Let me tell you a story, a story of two friends Jim and Kim who challenged each other to start their own business individually of selling ‘Laptops’ online.
Both Jim and Kim had done their thorough research on ways to sell, where the market reaches more, how to manage their inventory, shipping partners, suppliers etc.
So after all this research, as Kim’s family members were into online business, they suggested him to create and start selling on his own’s e-commerce website. Whereas on the other hand, Jim had a little or no idea about how to sell online, so instead of getting along with own online storefront, he was suggested to sell on a marketplace like Amazon.
Now, here comes into the picture Amazon’s FBA (Fulfillment by Amazon) and Self-Fulfilment. Jim decided to start his business by selling on Amazon’s FBA and Kim started his business by launching an e-commerce website which can be also termed as Self Fulfilled.
Before coming to the conclusion of whose choice was better — Jim’s Amazon’s FBA or Kim’s own e-commerce website (self-fulfilled), let’s discuss in brief what Amazon’s FBA and Self Fulfilled for online selling means.
Amazon’s FBA (Fulfillment by Amazon)
In layman language, FBA means: you choose the product that you wish to sell online, and everything else will be taken care by Amazon.
“Everything means every single thing, as the smiling sign of Amazon denotes A-Z”
In a survey by Amazon, it was reported that sales increased by 86% after sellers started using FBA.
As the name says Fulfillment by Amazon means your orders are completely fulfilled by Amazon. A detailed understanding in this article would get you more clarity to it.
So, Jim has made all plan and he’s ready to start his online business. What initially Jim is supposed to do is to create an Amazon seller account, then add FBA to it.
After completing these steps, Jim has to list all the products (here Laptops) in the Amazon catalog. Once the account is set up, Jim is all ready to sell through FBA.
Now let’s look at the few benefits that Jim or you would get using FBA.
Advantages of FBA:
- As an FBA seller, you can avail all of the shipping options that Amazon does, whatever your business size is.
- You get access to all Amazon’s Prime features.
- Send your products in Amazon’s fulfillment center then your picking, packing, and shipping etc is taken care by Amazon.
- To add a cherry on the top, Amazon itself provides customers service (depending on the product and value).
- FBA is not only limited to Amazon’s fulfillment stores and other e-commerce platforms, but you can also list your products on your individual website and use FBA to do your business.
The reason why still many sellers have been looking to become an FBA seller is that they get the extra perk of offering Prime shipping to their customers. Your customers can also filter their search by choosing which seller use FBA.
To become an eligible primer seller, FBA is the first stop to get a Prime tag. Once you’re an eligible prime seller, your products get a place on golden prime shelves where millions of Prime members can view the product.
On the top of all these things, you’ll increase your odds of winning the Buy Box.
Let me provide you the numbers why Amazons’ buy box is so essential for sellers.
- Usually, the single product is offered by multiple sellers, thus due to this tough competition giving your product a unique place increase the chance of product selling prior than other sellers.
- As much as 85–90% sales are acquired by the sellers whose product is listed in the Amazon’s buy box.
Storage, Inventory, Shipping & Returns
Don’t worry if you don’t have access to a large warehouse or storage space for your inventory. With FBA you won’t be needing any extra space, as Amazon’s fulfillment center will store all your inventory.
Fulfillment centers are present widely across multiple countries and cities, thus this gives you as FBA seller ability to select the fulfillment centers based on products you’re shipping and from where you are shipping.
So if Jim creates an inventory which is spread across multiple fulfillment centers all over the country, then Jim’s customers who buy his product may receive it faster than the sellers, whose inventories are located farther away.
Moreover, the FBA products which are priced over a certain value becomes eligible for free shipping as per Amazon’s norm.
An FBA seller can also reduce his overall shipping cost by opting for co-mingling service. How?
As I said, Amazon has multiple fulfillment centers across the world. Therefore for Jim, it becomes easy to target multiple countries/cities as Amazon will be able to ship the orders from the nearest fulfillment center where the same product is available and with the same packaging. Shipping cost will be saved here!!
When it’s about returning a product Amazon warehouse workers are there to do their work quickly. Though your buyers have 30-Days to return a product back even after they’ve received a refund. Amazon will accept the return with no questions asked — until or unless the product is damaged.
Disadvantages of FBA
Amazon also needs to pay their employee who carries out all these (almost an entire e-commerce business) tasks of yours.
- The most ‘well-known’ disadvantage that everyone talks about is the ‘High-fee’ it charges to be an FBA seller.
- You may lose your control over the inventory as everything from shipping to packing is managed by Amazon. However, if you use a dedicated inventory and order management tool you’ll be again in control.
- Freedom of personalizing your product’s packing for your loyal customers becomes a myth.
- The only thing that will be in your control is the product image and its description. Branding and Customer loyalty would be a thing which Jim or you’ll miss time-by-time.
- You won’t be able to up-sell or cross-sell your products to your existing customers, as Amazon does not let sellers capture buyer’s any information.
- If the product is not being sold for a longer period than also, you will have to pay the warehousing or storage fees.
- If 2 weeks doesn’t hurt you, then you can go with FBA as Amazon settles payment with sellers once in 14-days. Until then, the money is held to cover the cost of possible returns.
For Jim, starting an e-commerce business with Amazon’s FBA was suitable because he was new to this field and had no idea about online selling.
What is Self-Fulfilled?
Yes !! Self-Fulfillment means you are your own boss. You are the decision maker, in which the whole process of order fulfillment is taken care by you only.
There wouldn’t be any dependencies for Kim as he’ll be in charge of how the product is stored, packed and shipped. The entire process of holding and managing the inventory as well as choosing a reliable logistics partner for packing and shipping the orders will be on him.
Now let’s see what are advantages or disadvantages that Kim or you would face if the Self-Fulfilled is the way chosen.
Advantages of Self-Fulfilled
- Much cost effective if the business is small or just a startup
- You can label and package your products as you want (personalized labeling/packaging)
- Unlike in Amazon FBA, you have each and every detail regarding your customers, their buying nature, their preferences and search data, etc. This eventually helps you to create marketing plans, even cross-sell and upsell.
- You can even partner with a third-party logistics company who will handle packaging/shipping for you — while you get enough time to focus on marketing, sales, and other aspects.
Therefore, Kim has got his step bit ahead of Jim when it comes to personalizing the packaging or marketing of the product.
Disadvantages of Self-Fulfilled
- It may happen that you end up paying more to the courier partners for packaging than the actual value because the courier charges are calculated on the actual weight of the product or volumetric weight, whichever is higher.
- A situation may arise where your courier/shipping partner may get late or sometimes not even arrive for picking up the orders, which leads to late delivery.
- Managing the orders and inventory becomes a troublesome task if its not taken care of.
- If the proper and effective marketing of your product is not done, you may end up making more loss than profit, as at the initial stage the visibility of your brand/product will be low.
Conclusion
The ball is in your court, you need to decide if you want to do your business like Jim or Kim. However, both Amazon’s FBA and Self-Fulfilled are great to do business, but depending on your product and its value you need to choose.
If you’ve just started selling online, then it is recommended that you collaborate with Amazon’s FBA. Because initially, you’ll get to know what are the risks involved, market trends, your target region etc.
And, once you have established yourself in the market (i.e. you’re growing big) and you know what type of difficulties may come and how to resolve them, then you can shift your business to get complete control on everything by ‘Self-Fulfillment’.