deploy these methods and, consequently, deliver their orders swiftly and efficiently.
Choosing between the two and going for the right option can have a significant impact and markedly boost the value and generated revenue of your business.
Instead of blindly going for one of these options, which could hurt you even more than not going for any of them, we have given a detailed comparison below to help you choose the right one.
Importance of E-Commerce Fulfillment
In layman’s terms, fulfillment is defined as picking up a product from a storage unit and delivering it to the customer’s doorstep. Of course, this includes the entire process between these two locations, including managing inventory, packaging, shipping, product return, and customer service. Simply put, fulfillment is practically everything you do as a seller to deliver your products to the customer.
Most sellers take fulfillment as a secondary process, further down the line than operations, inventory management, warehousing, etc. If your e-commerce store has taken a sales dip, that may be one of the reasons. In fact, fulfillment not only ensures satisfied customers but also helps retain a competitive edge in the e-commerce market. In other words, if your customers are leaving abandoned carts, one of the reasons could be another seller offering the same product with faster delivery.
What is Fulfillment By Amazon (FBA)?
As the name suggests, Fulfillment by Amazon is a service provided by the retail powerhouse itself. However, it’s much more than just delivering your products to the customer’s door.
Amazon has a robust system that enables sellers to shift the responsibilities of the fulfillment process from A to Z on Amazon. The only thing you need to do is get your products shipped to Amazon’s warehouse. From there on, Amazon manages, stores, and delivers your products to customers. Additionally, if a customer has any complaints regarding the product or delivery service, Amazon handles that at the seller’s expense, too.
From the seller’s end, you only need to ensure that your product is shipped to Amazon warehouses timely before it runs out. Otherwise, your products and profile can become temporarily inactive on the Amazon marketplace. Of course, it’s important to note that these services come at a price on an individual unit or monthly basis.
Requirements for FBA
Fortunately, the requirements for FBA are flexible compared to SFP. Here’s what you’ll need to get started on Amazon FBA:
- Make a Seller Account: To start, you’re going to need an Amazon seller account. If you’ve already completed this step, move to the next. If not, you’ll need a handful of documents, including a business email or existing customer account, credit card, bank account, government ID, contact number, and tax information.
- Choose a Plan: Amazon FBA offers two plans – individual or professional. As per the former, you’ll have to pay around $1 for every order delivered. Alternatively, the professional plan allows you to send unlimited packages for USD 40. Choose a plan depending on your monthly sales.
- Package and Label: While Amazon doesn’t create a lot of hurdles for its FBA eligibility, you will need to adhere to its packaging and labeling policies. Pack your products in a box, and make sure the items are snug. For labeling, you need to have a barcode imprinted visibly on the exterior of the package. The barcode could either be the manufacturer’s itself or Amazon’s.
What is Seller Fulfilled Prime (SFP)?
Seller Fulfilled Prime (SFP) allows the seller to manage the delivery process on their own. Besides enlisting your product on the marketplace where customers can order it, Amazon doesn’t handle anything else in SFP. Ultimately, this means sellers can store inventory in their preferred warehouses and select shipping companies and methods that suit them.
Through SFP, sellers can take control of their storage and shipping procedures. Sellers have a free hand in choosing between in-house services or a third-party company. Amazon helps provide 24/7 customer support to its Prime users, including those who bought a product from an SFP seller.
Requirements for SFP
SFP requirements are nothing less than stringent. In fact, Amazon pauses SFP registrations every once in a while as well. Is it a well-thought-out plan so that more sellers sign up for FBA? Possibly. If you think you’ve got what it takes to push through for SFP, here’s what you’ll need:
- Premium Shipping Options: Amazon needs to keep its Prime members satisfied. Therefore, every SFP seller is required to maintain a delivery system that ensures 1-day and 2-day delivery without additional charges. Plus, the premium shipping option includes the weekends as well!
- Success Rate: If there’s one thing Amazon doesn’t compromise on, it’s success rates. You’ll need a 93.5% on-time delivery, less than 0.5% order cancellations, and 99% valid tracking rates. Any discrepancies in these numbers can result in losing your Prime badge.
- Applicable Standard Policies: By now, you’d know Amazon does not joke about its policies. One of these includes shipping only through supported carriers. So, if you were hoping to save significant margins with a cheaper carrier, that’s not possible here.
Differences Between FBA and SFP
Now that you understand exactly what FBA and SFP are, let’s move on to the differences. Considering both fulfillment types are managed by different parties, there are bound to be a few contrasts. We’re explaining them in detail below.
Let’s start with the most obvious deal breaker for sellers – the costs. Undoubtedly, FBA eats up your business funds over time. For starters, the service fee charges for fulfillment depend on the product category, size, and weight. Besides that, you’ll also need to pay for inventory and storage on a monthly basis under FBA. Seasonal items are a greater expense since long-term storage, i.e., exceeding 180 days, is pricier.
On the flip side, sellers can rely on their personal resources, including warehouse and delivery carriers. As mentioned previously, the carriers need to be supported by Amazon. In spite of that, the overall charges still don’t cost a lot.
Storage and Inventory
It might seem like an SFP seller is at an advantage here once more. After all, FBA sellers need to pay Amazon on a monthly basis for storage and inventory. Plus, those prices get revised all the time. Another added advantage of SFP is that a central warehouse makes multi-channel fulfillment, i.e., shipping orders bought on various e-commerce stores, easier.
However, warehouse storage isn’t exactly cheap. With FBA, you can calculate an average of how much you’ll be spending on storage. If you’re opting for SFP, the storage costs can add up gradually and reduce your profits. It’s also worth looking into that you’ll be managing inventory yourself in case of self-fulfillment. To many, that’s great, but it can also get hectic.
Whether you’re inclined to FBA or SFP, a centralized ERP software that can help track your inventory and logistics is a game changer for any business. When you have real-time tracking software to back your business, the success rates are immeasurable. Not to mention the benefits it brings in terms of business and even cost efficiency.
It’s a no-brainer that Amazon prefers sellers that utilize its FBA fulfillment type. FBA sellers enjoy the benefits of Amazon’s Buy Box. This section of the interface brings a whopping 80% of sales! Who’d want to miss out on that?
While Amazon’s Buy Box policies include a number of factors, the e-commerce giant usually places FBA sellers in this category. As an SFP seller, you’d have a harder time bringing your product to the Buy Box section.
Let’s get one thing straight: Amazon takes care of customer service no matter which fulfillment plan you’re on. The difference is that in FBA, they receive the returned order in their warehouse and compensate accordingly. In SFP, you’ll be the one catering to the customer’s complaint.
You’ll definitely have more transparency on turnovers in SFP, but failure to satisfy the turnover customer amongst other orders can bring your ratings down. Whereas FBA doesn’t allow you, as the seller, to investigate turnovers, the burden to communicate and satisfy the customer is on Amazon as well.
Advantages and Disadvantages
- Don’t want separate resources for fulfillment, including third-party warehouse and delivery expenses.
- Sellers who would rather spend their time and efforts on the business angles.
- Individual sellers or small and medium enterprises (SMEs) with limited labor resources to manage fulfillment themselves.
- Extensive annual costs and price revisions.
- Less control and transparency, especially inventory visibility.
SFP has its own set of advantages that can make it a deal worth investing in for other sellers. We’ve summarized the pros and cons of this fulfillment type below:
- More control and transparency over operations and logistics.
- Those looking to save the additional expenses.
- Already have an existing storage and delivery system in place.
- Offer seasonal products that require long-term storage.
- Strict eligibility requirements.
- Extensive resources are required.
- Higher third-party shipping rates for 1-day and 2-day delivery.
What to Choose Between FBA and SFP?
In fact, the ideal approach differs for every business, depending on your company and its current standing. Here are a few things you should consider before finalizing your decision:
First things first, see if your product goes better with FBA or SFP. For instance, sellers with heavy, bulky items usually opt for SFP. Similarly, seasonal items can drain your profits with the storage costs they bring. Alternatively, it’s best to go for FBA if you’re selling small items to avoid storage costs in another warehouse.
Most sellers might not consider time as a factor in deciding between FBA and SFP. But it’s as crucial as the finances that help you choose between the two. If you have the time to self-manage the entire process of selling on Amazon, from the storage to replacing turnovers, choose SFP. Alternatively, FBA is ideal for those who don’t have extensive time on their hands to carry out and monitor these steps in their Amazon selling careers.
Considering your company size to decide on a fulfillment plan is essential at times. For individual sellers or small enterprises, they lack the resources to efficiently overlook storage and delivery. Even if that’s doable, most individual sellers will then have to focus on keeping an eye on the logistics instead of focusing on the business growth angle.
We couldn’t ignore the return on investment (ROI) factor. Usually, it all comes down to your profits and the fulfillment type that’s better for your business. If you’re saving up more on FBA because of its low-resource need, go for it. Meanwhile, SFP is a good option for sellers that already have a storage and delivery system in place and don’t want to spend another couple hundred bucks on FBA every year.
If Amazon is the only place you’re selling, FBA doesn’t sound too bad for all its plus points. However, that’s not the case if you’re selling at other online marketplaces. Multi-channel fulfillment can hike the expenses if you’re trying to make FBA work along with a personal storage and delivery process.
When it comes to online selling, both FBA and SFP have their unique features and separate pros and cons. For some, FBA might be the best solution to their business problems, while others might find SFP to be the key factor in their business model. Since both are different, this isn’t a discussion of which is the best option for everyone, and there’s no correct answer.
You can go for a trial-and-error method and find out which option suits you perfectly, or you can make an educated decision by comparing the pros mentioned above and cons and evaluating the factors that affect your business model most, both in a positive and negative sense. We hope that whichever choice you make it works out best for you!