Meeting New Amazon SFP Requirements
What Are Your Options?
New Nationwide Amazon Seller Fulfilled Prime Requirements Effective 2/1/2021
On August 20, 2020, in a post titled “Important Updates to Seller Fulfilled Prime,” Amazon first announced new Seller Fulfilled Prime (SFP) requirements. The following article details how Amazon’s bold new requirements for its SFP program are changing the face of ecommerce for third-party sellers. As history has proven, what happens on Amazon doesn’t stay on Amazon, so sellers on all marketplaces must quickly adapt to the new norm of nationwide 1-day and 2-day delivery or risk fading off the scene.
To maintain eligibility for Amazon’s highly coveted Prime badge, SFP sellers must:
- Make all Prime offers available nationwide – or not at all
- Make and keep a 1- or 2- calendar day delivery promise for standard-sized items
- Offer weekend fulfillment and deliveries
The nationwide requirement is a massive shift from Amazon’s now discontinued Regional SFP program. Before the nationwide SFP requirement, sellers could offer free Prime shipping regionally using economical ground shipping. And, because the new SFP requirements specify 1- or 2- calendar days vs. business days, merchants are now required to offer weekend fulfillment and delivery. Most SFP sellers didn’t fully understand the impact of these new Amazon SFP requirements when they were first announced last August. They certainly didn’t know how strictly Amazon would enforce them. As a result, many SFP sellers have or are at risk of losing their Prime eligibility.
More than that, though, Amazon’s new policies are resonating across all ecommerce platforms. When Prime launched in 2005, it took years for competitive marketplaces like Walmart, eBay, Shopify, and others to adopt similar strategies. But when Amazon started offering free 1-day shipping in 2019, Walmart and Best Buy quickly followed suit. We are already seeing other ecommerce sites rising to meet consumer shipping expectations to stay competitive with Amazon, which owns 38.7% of all U.S. revenue in the space.
The new reality for all third-party ecommerce sellers is that they must provide fast, free shipping. Here is a look at everything you need to know about Amazon’s new SFP requirements, what they mean for your overall business, and what you can do to become compliant ASAP.
Amazon's New SFP Requirements
Third-party sellers nationwide were courted to sell their products on Amazon.com through the SFP program in 2016. The process was relatively simple. You listed your items on the site and offered free two-day delivery of products within specific geographic regions you could select. Those orders shipped directly from your warehouses, offering control and flexibility that was attractive to many sellers.
Businesses selling products through this program generally did well. But Amazon found inconsistencies with the customer experience, which reflected upon their brand reputation and not that of the sellers. According to an Amazon spokesperson, fewer than 16% of U.S. SFP orders were delivered within Prime’s two-day guarantee, even before the Covid-19 pandemic.
One of Amazon Prime’s main selling points is free 1-to-2-day delivery. Fast and free shipping is a big reason many consumers pay a $119 (plus taxes) fee for the annual subscription. Amazon could ensure the products it sold directly to consumers met this expectation. However, they had less control when third-party sellers came into the fulfillment and shipping equation. They needed to find a way to make the customer experience more consistent and meet delivery expectations.
In a post titled “Recent changes to Seller Fulfilled Prime FAQ,” Amazon detailed the new Amazon SFP requirements. They include:
- 1- and 2-Calendar-Day Delivery Promises: By February 1, 2021, at least 20% of SFP sellers’ product detail page views had to promise order delivery within one calendar day of purchase. They also had to have at least 55% of their product detail page views promise delivery within two calendar days or less. By June 1, 2021, the percentages rise to 30% and 70%, respectively.
- Pickups and Deliveries on Weekends: Many third-party sellers don’t operate on weekends. The lack of weekend fulfillment was one of the main issues causing delays in getting orders to customers within the Prime guaranteed timeframe. Amazon now requires SFP sellers to ship packages at least one day every weekend. This change is significant for third-party sellers. It means having to retool operations plans, arrange for Saturday or Sunday pickups with carriers, deal with increased expenses and other logistics challenges.
- Delivery Guarantees for Standard-Sized Items Apply Nationwide: One of the Regional SFP program appeals was that you could choose the regions to which you guarantee fast, free shipping. With Regional SFP, you could keep inventory for quick fulfillment in areas you have warehouses and save costs with economical ground shipping. Amazon has taken away this flexibility for standard-sized items, defined as packages that weigh less than 20 pounds and have dimensions up to 18”x 14” x 8.” Sellers now must offer guaranteed Prime shipping nationwide for items meeting these criteria. However, merchants can still offer oversized products regionally.
How Amazon SFP Changes Impact All Ecommerce Marketplaces
All of these changes have shaken the ecommerce landscape. Amazon has also put its foot down, offering no exceptions to the new rules. Those who don’t meet performance metrics or compliance standards face suspension of Prime eligibility. Of course, sellers can always opt-out of the SFP program instead of adapting to the changes. This route comes with downsides – like losing visibility from many of the 126 million Amazon Prime members.
Opting out of selling on Amazon isn’t going to be a long-term solution for most businesses. Amazon and its policies are transforming consumer expectations from all ecommerce marketplaces. As of 2018, 99% of U.S. consumers make online purchase decisions based primarily on the speed of shipping, according to a Dropoff survey. The new norm for online shopping will soon be free shipping and arrival of purchases within 1- or 2- days from when customers complete their check-out.
Walmart launched a comparable program for free regional next-day delivery on the heels of Amazon’s new policies. It also has a Seller-Fulfilled Expedited Delivery program that has reportedly increased conversion rates by 50%. Both Walmart and eBay are giving listings with free expedited shipping options greater visibility, which undoubtedly is resulting in more sales. Shopify is expanding its fulfillment network so that sellers can compete with delivery options that are standard on other ecommerce marketplaces.
Adding Weekend Shipping
You must complete pickups and deliveries on Saturdays and/or Sundays if you’re going to meet SFP’s new 1- and 2-calendar-day (not business-day) delivery promises. Not every shipping carrier offers services on the weekend. Currently, you can usually arrange pickups from FedEx, USPS, and UPS on Saturdays. Only FedEx and UPS provide Sunday pick-up, a service typically reserved for high-volume clients. There can also be added costs to have employees complete shipping and handling tasks to get packages out the door in time.
Extending Your Same-Day Shipping Cut-Off Time
You can gain more time to complete orders within the 1-day delivery guarantee by pushing your same-day shipping cut-off time back. The default time is 2 p.m. Giving your customers until 5 p.m. to place their orders enables you to get more shipments out the door before your carriers’ last pick-up of the day. This helps increase delivery speed metrics in your Amazon Seller Central Performance Dashboard while also satisfying more customers with fast shipping. Be sure to monitor these metrics daily to make sure you’re complying with Amazon’s SFP rules. Doing this and investing in state-of-the-art shipping and fulfillment software can help you make your operations more efficient and reduce waste.
Prioritizing Fast-Moving SKUs and ASINs
Now is a good time to identify which of your SKUs and Amazon Standard Identification Numbers (ASIN) have enough sales volume and appeal to make it cost-effective to take to a national market. Prioritize fast-moving, competitively priced SKUs and ASINs.
Updating Listings with Accurate Dimensions and Weights
If you don’t have product dimensions or weight information in your product listing, Amazon considers it a standard-size product. This means you will have to provide free delivery within 1 or 2 days. Make sure your products have accurate information so that you’re only complying with this requirement when necessary.
Starting to Sell on Other Marketplaces
If you’re going to invest in fast, free shipping for your Amazon orders, you might as well list your items on other ecommerce channels and generate more sales. A recent Shopify study found that sellers who have listings in multiple marketplaces see up to 120% higher revenue growth than those whose products are only on one channel.
Investigate Nationwide SFP Fulfillment Options
Without a doubt, Amazon’s new SFP requirements are going to impact your sales and fulfillment strategies. The most cost-effective solution for delivering orders to the greatest number of customers in 1 calendar day is distributing inventory among multiple fulfillment locations across the country. A good goal to aim for is to have your products ready to ship from between five and eight locations by the June 1, 2021 deadline.
There are several ecommerce order fulfillment options to choose from, such as:
Send All Products Through Fulfilled by Amazon (FBA)
Amazon offers sellers the option to outsource order fulfillment through Amazon FBA. This can be a good option if you don’t want to deal with self-fulfillment and all that comes with it and if you only sell on Amazon. If you’re going to sell on multiple sales channels, there are https://www.cahoot.ai/peer-to-peer-order-fulillment-vs-fba/ as well. FBA has a lot of requirements, restrictions, hidden fees, and prerequisites. If you are considering Amazon FBA, make sure you understand all the rules before making any decisions.
- Amazon takes care of 24/7 customer service, fulfillment performance, and metrics
- Nearly unlimited scalability
- Attractive fees for small, light products
- You can use FBA to fulfill orders for some other channels
- Rules change a lot and can be hard to understand, especially regarding fees
- Inventory tracking can be difficult
- Surcharges apply during peak seasons
- Higher fees for fulfilling non-Amazon and oversize orders
- Some channels, like Walmart Marketplace, ban Amazon-branded packaging
- You may see more returns, as Amazon can’t help with product-related questions or concerns
Build or Lease Additional Warehouses
Adding warehouses is a simple solution that puts you in total control of your inventory, shipping, and customer service operations. Building or leasing your warehouses is a good option when you have many products that sell on a predictable schedule. You could also consider investing in more warehouses if you have long-tail SKUs, special storage or handling requirements, custom products, or significant bundling/kitting needs.
- You make the rules
- No seasonal fees or restrictions on inventory
- Fixed costs for operations, staffing
- Finding existing warehouses for sale or lease is difficult in a post-Covid world
- Cash flow and capital investment consequences for leasing or building
- Time spent shopping for property, negotiating contracts, staffing, and building operations
- It takes time to reach capacity utilization and achieve high efficiency, which drives up cost-per-unit
- There are very few software options available for managing shipping and inventory across multiple locations
Contract with Multiple 3PLs for Fulfillment
There are about 20,000 third-party logistics companies (3PLs) in the U.S. A much smaller number of 3PLs specialize in ecommerce fulfillment. Most are small businesses with 1 – 3 locations. Unfortunately, you’ll have to negotiate and operate with multiple 3PLs to meet Amazon SFP’s nationwide 1- and 2- day delivery requirements. You’ll also have to ensure each 3PL’s fulfillment standards, processes, and commitments are all aligned with Amazon SFP’s strict requirements.
One of the biggest challenges in working with 3PLs they rely on traditional shipping software like a ShipStation. With this type of software, the burden of order routing and rate-shopping falls primarily on the seller. So, f you don’t want to work multiple 3PLs, or don’t have shipping software designed for distributed fulfillment, you may want to consider a 3PL Alternative.
Working with 3PLs is a good choice if you have specialized needs, such as wholesale or B2B orders, custom inserts, inventory preparation, etc. Here are the pros and cons of working with traditional 3PLs.
- Variety of pricing and fee structures
- Can negotiate for specific services
- May have requirements for a minimum amount of volume
- Varying fees for fulfillment in different areas of the country – use a
3PL Request for Proposal (RFP) Template to compare
- Late shipping that is out of your control can result in suspension from Amazon SFP
- Need additional technology to manage inventory, route orders to the proper fulfillment centers, calculate costs, cut-off times, etc.
Go with a Peer-to-Peer Fulfillment Network
A peer-to-peer (P2P) ecommerce fulfillment network is a relatively new but fast-growing option for Amazon SFP order fulfillment that is both affordable and flexible. Within a P2P network, highly vetted and experienced ecommerce merchants act as micro-3PLs who store inventory and fulfill orders for each other. Most are savvy with the Amazon SFP program and are fulfilling SFP orders for their own businesses. A P2P network can be a good choice if you’re looking for affordable fulfillment costs and high fulfillment standards.
This unique business model also enables merchants to leverage their existing warehouse space and shipping department to start a 3PL business and make money fulfilling orders for others. Fulfilling ecommerce orders for other merchants can be an excellent way to offset some of the outsourced fulfillment costs or even earn a new, stable revenue stream.
Similar to FBA, P2P fulfillment networks are best for short-term inventory storage and fast-selling SKUs. Here are the pros and cons of joining a peer-to-peer ecommerce order fulfillment network.
- A network operator manages all activity through a single agreement
- Next-gen software manages order routing, rate shopping and provides complete visibility of fulfillment workflow across channels
- Predictable pricing structure and SLA
- Can offer flexibility for fulfillment, such as shipping from your warehouse when it is more cost-efficient instead of from a 3PL site
- Great for standard and oversized products are fast-moving
- Fewer restrictions on inventory than FBA provides
- Costs remain static in all sales channels
- No peak season or surcharges
- You have to prep your own barcodes and ship bulk inventory to warehouses
- It doesn’t work well for items that need special storage or custom handling
The Bottom Line About Amazon SFP
One-calendar-day order delivery is here to stay and will soon be the standard for all ecommerce channels. Amazon has sped up the industry’s adoption of this norm and has allowed third-party sellers to optimize their businesses for future success. Acting now sets you up to gain more market share as ecommerce continues to grow.
Webinar Transcript: Meeting New Amazon SFP Requirements
Three Big Changes to Amazon SFP
With respect to the changes, there are three big changes now on the Amazon Product Details Page:
- 1-Day and 2-Day Delivery Promise on Amazon Product Detail Page. Amazon Sellers will be required to meet a one-day and two-day delivery promise on a certain percentage of page views. Amazon created a Seller Fulfilled Prime Dashboard for Sellers to monitor their performance.
- Weekend Pickups and Delivery Required for Amazon Sellers going SFP. The second big change is weekend pick up and delivery. As part of the new Amazon SFP guidelines, Amazon wants sellers to be shipping out packages, at least one of the two weekend days, Saturday or Sunday.
- National Seller Fulfilled Prime Only Regional SFP is Discontinued for Standard Sized Items. And the third big change is there’s no more Regional SFP allowed for standard items, and we’ll break that down as well, and that’s probably one of the biggest changes in addition to weekend pick up and delivery.
Decoding Amazon’s 1-Day and 2-Day Delivery Promise
So Amazon revised its program last week. Now, if you go to your product detail page on Amazon, Amazon will now measure the number of times (so the percentage of times) your product page promises one-calendar-day delivery to the shopper and also two-calendar-day delivery to the shopper starting on February 1.
Amazon expects that if you’re part of the SFP program, that you must promise at least 20% one-day and you must promise at least 55% two-calendar-day delivery to the shopper as of February 1, and these numbers will go up to 30% and 70% as of June 1, respectively. And there’s a lot of uncertainty in how these numbers are computed, and we’ll break this down for you.
So Amazon, with the pandemic and carrier-related constraints, has offered some relief on these metrics for about four months, but June 1 will be around the corner very shortly. So what does this mean in terms of one-day and two-calendar-day promise? We will be looking at a screenshot of the Amazon product page to bring this point home.
Delivery Promise vs. Actual Delivery
However, the one-day delivery promise is not the same as getting your orders delivered in one business day, so there’s a very stark difference between how Amazon will measure this metric and how you will meet that compliance, and it is very important to understand this difference because it can be somewhat misleading.
So if you look at the product detail page on Amazon, Amazon promises provides a guideline to the shopper on when that product will be delivered, so in this particular case, if the product page serves up tomorrow and today is Tuesday, then this will in the count as one calendar day promise towards the 20% metric that we have.
Delivery Promise Displayed Depends on The Time of Day It is Being Viewed
However, it depends as to what time of day the shopper is visiting this page, because if the shopper is visiting this page after the cut-off time that Amazon is going to display day after tomorrow, not tomorrow, because if the page is visited before your cut-off time. let’s say on a Monday, you will ship the order out on Monday, and using, let’s say, a service with one-day delivery service and it arrives on Tuesday, then that will meet the one-day promise
However, the same identical product is viewed after your cut off time on Monday. Then Amazon is going to display on the page that the product will arrive on Wednesday. If it is within the one-day radius per ground if you’ve configured your shipping template. So let’s say 2 PM as your standard cut-off time, and the shopper visits the page at two or five, they are not going to see that the product arrives on Tuesday. They’ll actually see the product arise on Wednesday. So even if you ship the product on Monday and it arrives on Tuesday, it will still not count towards that metric, even though you’ve exceeded the promise that was made to the shopper. It is very closely tied to the cut-off time and what is displayed to the shopper, so in those circumstances, expediting that delivery does not earn you any bonus points as far as the SFP program is concerned.
Delivery Promised Displayed Based on Cut-Off Time and Day of The Week
So to break it down, if you’re operating Monday through Friday and you’re using the standard cut-off time for same-day orders, which is 2 PM, you cannot make it any earlier than 2 PM local time. That’s the Amazon requirement. So you get about 14 hours a day, Monday through Friday, where you can technically display one day promise, but after 20 PM until midnight, the shopper is going to see the day after tomorrow, and therefore those page views will only constitute and help you to answer two-day metrics.
So if you look on a calendar, and we made the assumption here that you’re operating at 2 PM cut off time, which is a standard SFP cutoff time, and you’re operating on Saturday, which is the new requirement that you’re shipping out packages and handing them over to the carrier on Saturday. So using that math, you get about 14 hours a day, and if you’re opening up to 20 PM on Saturday. So you multiply that time six, those are the days or hours you can count towards your one day, and of course, assuming that the traffic is evenly distributed, for the sake of simplicity on the chart and the remainder of the time, you will not be displaying one day promise to the shopper, and after 2 PM on Saturday, if that’s your cut-off time, you Amazon…
And you’re not operating on Sunday. You will not even show today because, during that red zone here, you’ll be displaying three calendars because you will ship out on Monday, the product will arrive on Tuesday, so this can be very confusing to a lot of sellers, and it’s not simple math, and of course, if you have questions, please reach out to us. And if we can’t answer in today’s webinar, we’ll get in touch with you and help you sort this out, but it suffices to say that it’s not as simple, so one of the easiest strategies that you can employ, if you have the option is adjusting your kind of time, so you can make it as early as 2 PM local time, or you can go as late as 5:30 PM local time.
That’s what’s allowed by Amazon on different days. You can adjust it by day, so if you have the ability to give and the packages to the carriers much later, you can capture more time during the weekdays and maximize that page view metric. So this is one of the easiest things you can do. However, keep in mind that Amazon has very stringent metrics in order to remain qualified for the SFP program, which is 99% on-time shipping, so if you adjust your time and you cannot fulfill, or you cannot ship the order that same day, it can get you in trouble, so you have to be very mindful of that.
Or if Amazon does not see the carrier origin scan, that is also a problem because that’s how Amazon knows whether the package is indeed in transit or not. But this is something that if you have the ability, you can easily do. Speaking of compliance and metrics, Amazon is offering new metrics that are available on your dashboard, so if you’re an SFP seller, you should see those metrics, and it’s an easy place for you to keep on top of whether you’re in compliance with one-day and two-day SFP targets are not.
And there’s also an ASIN level report, so you can look at each item and how you’re meeting those metrics. And if any item is not meeting those metrics, you may consider removing them and also adjusting your advertising dollars accordingly (if you’re using any advertising to those pages). These program requirements get very complex very quickly, and staying on top of these metrics is super important. With regards to the Saturday and Sunday pick up and delivery, the impact to sellers is quite large. It’s not just arranging for carrier backup, but you need to think about having your operations or your building open, which will mean higher utility bills.
Impact of Saturday or Sunday Pickup on Your Fulfillment Operations
If you have shifts in your warehouse, then you may have to think about rearranging them, hiring additional staff, training that staff, because those orders cannot be late. If it’s a Prime order, there’s a very, very little margin of error; only one out of 100 orders can be shipped late, and only one out of 200 orders can be canceled by the seller. So, very, very stringent metrics, and also making sure that the pickups are scheduled, and there’s no lapse in that. And there might be some implication on overtime wages with respect to weekend hours and potentially security building security and so on. So there’s a lot of change that sellers would have to accommodate and prepare for. If they plan on doing Saturday or Sunday, we recommend operating on Saturday just because those are the days that the carriers are actually operating.
Sunday, even though some carriers might do pickup, our conversations with customers reveal that there’s not going to be a lot of movement on the package on Sunday. Even though the carrier might accept the package, they may or may not actually move that package much, but something to be aware of, of course, carrier-related considerations, FedEx and UPS have now started doing seven-day delivery, but of course, it doesn’t apply to all the codes, they have certain restrictions on what services are available and what zip codes, so you may want to speak with your account representative, and also if the pick-up can be scheduled with your carrier, our information reveals that there is no hard and fast rule.
Speak with Your Carrier Account Representatives About Saturday and Sunday
You do need to speak with your account representative at FedEx and UPS to confirm whether they can make that pick-up available. USPS can also provide tech up on Saturday, but not on Sunday, and most services through FedEx and UPS, if they’re eligible for weekend delivery, do not appear to have an extra charge, but again, the devil is in the detail. Please refer to your contracts and also speak with your account representatives. Regional carriers have not yet started offering weekend pick up or delivery. We have an example of one regional carrier that can offer Saturday delivery. But there’s an extra charge for that. So you will see that those options will not be available if you’re printing labels through Amazon Buy shipping, so all of those things also need to be accounted for as you’re thinking about preparing yourself for the new SFP guidelines. So one may think of this as a big threat, or you may think of this as an opportunity, but such big changes and shifts that are happening, driven by Amazon, we believe at Cahoot, that this is simply a sign of things to come…
Just like if you had a store in the mall, you would be required to operate seven days a week, you cannot turn off that store or close that store on Saturday and Sunday, it is a requirement, and that’s the shift that’s happening in e-commerce, especially our marketplaces, marketplaces want customers to receive their products faster, and they want to sell us to be operating on weekends starting with one of the days, but most likely a Saturday, they may even require both days.
Opportunity or Threat? SFP Gets More Competitive
So previously, if you were operating in Regional SFP, most sellers were happy with Regional Prime because they could carve out a radius around the warehouse and what items they can deliver, your ground service, and what zip codes. And say if you were located in California, you would carve out a shipping template accordingly, and so could afford… And Texas, Betty in Florida, and Charlie in New York, and there wasn’t a lot of overlap. That means Charlie wasn’t selling into your territory, and you were not interfering much in Charlie’s territory.
However, now, once Regional SFP goes away. Then the challenge is… let’s say you elect not to do National Seller Fulfilled Prime and Charlie and Betty decide to jump on the bandwagon now, all the customers in your region will now see offers from Charlie, Alfred, and Betty, so if you decide not to do anything. The shoppers in California and adjoining states will now see offers from these other sellers, and that will make you less competitive. Not only will it make you less competitive on your Prime offers, but it will also interfere with your non-Prime offers.
Because if Charlie elects to put that item on Prime that you’re competing with and you don’t offer Prime, the shopper will most likely see Charlie’s offer before yours. And sometimes, even if Charlie’s is slightly higher because if the Prime shoppers logged in, they’re likely to see the Prime offers ahead of non-Prime offers. So this can have a very large impact on sellers who choose not to do anything. They operate in a competitive product category where there are several offers from other sellers.
And once these sellers figure out how to offer nationwide Prime, and if they operate in other channels, then they’re most likely going to offer the same kind of delivery promise on their other channels, so not only…
The Future is 1-Day and 2-Day Shipping on All eCommerce Channels.
Your sellers get impacted on Amazon, but they will also potentially get impacted on other channels where the seller doesn’t have to incur the Amazon commission fees, where they have the opportunity to potentially even offer a sweeter deal, another channel. So this can have a very wide-ranging impact for sellers, and we believe at Cahoot that free and fast shipping is here to stay, and it’s not just about complying with the SFP program but really preparing for the future.
What Are Your Options to Meet Amazon’s New SFP Requirements?
Expedited Shipping is Very Expensive
So what are some of the options? What can you do? Of course, the simplest thing is, if you can offer expedited shipping from your own warehouse without having to do anything else and the express shipping is affordable, then you really don’t need to worry much. You simply pay for the express shipping. But in reality, what we found is for most sellers, and using most carriers, the one day and two-day air services are significantly more expensive, today is more than twice. One-day delivery is almost four times, so it’s not a practical solution for most sellers, and this is an example, and your numbers may vary.
A More Affordable Solution it to Have Multiple Fulfillment Locations
So once again, to re-emphasize, one calendar day promise is not equal to your one-day coverage. That’s the key distinction. With respect to the Prime program, the new SFPP guidelines, the rule of time, and there’s a lot of math behind it. You should be thinking in terms of twice, which means if you need to display one calendar day promise, you should be delivering at least twice that percentage of orders in one day. That’s a simplified map, but of course, please reach out to us, and we can walk you through it.
How Many Fulfillment Locations Do You Need for Amazon Seller Fulfilled Prime?
So in case, if you wanna do one day, one-calendar-day-promise on the Amazon product detail page, you should have at least twice that in one-day delivery coverage. And this is, of course, using ground service, using one of the national carriers. If you want to meet the February 1 guidelines for one day promise, you should have four locations that would help you achieve about 42% one-day coverage to ground, and to meet the June requirements of 30% one day, you would need about nine locations, give or take. So that’s the short answer.
Fulfillment Strategies and Recommendations
With respect to what other strategies you can employ as you’re thinking about these changes, if you have some items that are moving really fast, you can use SFP. You need to take the inbound freight cost into consideration as well because sending inventory to eight or nine locations or four locations. There is an inbound cost in addition to the shipping costs. Shipping costs will be mostly nullified because you’ll be shipping by ground, but you need to take that into account.
If they’re fast-moving SKUs, you may also consider doing FBA. If you have long-tail items, now that’s a bit of a toss-up. If they’re slow-moving and unless they have a good margin, you may decide whether to do SFP or not, so this is a bit of a stronger statement here. You’ll need to look at this on a case-by-case basis, as long as what you have to account for storage and inbound transportation and oversized items, they have a different metric with respect to the new Prime guidelines, so oversized items are any items that are 18 by 14 by 8, anything larger than that or higher than 20 pounds, either one, either the dimensions are higher, or the weights higher will be classified as oversized items. The National SFP requirements are far more relaxed, and you can continue to do a lot of Regional.
So if you decide to do Amazon FBA, you need to be aware of Amazon FBA rules and Amazon FBA fees. Amazon FBA fees can be a bit of an iceberg, it may look oversimplified, but sellers have often shared that it’s really hard to reconcile them.
There are also storage limits or how many units you can send if they are brand new. New ASINs are limited to 200. You also need to maintain what they call the Inventory Performance Index (IPI), which means you cannot use FBA for long-term storage unless your inventory performance index is high. Those products may not be qualified for replenishment, and you may start incurring additional fees in addition to that.
FPA has peak seasonal charges, which are the storage fees and all numerous other fees are several times more during Q4, something you need to be aware of. And they’re constantly changing requirements with respect to FBA that you need to stay on top of. And also, you are more likely to receive higher returns on FBA because the cast customer can involve the return without even consulting with you, so something to be aware of.
If you choose not to do SFP, you can certainly outsource all your fulfillment to FBA, but aware of the FBA guidelines and also the inventory prep requirements, you can elect not to do Prime and only offer standard shipping, that is only a solution if you don’t have a lot of competition, because a large majority of families and shoppers are Prime shoppers, so you will have an impact…
That may have an impact on your sales because Amazon prioritizes Prime offers over non-Prime, so unless you’re in a very unique category and it’s not a lot of competition, that might work. And you may consider diversifying. There’s a lot of opportunities in other channels that our next speaker from GeekSeller can talk about. That’s what they do. So I’m gonna hand it over to GeekSeller now.
Selling on 3 or More Channels Increase Revenue by Over 200%
Okay, thank you, Manish. So what we’ve seen a GeekSeller is you wanna diversify your marketplace channels as well as your fulfillment centers, so definitely over this time of covid, we have seen a lot of marketplace sellers specifically coming from Amazon, where Amazon would stop shipping their products for a certain period of time, or they would just stop accepting inbounds, this obviously will affect your business, so it is… You can’t really plan for a situation like Covid, but you can plan to have other fulfillment channels that will kind of pick up the slack when one of them, in this case, FBA, decides to kind of throw a wrench into your plans. This is something that we have found out, just from being in the space, increasing your sales channels leads to an increase of sales up to 200% when you add up to three additional market places in addition to your primary marketplace or your website.
Expedited Delivery Drives Organic Lift in Conversion and Sales
Now, this is the thing that goes in line with what Cahoot was talking about earlier when you do mention specifically trends that we’ve found in Walmart. Still, as you can see, there’s a strong correlation between expedited delivery promise and conversion rates, which leads to more sales, the increase from standard shipping, which would be the seven or five days, which is your other option, if you choose not to do an SFP is you could see 50% from increasing just from a standard delivery promise to a two-day promise, so I can only imagine what a one day promise would increase yourselves to…
From the GeekSeller platform, you can integrate with multiple fulfillment channels, including your own personal warehouse, and deep seller will route orders based on automation rules or available inventory, so you can connect multiple fulfillment channels to our platform, you can have inventory there, we can make automation rules based on, you would like to have this channel be a priority for fulfillment. Then you would like to use another fulfillment channel as kind of a Plan B, also your personal warehouse, you can have in-orders come in through all of your marketplaces, and from there, if they’re signed to your personal warehouse, you can integrate with hundreds of shipping carriers and purchase the shipping label and print that through our platform.
The quantity distribution is what I was mentioning earlier, so you can connect your multiple fulfillment channels to our platform, so say that you are working with Cahoot, another 3PL. You have your own personal warehouse, each one of these have inventory available in them, so what will happen is that GeekSeller? You’ll be able to see where all of your inventory is based on which fulfillment channel, but the marketplace will just get the sum total of all of that inventory. You can connect multiple marketplaces to one place. That way your marketplaces will all share inventory from your fulfillment channels, and deep sellers will handle the order rating based on those automation rules or the available inventory. You can also set up quantity rules. These quantity roles, they’re very successful on eBay. This is where if you wanted to prevent the over-selling of your product, we can institute a quantity role that when there’s actually three or a random number available in your available inventory, we would actually trigger an inventory update of zero to be sent to the marketplace that way, you will no longer get orders for that specific SKU, and that way you will not be able to over-sell your products.
Really exciting metrics there with three-plus channels and what delivery speed does to conversion. And Walmart Marketplace is really hot, so certainly encourage sellers to look at multi-channel selling with respect to not having all your eggs and a single warehouse or a single SBA basket.
Three Ways to Expand Your eCommerce Fulfillment Capabilities
1. Add Warehouses of Your Own
There are three ways you can expand your fulfillment capabilities. Of course, the most obvious one is adding more warehouses of your own. However, the data that we have is the industrial rents are at an all-time high because of the scarcity of warehouses. Therefore, this is going to be a price investment, especially when the demand is high, and supply is low. Then you have to research and find these warehouses to lease or to buy, then think about the security deposit that you’d have to put up to acquire that.
And as we saw, to meet the February requirements, you’ll need about four or four warehouses, and you need to hire new people to manage that operation. Although the cost of additional infrastructure may be fixed in terms of rent, utilities, and staffing, it is going to be hard to achieve high efficiency in the early days. Because you will probably not utilize those all for warehouses to optimum capacity, and therefore your cost per unit could be significantly higher, not to mention the operation and technology requirements that you need to know, route orders by purchasing the label from the right carrier using by shipping and if you really push that cut-off time further later in the day. You need to get the orders out and give them to the carriers for origin scan, and also making sure you don’t run into an oversell situation. So a complex undertaking. In review, however, the merits of this strategy are, of course, you have full control, you can do whatever you want, if you have custom products and any kind of custom requirements, you can do it however you please, so there are some advantages in terms of control…
- Outsource Fulfillment to 3PLs
The second strategy is outsourcing to 3PLs, there are about 20,000 companies out there, and two-thirds of the 3PL companies are mom and pop operations. That means they only have one, two maximum of three locations, and most of the 3PLs are single location operations. So you’ll need anywhere between three to eight partners or three to eight 3PLs that you’ll have to negotiate with. Each 3PL has their own contract, their own service level agreements, and then you will need the technology to route all these orders to the right place and ensure inventory control. There’s not a lot of software and technology available to make all this happen. In many cases, the 3PL may require you to integrate with their system, as opposed to them operating out of your system. All of this, you need to achieve 99% on-time shipping, which can be somewhat challenging, and also each 3PL specializes in their own product category, so you might have to also look at that to ensure that they can handle your products.
- Join a Peer-to-Peer Fulfillment Network
The other option is to join a peer-to-peer network, such as Cahoot, which has created a new business model with sellers, just like yourself, who may be operating with a single warehouse. However, they can now also offer fulfillment services to other sellers in different regions, and all of this is orchestrated through Cahoot.
So essentially, on the Cahoot Peer-to-Peer Fulfillment Network, we have SFP merchants who are living and breathing these SFP guidelines every day, unlike a 3PL, which may or may not be familiar with SFP. And most 3PLs shy away from doing SFP orders, to begin with. So Cahoot bridges that gap and also makes a revenue stream and income stream available to merchants who wish to participate, not only as a seller who can outsource their fulfillment to the Cahoot network, but also to act as a fulfillment partner and make money for filling orders for Cahoot.
And there’s no integration needed. In this particular case, there’s a single agreement. If you choose to come on to Cahoot is a single pricing, single SLA that applies across the board across our locations. So this could be a really easy way for sellers to get started, get low fees from an operating cost perspective. There is a monthly platform fee that you need to be aware of. Still, it makes the job of order routing and fulfillment really simple because the Cahoot software enables merchants and sellers to print their labels from their warehouse using the same identical software as getting full visibility into their orders fulfilled by any of the Cahoot locations, so the one software to print all your labels…SFP, non-SFP, Amazon, non-Amazon.
And we integrate with GeekSellers, so they can pretty much bring orders from just about every channel, and you can utilize the same software to ensure that every order gets shipped on time, be it from your warehouse or from any of the Cahoot locations, and on top of that Cahoot has an operations team that is keeping on top of these SFP orders to ensure that all the fulfillment partners are abiding by the strict standards, they are properly vetted and to ensure that your metrics are not compromised.
In terms of control, similar to Fulfilled By Amazon (FBA), the Cahoot network is not designed for long-term storage. You still have to prep your inventory just as you would to send to FBA, similar barcoding and packaging requirements, and you may not be able to do the level of customization that you would do in your own warehouse, but that’s intended to keep the costs low.
Summary of New Amazon Seller Fulfilled Prime Changes
Three big changes as part of the SFP program and it is coming in two phases, February 1 and June 1. One calendar-day and two calendar-day delivery promise on the product details page on Amazon. Weekend pick up and delivery, so Amazon wants you to be shipping orders out either Saturday or Sunday. And now there’s no more Regional Prime for standard products.
You must offer National Prime, or you will not be eligible for SFP. This will result in a higher competition. The sellers that offer Nationwide Prime will encroach your turf if you have not been seeing them previously. And the folks that can figure out how to do this with good unit economics are likely to win, and not just on Amazon, but very soon, they’ll offer a similar promise on other channels. So all channels will benefit three ways to cope. Add additional warehouses of your own, outsource to multiple 3PLs or join a peer-to-peer fulfillment network such as Cahoot.