Overcoming FBA Restrictions with Agile Fulfillment

Last week the Amazon FBA (Fulfilled by Amazon) community was shaken by Amazon’s decision to restrict the kinds of inventory it’s receiving until April 5, 2020. Shipments of inventory turned away, and many FBA sellers left to fend for themselves amid the crisis. Many sellers who still have FBA inventory are panicking after seeing delivery dates pushed to April, and some items would even take a month to deliver. Many voiced concerns about losing an entire month of sales.

2021 Update: To learn about the latest FBA restrictions and to discover how to mitigate risk and maximize Amazon sales in Q4 and beyond, check our article and on-demand webinar on How To Improve Your IPI Score & Maximize Amazon Sales

Amazon SFP Sellers are Also Hitting Bumps

As merchants rush to convert their listings to Fulfilled by Merchant (FBM), some merchants on the Cahoot Order Fulfillment Network have reported that Amazon has started assigning weekend delivery dates to some Seller Fulfilled Prime (SFP) orders. It’s unclear at this time as to the reasons or which orders or merchants are impacted. One example is a medical supply Cahoot merchant in California. The merchant received several prime orders with a Saturday delivery deadline. Unfortunately, the only delivery option available through Amazon for the deadline was a $120 one-day air service for a $40 item. This is most likely a glitch in Amazon systems. Still, Sellers must fulfill these orders using expensive overnight shipping to maintain their good standing with Amazon or risk losing the SFP selling privileges.

Agile Ecommerce Order Fulfillment is the Present and the Future

COVID-19 situation has exposed a fundamental flaw of over-reliance on a single fulfillment channel. Just like an investor would diversify its portfolio between multiple asset classes, Amazon Sellers should not rely exclusively on FBA for their order fulfillment. There are order fulfillment options that are within your reach, and some of them can even be set up and running in a matter of days.

At Cahoot, we believe in agile order fulfillment that can quickly adapt to changes. Agile fulfillment requires three parts: (1) Flexibility, (2) Resilience, and (3) Scalability. Flexibility implies fulfillment that follows the money, so you can quickly adapt and make changes—for example, quickly adding order fulfillment capabilities in regions where demand is concentrated. If you get a surge of orders from California, having a fulfillment option regional or local to in California would help you lower shipping costs while speeding up deliveries. Flexibility also means the ability to shift fulfillment locations when demand patterns change naturally or as a result of new sales channels or marketing campaigns.

Resilience in ecommerce order fulfillment means making sure your pick, pack, and ship operations continue during disruptions. Major events like the Amazon FBA restriction won’t bring your business down if you have redundant fulfillment capabilities.

Scalability means ensuring your order fulfillment capacity can scale to support your business’ growth and downturn. Having multiple fulfillment options and the technologies that tie them all together can minimize disruptions as your business grow. The aim here is to right-size your operations to suit your business demands while optimizing costs

4 Order Fulfillment Alternatives for Amazon Sellers

Below are 4 popular agile order fulfillment options for sellers to consider.

Own Warehouse

Setting up order fulfillment operations within your own warehouse could be a reasonable stop-gap measure if you have the systems, supplies, and staff. This is a good redundancy strategy to continue selling if FBA goods ever go out of stock.

However, continuing to do order fulfillment using a single fulfillment center is unsustainable when compared to the cost and speed of FBA. Fulfilling 1-day or 2-day delivery prime orders from a single location is very costly. A guaranteed next-day express shipping service is four times the cost of an economical ground shipping.

Pros:

Suitable for a temporary back-up option for FBA
At full capacity utilization, order fulfillment can be very economical
Complete control over your operations and full flexibility in how you package your items

Cons:

Requires considerable time and resources to find, train and manage staff and day-to-day operations
Limited coverage via Ground service to deliver orders within 1-Day and 2-Day
Reaching and maintaining full capacity utilization year-round is very hard
May not be suitable for Amazon orders if the Operations are brand new which can lead to unacceptance fulfillment defect rates

3PL (Third Party Logistics)

3PLs can provide flexibility by allowing you to add order fulfillment locations faster than building your own warehouses. Smaller 3PLs may be willing to offer lower prices to compensate for their limited coverage.

Smaller 3PLs are a good choice if you already have your own order fulfillment operations and are only looking for a new location to have better two-day ground coverage. Smaller 3PLs are often mom-and-pop operations with limited technology and capacity. Hence, limited in scalability. If you’re looking to offer free one- or two-day shipping across the U.S., working strictly with small 3PLs can be complicated. It may require working with multiple companies, integrating all of their systems to yours, and maintaining them regularly. Plus, you will not have the flexibility to re-calibrate your fulfillment in response to changing customer demand patterns. And, you will be impacted if your single 3PL site has to shut down or downsize their operations for whatever reason.

Pros:

Add new locations to complement your own order fulfillment
Access to discounted freight and parcel shipping rates negotiated by the 3PL
Supports multichannel order fulfillment

Cons:

Limited capacity and flexibility. They often require long-term contracts with a minimum volume commitment for favorable pricing.
Limited technology to provide real-time visibility and intelligence into the orders and fulfillment
Difficult to reliably achieve economical 1 or 2-day delivery nationwide.
Support for Seller-Fulfilled Prime orders may be limited due to demanding SLAs and special requirements

On-Demand Warehousing

On-demand warehousing or 4PLs (Fourth Party Logistic Model) are services that manage multiple 3PLs so merchants can quickly add warehouses as needed. They help merchants find new warehouses that fit their location, timing, or special handling needs (e.g., hazmat, temperature-controlled, perishables, to name a few). Companies such as Flexe, Flowspace, and Ware2Go are platforms that connect 3PLs who have excess storage space with sellers who need them. 4PLs make it simpler for merchants to work with multiple 3PLs because merchants only need to integrate with the 4PL and have the flexibility of short-term space rentals (instead of the long-term commitment typically required by 3PLs).

4PLs generally provide customer support and additional services such as receiving inbound shipments, storage, pick-and-pack, and outbound shipping. But through multiple facilities in distributed geography instead of just one.

Like 3PLs above, merchants need to make sure the 3PLs they are working with are capable of offering 1-day or 2-day delivery nationwide. Not all 4PLs are geared toward fast and cost-effective B2C e-commerce order fulfillment as some tend to specialize in services such as bulk store replenishments, short-term storage facilities, or FBA inventory prep. Because 4PLs are primarily selling 3PL storage and fulfillment services, sellers have to figure out how to optimize their overall costs and business operations by themselves.

Pros:

Only pay for warehouse space you need without the long-term commitment.
Minimize complexity from integrating with multiple 3PLs to just one 4PL
Storage fees may be cheaper than conventional 3PL models because warehouses on the platform mostly list their unused space.
Supports multichannel orders

Cons:

Does not specialize in Amazon eCommerce order fulfillment.
Support for nationwide Amazon Seller-Fulfilled Prime (SFP) fulfillment could be unpredictable, where the performance metrics are very demanding and there is little to no room for errors.
Space availability varies frequently and dependent on the 3PL partners who are simultaneously servicing their own clients and other platforms.
Potentially more expensive than a traditional 3PL for eCommerce order fulfillment because both the warehouse and the platform need to make money.

Peer-to-Peer Order Fulfillment^TM

Services like Cahoot offer Peer-to-Peer eCommerce Order fulfillment^TM, which is a hybrid between in-house fulfillment and 3PLs. It combines the flexibility and reach of a 4PL with the cost efficiency of in-house fulfillment. In the peer-to-peer model, ecommerce sellers exchange warehouse space and fulfillment services. Under this model, merchants who currently do their own order fulfillment can now work together in a coalition and offer free and fast shipping to each others’ customers wherever they may be located.

Peer–to–peer model offers the most agile order fulfillment because it connects ecommerce sellers to a network of trusted peers, thereby creating a very large network.

First, it provides unparalleled flexibility because online retailers can quickly and easily re-calibrate their fulfillment strategy and locations in response to their inventory demand graph as opposed to serving all customer orders from a fixed fulfillment configuration. This enables Amazon sellers to win the buy box more often and without undue compromise to their margins.

Second, it provides resilience because online sellers collaborate with multiple geographically distributed fulfillment nodes simultaneously on a large-scale global network. So if one partner falters, the merchant can still continue their operations without any business disruption.

Third, peer-to-peer order fulfillment provides high scalability due to the sheer number of high-performing members on the network who each has varying scales of warehouse capacity and resources.

Peer-to-peer’s workshare model allows for the lowest overall storage and order fulfillment costs compared to other options.It takes mere days to start having your stuff fulfilled through Cahoot, and you can get shipping in no time. To learn more or get started, contact us today.

Pros:

Peer-to-peer gives brands and retailers access to the widest range of ecommerce order fulfillment locations, both domestic and international.
Overall storage and fulfillment fees are the lowest because of its unique “workshare” model.
Works with other merchants of repute who have a proven record of handling fast same-day SFP orders and defect-free operations.
Scales easily and cost-effectively to support the most demanding SLAs

Cons:

Not always a solution for newer merchants as acceptance into the network requires a proven track record of high-performance fulfillment that can be verified
Does not offer custom branding or packaging inserts currently.
Merchants may need to arrange for inbound freight to the receiving warehouses.
Not suitable for drop-ship merchants or ones who carry just-in-time inventory.

Offer 1-day and 2-day shipping at ground rates or less.

Learn More

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Written By:

Indy Pereira

Indy Pereira helps ecommerce brands optimize their shipping and fulfillment with Cahoot’s technology. With a background in both sales and people operations, she bridges customer needs with strategic solutions that drive growth. Indy works closely with merchants every day and brings real-world insight into what makes logistics efficient and scalable.

Up to 64% Lower Returns Processing Cost

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Amazon FBA Fees Explained: A Seller’s Breakdown

What Is Amazon FBA?
Benefits of Using Amazon FBA
Comprehensive Breakdown of FBA Fees
Amazon SIPP Program: What It Is & How It Saves You Money
Calculating Amazon FBA Seller Fees
FBA vs FBM vs SFP: Which Fulfillment Model Is Best?
FBA vs 3PL: Which Is More Cost-Effective?
Is Amazon FBA Right for You?
Frequently Asked Questions

Have you ever wondered how Amazon merchants selling $2 items can possibly make a profit? The truth is that they are not.

Amazon SFP Fulfillment

Amazon FBA Alternative

New Amazon SFP Requirements

3PL Fulfillment Alternatives

3PL RFP Template

In fact, most Sellers fail to calculate all of the fees associated with selling on Amazon and end up losing money as a result. To make matters worse, Amazon doesn’t exactly make it easy for merchants to tabulate all of the costs associated with selling on its marketplace and there are many hidden costs that Amazon doesn’t tell you about.

This guide will walk you through everything you need to know about FBA, including how it works, the full breakdown of Amazon fees, hidden costs that Sellers often overlook, and comparisons with alternative fulfillment options like FBM (Fulfilled by Merchant), SFP (Seller Fulfilled Prime), and third-party logistics (3PL) providers.

What Is Amazon FBA?

FBA is a fulfillment service where Amazon stores, picks, packs, and ships products on behalf of its third-party (3P) Sellers. Additionally, it manages customer service and returns, making it an attractive option for businesses that want to scale without handling logistics themselves.

For Sellers looking to maximize their business potential, Amazon offers a professional selling plan that includes additional tools, services, and reporting features.

How FBA Works: Step-by-Step

Send Inventory to Amazon – Sellers ship products to Amazon’s fulfillment centers. They can choose to split inbound inventory and ship to the addresses Amazon provides, or Amazon will charge an inbound placement fee for distributing inventory on their behalf. This fee varies based on the product’s size and shipping weight.
Storage – Amazon stores the inventory until an order is placed.
Order Processing & Shipping – Once a customer makes a purchase, Amazon picks, packs, and ships the order.
Customer Service & Returns – Amazon manages inquiries, returns, and refunds for FBA orders.

Benefits of Using Amazon FBA

Prime Eligibility – Products are automatically eligible for Amazon Prime’s fast, free shipping, making them more attractive to buyers.
Hands-Free Logistics – Amazon handles storage, shipping, customer service, and returns.
Scalability – Sellers can scale their business without worrying about fulfillment logistics or hiring staff.
Better Buy Box Placement – FBA products often have an edge in winning the Buy Box, increasing sales potential.
Revenue Calculator – A tool that helps Sellers estimate referral fees and potential profits, assisting in making informed decisions about their fulfillment methods.

However, these benefits come with a cost. Let’s break down the fees involved.

Comprehensive Breakdown of FBA Fees

Amazon FBA fees vary based on product size, weight, and storage duration. Understanding the various selling fees is crucial for accurately calculating total selling costs and maintaining profitability. Below is a detailed breakdown.

1. Fulfillment Fees (Per Unit)

FBA fulfillment fees cover picking, packing, and shipping and are determined by the size and weight of the item, and it’s important to understand these fees for effective pricing strategies.

Detailed table showing Amazon FBA fulfillment fees breakdown by product size and weight categories for accurate seller cost calculation

2. Monthly Storage Fees

Amazon charges Sellers a monthly fee for storing inventory in its fulfillment centers. The following are the 2025 base monthly rates and they increase as Storage Utilization Surcharges are applied after 22 weeks in storage. For standard-size products in non-peak season, these surcharges increase the total storage cost by more than 56% after week 22, and nearly double after 28 weeks in storage, etc. This assumes products are not classified as ‘dangerous’:

Period	Standard Size (per cubic foot)	Oversized (per cubic foot)
January – September	$0.78	$0.56
October – December (Peak)	$2.40	$1.40

3. Long-Term Storage Fees

If inventory is stored for over 365 days, Amazon applies long-term storage fees (called the Aged Inventory Surcharge):

$6.90 per cubic foot OR
$0.15 per unit (whichever is greater)

Sellers need to closely monitor inventory levels to avoid these charges.

4. Referral Fees

Referral fees are percentage-based fees on each sale, varying by category. It’s the base fee that’s paid by all Amazon Sellers for the privilege of selling on the Amazon marketplace, whether orders are Seller-fulfilled (a.k.a. FBM) or fulfilled by Amazon (FBA). Most categories are charged between 8-15%.

Product Category	Referral Fee
Electronics	8%
Beauty & Health	15%
Books	15%
Apparel	17%

5. Removal & Disposal Fees

If a Seller wants to remove inventory from Amazon warehouses, they pay:

Standard-size items: $0.52 – $1.51 per unit
Oversized items: $1.51 – $4.10 per unit

Disposal fees are slightly lower but still add up over time.

6. Returns Processing Fees

For certain categories like apparel, shoes, and jewelry, Amazon charges the Seller for returns, equivalent to the fulfillment fee for that product.

7. Refund Administration Fees

Refund administration fees are an essential aspect of Amazon FBA fees that Sellers need to be aware of. When a customer requests a refund, Amazon charges a refund administration fee to process it. This fee is either $5.00 or 20% of the refunded charge, whichever is less.

These fees are deducted from the Seller’s Amazon account balance. If the account balance is insufficient, the refund administration fees are charged to the Seller’s credit card. It’s crucial for Sellers to monitor these fees closely, as they can add up quickly, especially in categories with high return rates. Keeping an eye on refund administration fees and understanding their impact on your overall profitability is vital for effective financial management.

8. Low-Inventory-Level Fee and Aged Inventory Surcharge

Amazon imposes a Low-Inventory-Level Fee (in addition to other storage fee types) to encourage Sellers to manage their inventory efficiently and maintain sufficient inventory to fulfill new orders. This fee applies to standard-size products with consistently low inventory relative to customer demand. It starts at $0.32 per cubic foot and reaches $1.11 per cubic foot, based on a “historical days of supply” metric.

In addition to the Low-Inventory-Level Fee, Amazon also charges an Aged Inventory Surcharge for items stored for more than 365 days. This surcharge is $6.90 per cubic foot per month. To avoid these fees, Sellers should regularly review their inventory levels and remove slow-moving or obsolete items. Effective inventory management can help minimize these additional costs and improve overall profitability.

Hidden or Lesser-Known Amazon FBA Seller Fees

Sellers often overlook these extra costs:

Unplanned Services Fees – Charged when inventory arrives without proper labeling or packaging.
Inbound Shipping Costs – Amazon doesn’t cover shipping to their warehouses, Sellers must pay for it.
Selling Plan Fees – Costs associated with the Individual or Professional selling plans, providing access to various tools and services.

Amazon SIPP Program: What It Is & How It Saves You Money

The Ships in Product Packaging (SIPP) program lets Sellers send products in their own packaging (or native retail packaging), eliminating Amazon’s additional packing materials.

SIPP Fee Discounts

By participating in SIPP, Sellers receive discounts on fulfillment fees ranging from $0.04 to $1.32 per unit, depending on size and weight. Compared to standard FBA fees, SIPP reduces costs while supporting sustainability.

Program	Fee Reduction
SIPP (Standard-Size)	$0.04 – $0.23 per unit
SIPP (Large Bulky, <50 lb)	$0.58 – $1.32 per unit

Calculating Amazon FBA Seller Fees

Calculating Amazon FBA Seller fees can be complex, but understanding the various fees involved is crucial for maintaining profitability. Here’s a step-by-step guide to help you navigate the process:

Determine Your Selling Plan Fee: Choose between the Individual plan, which costs $0.99 per item sold, or the Professional plan, which has a monthly subscription fee of $39.99.
Calculate Your Referral Fee: This fee is a percentage of the total sales price and varies by product category, typically ranging from 5% to 15%.
Calculate Your Fulfillment Fee: This is a flat fee per unit, determined by the product’s size and weight, ranging from $3.06 to $6.62 for standard-size items under 3 pounds (excluding apparel which commands slightly higher fees).
Calculate Your Shipping Cost: This is the cost of shipping the item to the customer, which can vary depending on the shipping carrier and method.
Add Any Additional Fees: These may include high-volume listing fees, rental book service fees, or refund administration fees.

By following these steps, you can get a clear picture of your Amazon FBA Seller fees and ensure that your pricing strategy covers all costs, helping you maintain profitability.

FBA vs FBM vs SFP: Which Fulfillment Model Is Best?

Fulfillment Model	Best For	Prime Eligibility	Control Over Shipping	Storage & Shipping Costs
FBA	High-volume Sellers	✅ Yes	❌ No	Moderate to High FBA fulfillment costs
FBM (Fulfilled by Merchant)	Low-margin or niche Sellers	❌ No	✅ Yes	Can be lower depending on product size and weight
SFP (Seller Fulfilled Prime)	Established Sellers with robust logistics	✅ Yes	✅ Yes	Varies depending on ship distance and speed requirements

Which One Should You Choose?

FBA: Best for Sellers who prioritize Prime eligibility and hands-off logistics.
FBM: Ideal for low-margin products or Sellers that either have their own fulfillment infrastructure or partner with a modern and high-quality 3PL.
SFP: Works well for brands who want Prime benefits and either have established fulfillment capabilities or outsource fulfillment to a 3PL that supports SFP.

FBA vs 3PL: Which Is More Cost-Effective?

A third-party logistics provider (3PL) can be an alternative to FBA. Here’s how they compare:

Factor	Amazon FBA	3PL Provider
Fulfillment Cost	High unless products are small and light	Lower for higher order volumes
Brand Control	Limited	Full control
Customer Service	Amazon handles	Seller handles
Storage Fees	Monthly charges, punitive long-term fees	Monthly charges, long-term fees vary but are lower

3PLs are best for Sellers who need lower storage fees, more branding control, and multi-channel fulfillment. FBA is best for Sellers looking for speed, Prime access, and hands-free logistics.

Is Amazon FBA Right for You?

Amazon FBA is a powerful fulfillment option, but understanding the full cost structure is key to maintaining profitability. While FBA provides logistical ease, Prime access, and customer service, it also comes with various fees that can quickly destroy margins, making a business unprofitable if they’re unable to actively manage the program.

To maximize profits:

Track your FBA fees regularly using the reports available in the Professional Selling plan and optimize inventory to avoid long-term storage charges.
Consider SIPP if your products qualify for reduced fulfillment fees.
Compare FBA with FBM, SFP, and 3PLs to find the best fulfillment model for your business.

With the right strategy, Amazon FBA can be a game-changer for your ecommerce success! It just takes work and reliable monitoring to make adjustments before fees get out of control.

Frequently Asked Questions

What is Amazon FBA?

Amazon FBA is a fulfillment service offered by Amazon that allows Sellers to store their products in Amazon’s fulfillment centers. Amazon handles the packaging, shipping, and customer service for these products.

How much does Amazon FBA cost?

Amazon FBA costs vary depending on the product size, weight, and shipping method. Sellers can expect to pay a flat fulfillment fee per unit, ranging from $3.06 to $6.62 for standard-size items under 3 pounds. Larger and heavier items can expect to pay between $9.61 and $194.95, or more if a product is more than 150 pounds.

What is the difference between Amazon FBA and FBM?

Amazon FBA is a fulfillment service where Amazon handles the logistics, while FBM (Fulfillment by Merchant) is a fulfillment method where the Seller manages the packaging, shipping, and customer service themselves.

How do I calculate my Amazon FBA Seller fees?

To calculate your Amazon FBA Seller fees, you need to determine your selling plan fee, referral fee, fulfillment fee, shipping cost, and any additional fees. Understanding these components will help you price your products effectively and maintain profitability.

Written By:

Indy Pereira

Up to 64% Lower Returns Processing Cost

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Amazon Buy With Prime: A Game-Changer for Customers, But a Trojan Horse for Merchants

Guillaume Le Tual, host of the E-Commerce Wizards Podcast, interviews Manish Chowdhary, CEO of Cahoot, about Amazon Buy With Prime. The service allows merchants to install the Amazon Prime button on their product page, shopping cart, and checkout. Customers can then log in to their Amazon Prime account to check out and receive one or two-day free shipping, free returns, and no minimums. For customers, it’s a great service, but for ecommerce merchants, it’s a Trojan Horse. Amazon Prime circumvents the entire order checkout process from the merchant’s platform, and payment processing goes through Amazon, which also collects data about the customer and charges the seller for order fulfillment. While Amazon FBA can be a benefit for merchants who lack a strong shipping distribution system, there’s also a cost of 15% that some merchants say is too high to make a profit. Amazon Prime service is a big deal for merchants because it can replace their whole checkout experience and be a disadvantage for them.

Guillaume:

Hello, everyone. Guillaume Le Tual here, host of the E-Commerce Wizards Podcast, where I feature leaders in e-commerce and business.

Today, for a second time, our guest is Manish Chowdhary, who’s the CEO of Cahoot. And we’re going to have a chat together about what is Amazon Buy With Prime.

Speaker 3:

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Guillaume:

So Manish, thanks for being here for a second recording.

Manish:

Thank you for having me, Guillaume. Thank you very much.

Guillaume:

All right, can you enlighten us? What is, first of all, Amazon Buy With Prime?

Manish:

Amazon Buy With Prime is the Amazon’s mission to dominate the world, as it always does. But let’s break it down.

What Amazon Buy With Prime is, it’s essentially an option for websites outside of Amazon to install the familiar Amazon Prime button on the product page, in their shopping cart and checkout. So the user, instead of checking out through your native platform’s shopping cart and checkout, you can check out by logging into your Amazon Prime account, as you would on your Amazon.com website.

And as a result of that, you will get all the benefits of Amazon Prime, which is one or two-day free shipping, free returns, and also there’s no minimum and so on. So you log in, and you check out using Amazon, and then Amazon will ship the item to you from its FBA, Fulfillment by Amazon Warehouse, and you’ll get it in one or two days.

So great service for the consumer, but of course, not so great for the sellers, which I can talk about further.

Guillaume:

Yes, exactly. From an entrepreneurship and business point of view, it’s like, oh, big red flags here showing up. So, okay, what do you see as a red flag for merchants here?

Manish:

Right. So for the merchants, for the sellers, I call Amazon Buy With Prime a Trojan Horse. It’s essentially, what Amazon did with its AWS, the web services or the hosting division, they started using the web hosting for themselves. And then they converted that into a mass service that we all, many of us use, Amazon’s Web Hosting Services.

So this is Amazon’s attempt to basically get into the 3PL, the order fulfillment world. They built the Amazon FBA for themselves, for products that are sold on Amazon, and now they’re opening this up to the larger internet. So if you are selling on your own website, how can Amazon participate and get a share of that wallet from your website, because they have 150 million subscribers? But essentially, what Buy With Prime is doing is essentially encapsulating three different Amazon services into one, which is Amazon Advertising, Amazon FBA, Fulfillment by Amazon, and Amazon Payment.

So essentially, when the user checks out using the Buy With Prime, it completely circumvents the entire checkout process from the platform, and it basically puts payment processing with Amazon. And then, of course, Amazon collects all the rich data about the customer. What are you buying? When are you buying? And also, Amazon gets to charge the sellers for order fulfillment.

And so, this is a very, very attractive service for the consumer. But of course, for the seller, it creates a lot of challenges. And I can continue to elaborate, but basically, it’s a Trojan Horse and there are lots of disadvantages for the sellers, and there are some advantages as well, to be fair.

Guillaume:

Yeah. I like your term, Trojan Horse, and it is a powerful move from Amazon. You can see, for example, Shopify CEO, that will slip up about this at first and say, “Yeah, yeah, we’ll do it.” And then they will backtrack on this, and say, “No way,” because it would replace Shop Pay, which is one of the competitive advantage of Shopify.

So, it is a big deal for a merchant to have your whole checkout experience totally replaced by Amazon. So yes, on the positive side, if you don’t have a strong distribution system already in place, having Amazon FBA, Fulfilled by Amazon, can be a strong benefit. But also, there’s a cost to this, and the cost is not always the best.

I know some merchants that say, “If I sell myself and I fulfill myself, I make money. If I use FBA, well, it’s not worth the trouble anymore. I don’t make much money anymore.” You know? So there’s that aspect, about the extra 15%, it can make a difference. For the merchant, cost will not be zero to fulfill themself, obviously. But that 15% sometimes is too much for merchant, that it doesn’t make it worth it for them to run the business if all the sales will come into that channel, with FBA.

Also, you give up a lot of your control. That order is going to go into Amazon. How much control do you retain personally as a merchant over this transaction? How much information do you have about the customer? How much customer service do you need to do? And so on. Perhaps you can elaborate a little bit on that aspect.

Manish:

Absolutely. All good points, Guillaume. But even beyond that, Buy With Prime infiltrates the entire customer journey from discovery, conversion, post purchase, which includes fulfillment as you said, and the repeat purchase. And I’ll give you some example for each one.

Discovery is essentially, Amazon, you would install a familiar Buy With Prime, the blue Amazon Prime, with the swoosh, the very familiar icon that we know. So now, that will get installed, say, right below your Add to Cart button, if you’re on a Magento site, for example. And so, just imagine the button itself on your site is a reminder for the customer to go check out Amazon, because you’re putting Amazon branding on your product details page and so on. So the Amazon, even if you acquired this traffic and brought it to your website, now the customer is being potentially invited to go, reminded of their Prime membership, so that they can possibly go on Amazon and compare prices and so on. So that could lead to siphoning of traffic. That’s one.

On the conversion side, most ecommerce brands, most websites, retailers, like to encourage larger shopping carts. We know that on your DTC website, most brands have free shipping on orders over, say, $49. So, it’s not free-free for buying a toothpick or buying a toothbrush, but that’s what you get with Amazon Prime.

Amazon Prime does not have those limits. So if you’re a Prime member, the people could actually, this could lead to lower cart size on your DTC site, as opposed to encouraging a larger cart. That’s the conversion part.

And then, let’s say you add the item to the shopping cart and you abandon the cart. We know that 85% of the Amazon Prime members visit Amazon.com at least once a week, and 45% of them make a purchase, a transaction, once a week. That’s a very high repeat loyalty that these Amazon Prime subscribers have to Amazon. And part of it is because they’ve paid $139, $140 annual membership, so they want to exploit that.

But imagine somebody added the item to the shopping cart and they didn’t check out. Now, it’ll be very difficult for the brand to re-market to this customer. And if they hop over to Amazon once a week, they might be targeted with the ads of another product that competes with this product. And you are the one who helped add that item to the cart in the first place.

So, those are some of the challenges on the order fulfillment side to continue with that school of thought. The product is going to come in an Amazon branded box. We’ve all seen the familiar Prime tape that goes on the brown box, with Amazon advertising. So, you bought the item from this DTC brand that’s looking to promote its ecommerce brand, its value proposition to the customer. But the customer is being reminded of Amazon every step of the way. And so, that is not very good.

And then finally, on the repeat purchase, the customers are more likely to go back to Amazon. And if you are selling on Amazon, you’ll have to not pay anywhere between that eight to 20% commission. So there are many aspects of it is not so enticing for the seller. And of course, there are some advantages which I can cover as well, Guillaume, to be fair.

Guillaume:

We’ll cover after. I think we’re not done with the downsides, quite frankly, which to me is way larger than the upside. Because if you want to use Amazon’s email, FBA or whatever, fulfillment services and so on, well, you can just list your product on the marketplace.

Also, Amazon’s fees, the normal fees plus the fees for fulfillment, they are fair when Amazon is bringing you the customer. And it’s the reason why you want to put your products on the marketplace in the first place, because Amazon is going to bring you traffic, going to bring new customers there.

But if you paid for the customers yourself separately, maybe with your own Google Ads, your own marketing efforts and so on, and then you’re still going to pay all those costs and send over the customer to Amazon, and then you sort of lose traction. And I really like your other point. What if the customer does not buy right away? It happens. You add stuff to cart, you don’t finish, get interrupted, kids calling you, whatever. You come back, and then you’re going to see ads and similar product, maybe cheaper on Amazon. It is really a Trojan Horse. From my point of view, it is a really big mistake from business point of view.

I am all for selling on marketplaces like Amazon. Do it. Go for it if it makes sense for your business. It’s a good idea. But your own website, your own .com or whatever, is a separate thing, is a way to diversify. So, you do not want to tie it even more to Amazon. And Amazon is just trying to take buys more and more into what it currently does not control.

It would prefer that all transaction worldwide goes on Amazon, and they don’t currently control all those independent websites. Now, that’s one way to sort of control them, to a great extent. So, I see more negative than positive. But let’s go with the positive. Let’s be fair. So, what’s the positive?

Manish:

Well, positive is, if you have a website, an ecommerce brand that’s not very well-known, and you don’t have a lot of customer trust, Amazon Prime button can install that trust. It’s sort of like many websites that I don’t want to check out and provide my credit card information to that website, because maybe I don’t have trust.

And that is how PayPal gained prominence in the first place. People love checking out through PayPal. And consumers, of course, we all want that free one-day, two-day delivery. So, if the brand does not have the ability, if the seller’s not utilizing services like Cahoot, it would be very difficult for them to offer that level of service.

So, this would be a great way for them to get traction, if they don’t want to take any hassle with fulfillment, operations and logistics, and even customer care. Because remember, as part of the Prime purchase, you’re also delegating a lot of your customer service to Amazon. So, whether it’s a good thing or a bad thing. But that’s certainly like, I’ll give you an example, and we actually did the study.

So the Skullcandy, you’re probably familiar, it’s a very popular headphones brand, very popular with gamers. And they’re selling a product that, let’s say they’re offering four to seven-day delivery, which is what we found when we checked their website, when we did the study about a few months ago, in the summer.

And then another company called Razer, which is an up and coming brand, and if they installed Buy With Prime, and both the products are priced equally, as a consumer you might be motivated to check out through Buy With Prime on Razer.

So in the absence of date certain shipping, let’s say I have a birthday party, I need to buy a gift and I need to have it arrive by Saturday. Today is Thursday. So, my options are very limited. So it can be quite advantageous in those cases for the people who don’t want to fully outsource fulfillment to FBA.

And just to add to that, by the way, the cost of fulfilling orders with Amazon through Buy With Prime is not the same as if the order arrived on Amazon.com. Because Amazon makes the 15, whatever, 15% commission on those, they will not make that commission on these orders. And therefore, these orders will be classified as multichannel order fulfillment.

And we know that if you try to get a Magento order Fulfilled By Amazon (FBA), you pay more. So it’s not the same low price that if the order originated on Amazon. And we’ve done some calculation, in many cases, it works out to be 51% more expensive to do multichannel fulfillment. And of course, if you want the map, there’s tons of webinars on our Cahoot.ai, on the Resources section. Check out or contact us, we’ll be happy to elaborate on that multichannel fulfillment.

Guillaume:

And just to clarify it, so you’re saying that 51%, just to be sure I understood it well. So 51% more expensive from multichannel fulfillment if you send the order then to Amazon, so if it came from your on e-commerce store, is that what you’re saying?

Manish:

That’s right. Because, let’s say, you’re selling socks. I have black socks and I have red socks. And Amazon FBA, routine FBA will cost you $4 and 22 cents. But if I send Amazon that order from Magento to fulfill, it’ll cost me $6 and 31 cents to ship the same identical item. The only difference is this is a Magento order versus an Amazon.com order.

Now further, let’s say a customer buys a pair of black socks and a pair of red socks. Amazon treats them as two unique items. They don’t put them all together. What’s the composite weight? The weight of the items, the two pairs of socks, is not going to be different. You’ll pay double because you’re paying 4.22 for one pair, you’ll pay $8 and 44 cents for two pairs of socks. And if it was a multichannel, if it was a Magento order, it’ll be $12 and 74 cents. That’s how we arrived at the 51% more expensive amount.

Guillaume:

Okay. So, it is not optimized in the merchant’s favor for cost saving and bundling boxes and so on, because actually Amazon will typically ship to you in all separate boxes as fast as it can. But somebody’s paying for all this, this, quote, unquote, free shipping. The merchant’s paying for it.

Manish:

Well, that is just the way Amazon’s pricing model. So the product may still arrive in the same box, but the way how FBA prices its services, it does not. It simply looks at a price, flat price per item. Per item. Now it does not take the weight into consideration.

So FBA, especially multichannel fulfillment through FBA, becomes quite pricey when you have larger number of units per order. So, if you’re a apparel ecommerce brand, if they try to do multichannel order fulfillment, let’s say you have a Magento store or a Shopify store, and you want to get those orders fulfilled through FBA, the cost will add up and it becomes quite expensive. Because apparel, and certain product categories, lend themselves for larger number of units, average number of units per order.

Guillaume:

Okay. All right. Okay, thanks for that clarification. Is there anything else that people should know about the Amazon Buy With Prime?

Manish:

I think you covered it. Shopify has banned it. Shopify, they’ve openly come out and say that this is against the Terms of Service, and you’ll get a big warning if you’re a Shopify merchant.

It’s still a By-invitation Only program. We know a little about it so far. So, I think merchants should… Essentially, this is a call to action for brands and retailers, that faster shipping, the two-day shipping, it used to be an Amazon thing. Now it’s going to be an internet thing. It is what’s expected from you.

So I would encourage brands and retailers to look at their order fulfillment strategy, their operation strategy. You don’t need to go build tens of warehouses. That’s very expensive. In fact, right now, the warehouse rents are at all-time high, Guillaume, all-time high. And the vacancy is an all-time low. So even if you wanted to go and look for warehouses in California, or the West Coast of the US, you can’t find them.

If you find them, you’re going to have to sign a multi-year lease. You’re going to have to make a very large capital investment. It’s like the days of, you know, we no longer see competitive advantage in owning servers in the age of cloud computing.

So order fulfillment is going through a similar transition, that services like Cahoot are democratizing that service. And in fact, if you have excess capacity in your warehouse, we encourage you to come apply at Cahoot.ai, to join as a fulfillment partner.

So this is my recommendation for brands and retailers, to not take delivery and shipping lightly. In fact, we have a saying internally in our circles, that half your shopping experience is now your shipping experience. So, you got to really think of it from a customer experience standpoint.

Guillaume:

Yes. Okay. And I think this is pretty good coverage for Amazon Buy With Prime. It can be seductive for some consumers to check out at equal price point and so on. I’m going to benefit from that checkout experience. But you can compete with it, no matter the size of the merchant. It’s more a question of, can you deliver quickly? Can you write the date of arrival on your own website?

And of course, inviting Amazon on your own .com is, generally speaking, a very bad idea as a business move. It should be a diversification, unless it’s sort of a mini site that you more or less don’t care about. That is just a marketing site that is there to drive traffic, a bit like some brands have a lot of mini sites, and blogs, and so on that just drive traffic to a store. Then, if that’s the role of your small e-commerce store, that would be perfectly fine.

But if it’s your real, branded e-commerce store that you care to build a brand and brand value, I would not invite Amazon, as much as possible, on that site. I think it’s a bad business move.

So, that’s it. Well, Manish, thank you for this discussion. If people want to get in touch with you, what’s the best way?

Manish:

Well, hop over to www.cahoot.ai. That’s singular. And fill out the Contact Us form. I would love to chat with you.

And you can also find me on LinkedIn. Just Google, well LinkedIn, my name. Search my name on LinkedIn, with Cahoot, and I will personally respond to you.

So I’d love to chat with merchants, brands, retailers. Because there’s much to learn from practitioners, as much as we know about logistics, and share stories and try to find a better way to do business, that puts more money in the pockets of the business owners.

Guillaume:

All right. Well, Manish, thank you for being here today.

Manish:

Thank you for having me.

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Amazon FBA and FBM: Your Guide to Amazon Fulfillment

Amazon’s third-party seller marketplace has grown from its humble beginnings in 2000 to account for nearly three million sellers and more than half of Amazon’s retail sales. One of the biggest enablers of that tremendous growth was Amazon’s launch of Fulfillment by Amazon, or FBA, which today dominates the logistics landscape for third-party sellers.

However, merchants still have the option to fulfill their own Amazon orders using Amazon’s Fulfillment by Merchant (FBM) option. Self-fulfilling merchants have also been given access to the coveted Prime badge in recent years through the Seller-Fulfilled Prime (SFP) program, although the standards to qualify are extremely high and require an elevated level of organization from participating merchants.

Source: Jungle Scout

In 2024, 36% of Amazon sellers used at least some FBM – and that number has fluctuated significantly in recent years as Amazon has rolled out significant changes to the FBA and SFP programs.

In this post, we’ll explore the relative advantages of FBA vs FBM and how you can make the choice that’s right for your business.

What’s the Difference Between Amazon FBA and FBM?

When it comes to selling on Amazon, understanding the differences between Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM) is crucial. Amazon FBA allows sellers to outsource their logistics to Amazon entirely. This means that once your products are in Amazon’s fulfillment centers, Amazon takes care of the rest, ensuring fast and reliable delivery to customers. This method is particularly beneficial for sellers who want to leverage Amazon’s vast fulfillment network and focus more on marketing and growing their business.

Amazon’s fulfillment centers are used for storing and shipping products efficiently. Additionally, Amazon’s fulfillment network allows sellers to outsource order packing, shipping, and customer service. It’s a full solution that qualifies products for the coveted Prime badge and covers customer support on the back-end.

On the other hand, Amazon FBM puts the responsibility of storage, packing, and shipping on the seller. This can be done either by the seller themselves or through a third-party logistics provider. While this method requires more hands-on management, it offers greater control over the fulfillment process and can be more cost-effective for certain types of products. Understanding these two fulfillment methods and their respective advantages can help you make an informed decision that aligns with your business goals.

In short, FBM is the description for 3rd party sellers that don’t use FBA for fulfillment. With FBM, the seller (or a third-party logistics company that the seller hires) handles storage, picking & packing, and shipping for products sold on Amazon.

What are the Relative Advantages of FBA and FBM?

Fulfillment strategy is an underappreciated aspect of ecommerce, and both FBA and FBM bring their own advantages and disadvantages that can make or break a seller. It is crucial to compare FBA costs with other fulfillment options using tools like the FBA Revenue Calculator to make an informed decision. So, what are the most essential differences between the two approaches?

Prime Badge Eligibility

First up: the all-important Prime badge. Simply turning on a Prime badge for a product for the first time can boost sales by up to 50%, so if you can get it, you should.

FBA makes it simple – if your product is in FBA, it gets the badge.

FBM is more complicated, and depends on whether your fulfillment approach qualifies for Seller Fulfilled Prime (SFP). SFP sets rigorous targets for how quickly merchants deliver items to customers, as of course fast & free shipping is the central value proposition of the Prime subscription. Amazon temporarily closed the SFP program to new enrollments in 2021, partly as a result of declining delivery metrics, but reopened it with new guidelines and requirements in late 2023.

What is the FBA Capacity Limit?

Due to the sheer number of sellers using FBA, Amazon can’t always keep up with demand for the program. They’ve responded by establishing rules for what inventory sellers can place in their warehouses, which can leave sellers unable to place all the products they’d like in FBA. These are now called FBA Capacity Limits, and they are adjusted monthly to reflect seller demand and Amazon’s space constraints.

Sellers who need to accommodate significant demand fluctuations can manage their FBA inventory alongside FBM options to maximize profits and maintain customer satisfaction without sacrificing the benefits of FBA fulfillment.

FBM, on the other hand, is only limited by how much warehouse space a seller can rent or purchase on their own or by how much space they can get from a 3PL. 3PL space is essentially limitless from the perspective of an individual Amazon seller, so you’ll never ‘run out’ of space for FBM.

What are Fulfillment Costs for FBA and FBM?

FBA and FBM each have their own unique cost advantages – neither is best 100% of the time.

FBA charges fees based on fulfillment, storage, and optional services like labeling and removal. The fulfillment fee is calculated per unit, based on size and weight, and covers picking, packing, and shipping. Storage fees vary depending on time of year, with higher rates during Q4 due to increased demand. While FBA streamlines logistics and qualifies products for Prime shipping, sellers must account for additional costs like long-term storage and low inventory fees, which can add up for slow-moving products.

On the other hand, FBM sellers avoid Amazon’s fulfillment and storage fees by handling their own shipping and logistics. While they still pay referral fees (a percentage of the item’s selling price, varying by category), they can often save on fulfillment costs for slower-moving products. FBM works well for customized items, low-margin goods, or products with unpredictable demand, where sellers can maintain more control over costs and inventory. However, since FBM products don’t automatically qualify for Prime, they may face lower conversion rates compared to FBA listings.

In summary, for high-demand products with consistent sales velocity, FBA is often the better choice due to fast Prime shipping and reduced logistical hassle. Meanwhile, FBM is preferable for custom, niche, or handmade items, where sellers can optimize shipping costs and avoid high storage fees. The best option depends on a seller’s business model, cost structure, and ability to manage fulfillment independently.

Control of the Customer Experience

If you use FBA, then Amazon controls your customer experience – full stop. Your item will ship in Amazon boxes, with Amazon branding, and issues will be handled (or not) by Amazon’s customer service.

In contrast, with FBM, you’ll own much of the post-purchase experience. That means that you have the opportunity to use the unboxing experience to cross and upsell, for instance, and you’ll also handle issues with fulfillment. However, FBM merchants must take care that any inserts in their shipments comply with Amazon guidelines, or risk their selling privileges being revoked. In general, samples, thank you notes, requests for feedback, QR codes for additional information, and small thank-you gifts are permitted, but offering incentives for reviews or any other tactics to engineer reviews are not allowed. If there is doubt, be sure to check the Amazon guidelines thoroughly when designing inserts and other unboxing extras.

So, FBA makes fulfillment easy, but it can also represent a missed opportunity to upgrade the customer experience. With FBM, you can turn your post-purchase process into value added for the customer, build loyalty, and increase your profit-boosting repeat rate. Additionally, successful resolution of customer issues can actually increase customer loyalty, so with a great customer service team you can turn the challenges presented by FBM into opportunities.

Maximize Your Time with FBM and a 3PL Partner

As a seller, you want to focus on selling, not logistics. FBA handles fulfillment for you, so less of you and your team’s time will have to go into operations. This difference between FBA and FBM is especially apparent if you’re fulfilling orders yourself, in which case you could be buried by a surge in orders.

On the other hand, FBM with a trusted third party logistics (3PL) provider can be just as easy, if not easier, than FBA. Just like FBA, a great 3PL will take fulfillment off of your hands and leave the majority of your time free to focus on growth.

Enabling Multi-Channel Growth

Amazon FBA and FBM are powerful tools for sellers looking to expand their business across multiple sales channels. By outsourcing fulfillment to Amazon, sellers can concentrate on marketing and selling their products, while Amazon handles the logistics. This is particularly advantageous for those aiming to grow beyond Amazon and sell on other platforms, such as their own website or other marketplaces.

With Amazon FBA, sellers can utilize Amazon’s fulfillment network to ship orders from any sales channel, making inventory management and order fulfillment across multiple channels more streamlined.

Amazon FBA can be used to fulfill orders for select ecommerce shopping carts like Shopify, and when it does so it’s called Amazon Multi Channel Fulfillment (MCF). This integration allows Amazon sellers to maintain a consistent and efficient fulfillment process, regardless of where the sale originates. By leveraging FBA, sellers can ensure that their products are delivered quickly and reliably, enhancing customer satisfaction and driving growth across all their sales channels.

More and more sellers are pursuing a multi-channel sales and fulfillment strategy that diversifies their portfolio and gives them more avenues for growth. Utilizing other sales channels as part of a broader strategy can significantly enhance operational efficiency and sales opportunities.

Amazon MCF uses the exact same infrastructure as FBA, but it also comes with all of the drawbacks associated with FBA fulfillment, and has a more expensive fee structure. As you can see in the below table, MCF is significantly more expensive than FBA. It will deliver your products fairly quickly, but it doesn’t guarantee the same SLAs as FBA. On top of that, your orders for non-Amazon products will ship in Amazon boxes. Not ideal!

FBA vs MCF Fees
(Large Standard Size w/ Expedited 2-Day shipping example)

On the other hand, FBM with a great third party logistics (3PL) provider can also unlock multi-channel growth for you, without the fees associated with MCF. The best 3PLs integrate seamlessly with all major marketplaces and shopping carts, so getting your operations set up with a new channel can be as simple as a few clicks.

Amazon Buy with Prime

FBM is designed for sellers that want to sell on Amazon and handle their own fulfillment, but Amazon has an additional offering for sellers that want to leverage Amazon’s vast logistics network not through any third-party sales channel or marketplace, but from their own direct-to-consumer (DTC) websites.

Amazon’s Buy with Prime program allows ecommerce merchants to offer Prime benefits—such as fast, free shipping and easy returns—from their native websites. One of the biggest advantages of the program is that it boosts conversion rates, as Prime members are more likely to complete purchases when they see the familiar Prime badge, and they already trust Amazon’s fulfillment network. Sellers can benefit from Amazon logistics without being restricted to Amazon’s marketplace, giving them more control over branding and customer relationships while still benefiting from fast, reliable shipping.

However, Buy with Prime comes with added costs and limitations. Sellers must pay fulfillment fees, payment processing fees, and referral fees, which can be higher than handling fulfillment independently. Additionally, while Amazon handles shipping and returns, sellers lose some control over customer data, as Amazon processes payments for Buy with Prime orders. This means sellers may have limited access to valuable customer insights that could otherwise be used for marketing and retargeting. Despite these trade-offs, Buy with Prime can be a strong choice for brands looking to boost trust and conversions while outsourcing fulfillment. That said, it may not be cost-effective for all merchants, especially those with thin margins or specialized shipping needs.

How to choose FBA vs FBM for your business

When considering whether FBA, FBM, or a mix of the two is right for your business, ask yourself a few questions:

Do you need the Prime badge to succeed?
What size are your products?
Do you have plans to sell on channels other than Amazon?
Are you comfortable with letting Amazon dictate the customer experience?
How accurately can you predict demand?

You only need FBA if you’re selling only on Amazon, you’re comfortable letting Amazon control your customer experience, and you can predict demand fairly easily. FBA will take care of fulfillment for you and qualify you for Prime, enabling you to focus your efforts on growing on the channel.

If you have multi-channel growth ambitions you’re probably going to need to fulfill yourself or an additional fulfillment partner other than Amazon, so the sooner you can consolidate operations under one roof, the better it is for your efficiency. If you want to use the post-purchase experience to improve your customer loyalty and repeat rate, you’ll need FBM as well.

Using Both FBA and FBM

Many successful Amazon sellers find that a hybrid approach, using both FBA and FBM, can be the most effective strategy. By leveraging the strengths of each fulfillment method, sellers can optimize their operations and maximize profitability. For instance, using FBA for products that are eligible for Prime shipping and have high demand can help boost sales and take advantage of Amazon’s efficient logistics. Meanwhile, FBM can be used for slower-moving items or those with special shipping requirements, providing greater control and potentially lower fulfillment costs.

This dual approach allows sellers to diversify their fulfillment strategy, reducing reliance on a single method and increasing flexibility. It also helps in managing fulfillment costs more effectively, as sellers can choose the most cost-efficient method for each product. Additionally, by using both FBA and FBM, sellers can better handle fluctuations in demand and avoid stockouts, ensuring a more resilient and adaptable business model. This strategy not only enhances operational efficiency but also opens up new opportunities for growth across various sales channels.

Cahoot: Your Best FBM Solution

Cahoot’s FBM fulfillment services will fuel your profitable growth on Amazon and unlock opportunity on all other ecommerce channels at the same time. Unlike most other 3PLs, we’ve built our network to the highest standard, so we enable affordable Seller Fulfilled Prime for many of our FBM clients.

On top of that, our innovative peer-to-peer fulfillment network offers low-cost, fast fulfillment by design. We’re changing the industry by empowering merchants with excess warehouse space and resources to provide high-quality order fulfillment to other merchants. Unlike other 3PLs, we empower merchants to help other merchants, and our community levels the playing field with Amazon. Thanks to our unique model, our pricing is typically lower than what you’ll find from other 3PLs, but we can beat them on fulfillment speed and reliability.

If you’d like to find out how Cahoot can help your business, please get in touch with us. We can’t wait for you to join our community and boost your profitable growth.

Frequently Asked Questions

What are the total costs of using Amazon FBA?

Sellers considering using FBA fulfillment should take all fees into account when considering it as a fulfillment solution. These fees include fulfillment fees, monthly inventory packaging charges, storage fee, referral fee, selling plan charges, advertising fees, and return or repackaging fees. Amazon provides this revenue calculator tool to help sellers make informed decisions about their product fulfillment.

How do I get products ready for Amazon FBA?

Amazon requires that products arriving at FBA fulfillment centers should arrive ready to ship and any products that sell as a single unit must be packaged together on arrival. Products must also must be properly barcoded with a UPC, ISBN, EAN, or FNSKU, depending on the seller’s account settings. Cartons or case packs with multiple units should not have a scannable barcode.

What are the total costs of using Amazon FBM?

Amazon charges a monthly subscription fee to sell on the platform, which depends on the seller plan selected. There are also per-order and referral fees. No fulfillment or storage fees are applicable since the Amazon fulfillment center network is not being used, but sellers must fulfill their own orders or seek a 3PL partner.

Written By:

Indy Pereira

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Amazon FBA Q4 2021 Inventory Limits Put Merchant’s Earnings in Jeopardy

Amazon FBA sellers have unfortunately got used to steadily declining inventory limits due to Amazon’s inability to keep up with demand. Read on to learn more about changes to FBA inventory this holiday season, what you should do to maximize your limits, and how you can de-risk your holiday season with Amazon FBM.

What are the new limits?

Amazon FBA sellers were already hit with 20-65% drops in their inventory storage limits in April 2021 when Amazon changed from ASIN-level quantity limits to storage-type quantity limits – and they’re now sweating even lower limits as the holidays approach.

FBA is reducing inventory limits because it can’t keep up with demand

Amazon doesn’t publicize exactly how they calculate sellers’ limits, but sellers have been dismayed in recent weeks to see their restock numbers drop. FBA seller groups are lighting up with merchants whose holidays are all of a sudden in jeopardy – this comment on Telegram is emblematic of the challenge, “Hi, any advice on how to deal with Amazon decreasing restock limits to a third of what it was?”. The responses are befuddled: “Your IPI seems good”. What’s a seller to do?

On top of that, Amazon suddenly changed their Christmas receiving deadline from December 11th to December 2nd. The comments on the announcement, made October 8th, reveal a common theme.

Frustrated sellers plead with Amazon to increase restock limits, but help isn’t coming. Amazon FBA’s history is instructive: over and over, they’ve made it harder to get inventory into FBA, not easier. This holiday receiving deadline is just one more seller-unfriendly change in a long history of negative changes.

How can merchants maximize their Amazon FBA IPI score?

If a seller is determined to only use Amazon FBA, then they need to maximize their IPI score to increase their inventory limits. The FBA Inventory Performance Index (as it’s known formally) measures how efficiently and productively Amazon sellers are managing their inventory. Our Amazon IPI deep dive tells you everything you need to know, but we’ve also included the critical information here.

IPI score is based on four factors:

Excess inventory
Sell-through rates
Stranded inventory
In-stock inventory

To be fair, reducing excess inventory isn’t the challenge on most sellers’ minds these days. Still, keep an eye on whether particular SKUs aren’t selling well and thus have months worth of product backed up in Amazon’s warehouses. Those are good candidates for removal or disposal orders, which immediately improve IPI score. When it comes to FBA inventory, the 80/20 rule is a bit different from normal: if just 20% of your SKUs are slow movers, they can still torpedo your overall score. You can’t get away with 80% effectiveness – you need 100%.

Next, look to maximize your sell-through rates to improve your IPI score and thus your inventory limits. It’s simple: sell-through rate is equal to the Total Sales of each ASIN divided by the Average Inventory Level of each ASIN for the last 90 days. Of course, every seller wants to improve their sell-through rate; this means lots of sales! The challenge, though, is that an improvement in sell-through rate means faster and faster replenishment orders. Sellers need to be ready to send replenishments as often as three or more times a week if they want to maximize sell-through rate.

Put your best foot forward on Amazon, or you’ll find your slower-moving SKUs reducing your inventory limits and capping growth.

Stranded inventory hurts IPI score and is bad for business. Occasionally inventory in FBA gets inadvertently listed as FBM and thus gets stranded. Sometimes it’s a situation where the listing itself has been closed. It is also possible that pricing triggers an alert, and Amazon shuts down the listing to prevent it from selling outside of the minimum or maximum selling price set by the merchant. Keep a close eye on your seller tools and fix any issues with stranded inventory ASAP.

Finally, avoid FBA stockouts at all costs. This is an immense challenge in Q4, as sellers who have been increasing their sell-through rates become more and more vulnerable to a surge in demand (say, from the holidays). The surge can easily knock a SKU out of stock, which triggers a death spiral of lost search rank, lower IPI score, and lower inventory limits. There’s only one reliable way to avoid stockouts – duplicate Amazon FBM listings. With a duplicate FBM listing powered by the merchant or an FBA alternative, sellers can rest easy knowing that if there’s a run on their Amazon FBA stock, they can turn on their FBM listing and keep selling without risking their business.

How to use Amazon FBM to grow this holiday season

Amazon FBM isn’t just a good tool to grow on Amazon – it’s also the key that will unlock multichannel ecommerce sales. As we explained in the last section, Amazon FBM is a seller’s best way to avoid FBA stockouts and protect their Amazon business. On top of that, though, an excellent FBM approach will enable sellers to profitably grow on other marketplaces and on their own site. A recent Shopify study found that sellers on 3+ ecommerce channels boost their revenue by 200% – but Amazon Multi-channel Fulfillment (MCF) isn’t the answer to shipping for other channels.

First and foremost, fulfilling Amazon orders yourself or with an FBA alternative protects your holiday sales. The challenge for sellers trying to do it themselves is that unless they already have 4+ warehouses strategically placed around the United States, they either have to sacrifice fast shipping or free shipping. Offering 2-day shipping to the entire US from just one location puts the majority of customers in Zones 4 and up, which racks up incredible express rates – likely completely erasing margin. On the other hand, delivery times of 5-7 business days will lose customers left and right in the checkout stage, if they even get there. That’s why most sellers turn to an eCommerce order fulfillment platform to power their FBM.

The right eCommerce fulfillment provider won’t just ship your Amazon orders. The best have built easy integrations with all major marketplaces and shopping carts, so with next to no additional effort, sellers have a single operations solution to all of their sales channels. An effective multi-channel fulfillment and sales strategy will include a partner that powers affordable fast & free shipping. Customers expect fast & free shipping online, full stop. Sellers that meet that need see more impressions, higher conversion, and higher retention, so those that offer it on major marketplaces as well as their own site stand to gain the most.

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3PL Fulfillment: Amazon’s Inventory Limitations & Impact on Ecommerce Sellers

In a conversation between Manish Chowdhary, founder and CEO of Cahoot and Neil Twa, host of the High Voltage Business Builders podcast, the two discuss Amazon’s inventory limitations and the impact it has on ecommerce sellers. Amazon has different teams with different priorities, causing confusion among sellers who cannot rely on any one order fulfillment solution. The company has cut down on inventory shelving space for some ecommerce sellers while launching new services, such as Buy with Prime, which could pose a threat to marketplace delivery services like Shopify. Shopify recently banned Buy with Prime, which Manish argues cuts into the heart of revenue. To avoid being beholden to any order fulfillment service, sellers must have a backup that is not Amazon. The experts caution against putting all your eggs in one basket and encourage ecommerce sellers to move beyond Amazon if they want to grow their ecommerce brand.

Below is the transcript of their conversation, edited for clarity:

Neil Twa:

Welcome to the High Voltage Business Builders, a show where we interview entrepreneurs growing and scaling their income through e-Commerce and showing you the path to make your first or next million.

All right, Manish, thanks for joining the call, my friend, from Connecticut today. How is things out there on the East Coast for you?

Manish Chowdhary:

Things are a bit cloudy here, but it’s still a great day, and thank you for having me, Neil.

Neil Twa:

Yeah, it’s great to have you here, man. So, we’re talking a little bit about things that are obviously relevant to E-comm, but in different channels, not just Amazon. I know you handle multi-channel fulfillment.

Let’s talk a little bit about that, because I know it’s a big piece of what you do in your business model. Tell us what are you seeing, what’s most relevant right now. If someone’s listening to this and they’ve got a Dropshipping or an Amazon store or some other thing else, what’s something they should know right now that you feel is important for them to hear?

Manish Chowdhary:

Well, one of the things that… I just got back from Search Summit last week, you hear conflicting sets of information, right? I mean, Amazon is rolling out new services. You brought up a little while earlier, Amazon warehouse and distribution. So they’re ready to take on everything. Then I hear from a very large seller, very successful seller, just two days ago that their inventory limit has been cut to 1/3rd (of what it is presently).

Yeah, one side, Amazon is ready to take on everything you’ve got, and the second side is the people that are in need of that inventory today don’t have that. So Amazon has different teams working. You really can’t believe one thing or the other, because they’re all just simply trying to get in the limelight. So, it’s a lot of confusion out there for sellers.

Neil Twa:

Yeah, there is definitely, because they said, “We’re going to do 5% of you only (whom they said they would reduce inventory for). We’re going to have to make some holiday changes, we got inventory issue.” Now if I just look at our group, our businesses and we come back, there was more than 5% of the people in our group who got that notification just within our group. So I’m like, “Well, I don’t think that was quite 5%.” I think they kind of just placated those numbers just a little bit.

So they killed it on one end by halving down the shelving space we had on one side of the house, and then they’d say, “Hey, well, we got this new Amazon warehouse distribution (AWD) thing, and you could have unlimited storage over here all of a sudden.” It’s kind of like, “Well, I mean, were you playing the shifting shelves game here?” What do you think is going on?

Manish Chowdhary:

Well, I mean, again, Amazon is a very large company. There are different product owners, each one has their own agenda, so they may have gotten certain amount of space allocated. There’s also Amazon launched Buy with Prime service that is probably also run by a separate group, that they’re ready to take on order fulfillment for Shopify merchants or just about anyone.

So, it is very unnerving if you are a seller like yourself or people in your group, that if you see your inventory limits cut down, what confidence, what trust would you have in other services? So one thing that we at Cahoot like to educate our sellers or give them advice on is that you’ve got to have a backup, and it cannot be Amazon.

Amazon cannot be Amazon’s backup. You’ve got to have an independent third party that has your interest in mind, that is going to help you navigate the turbulent Amazon waters, and that’s not going to end anytime soon. It’s not a Q4 issue, it’s not a Q1 issue.

As long as you play in the Amazon ecosystem, that will continue to remain a challenge no matter how large, how many services they roll out.

Neil Twa:

Yeah, it’s a very valid point, and I love the way you speak Manish, because you’re a very pragmatic guy. I can tell in the way you look at these things. Because obviously with adding the Buy with Prime button, it’s added on a whole additional line of sellers from Shopify and other stuff, which I don’t know if they were aware maybe of what that would do. I know a lot of people have suddenly implemented that. I know for sure they’re going to take over a lot of Shopify’s opportunity for marketplace delivery they were trying to bring up.

Manish Chowdhary:

Well, but Shopify just came out last week I think, and banned it. So Shopify has publicly gone on record to say that installing the Buy with Prime button is against Shopify’s terms of service. So there you have it. Shopify wants to ban Buy with Prime, Buy with Prime wants to get on Shopify. Nobody wants to take FBA forwarding. It’s a big challenge if you’re a seller, you just cannot be beholden to any platform centric order fulfillment option.

Neil Twa:

And there it is. So we talk about pros and cons, and we’re very open about both of those things with Amazon, we don’t want people to be Amazon channel locked. So you need to move a brand beyond Amazon if you start there and incubate it or if you’re off Amazon, obviously you need the combination of the multi-channel aspect really for E-comm today. But like you said, you can’t put all your eggs in one basket, and as soon as you have the opportunity to split out profits, you should move another channel, another opportunity. I didn’t actually hear that update on Shopify, so that’s interesting news. I can see why they would do it. The marketplace is getting extremely competitive, and that opportunity was going to cut into their delivery systems, they were trying to ramp up.

Manish Chowdhary:

Well, it’s not even delivery system. It cuts into the heart of their revenue.

Neil Twa:

Well, for sure, for sure. I mean, you can see why we do these kinds of things and have these kind of conversations. If you’re out here just trying to flounder around on your own. For us, having the experience levels we do, and you too it’s even confusing at times to try to rationalize this stuff in the middle of all the experience we have versus people who are just trying to get going. So if you’re new and you’re just like, “Okay, I got an Amazon channel, I don’t necessarily have a 3PL yet, or I’m looking to get one.” What are the top three things you want people to know when they’re looking for a 3PL company that they should consider? What are the things they should know about it?

Manish Chowdhary:

First and foremost, I think it’s very important to make data-driven decisions. A lot of sellers just simply reach out to 3PLs and we get many of those inquiries. “Give me a price rate card.” Most 3PLs specialize in something. Not everyone specializes in everything. There’s micro – What we call mom-and-pop 3PLs. These are one location, two location, 3PLs, and then there are chains, and then you have networks like Cahoot. So it’s very important for the 3PLs to understand what kind of products are they going to deal with, what’s the inbound and outbound frequency, what kind of services you’re expecting, what is most important to you if you’re simply looking for an FBA forwarding service, or are you looking for DTC fulfillment? What kind of products, because there’s the shipping cost.

I’ll give you a very simple example. You can get dirt cheap order fulfillment, let’s just say even in the hottest market, Southern California, let’s say dirt cheap storage. But if most of your orders are going to New York or the East Coast, you are going to pay Zone 8 shipping prices for moving that item from California to New York on an individual basis. So net net, you actually will lose money even though you thought you got a great deal. Those things are very important. If this 3PL is going to take one or two days extra to ship from a lead time or if they’re going to use downgraded services, that will take longer for the consumer to receive. All of those things are very important to understand upfront as to what are you trying to solve for. And that is one thing that is very important. At least at Cahoot, we don’t blindly hand our pricing because we don’t know if we are going to be the best fit and only information and data tells us whether we are going to be the right fit.

So I would encourage sellers to really think about – how many SKUs? What kind of orders are you fulfilling? The count of orders? Let’s do averages over the last six to 12 months to make sure what’s the typical inventory storage requirement? How long do you store that inventory for? And having all that information and what the shipping cost is going to be, because many 3PLs do not do that. They charge the shipping cost, so you could lose a lot of money on that front. And how does it compare to FBA trying to make any comparison with FBA? So you know exactly for what products you’re going to come out ahead, what products are going to cost more. Because we going to admit FBA is very competitive for Small and Light, very attractive. So anybody who tells you they’re going to beat FBA prices across the board, they’re most likely lying.

Neil Twa:

Yeah. Because of this infrastructure, their multi-channel services usually can win to some degree. You just have to look at it from a strategic perspective and not the lowest race to the bottom pricing. Because I know that’s what happens to a lot of those people with rate cards is they’re selling $10, $12 products and they’ve got razor thin margins and it’s hard to beat Amazon’s FBA pricing at that level because they’re already at razor thin and Amazon’s trying to beat all the competition for pricing. So you got to be smart about your numbers. And usually people who are just asking for rate cards don’t really know what their numbers are. And they may not even know what Zone 8 means if they’re listening to this. But guys by the way, that’s the farthest distance from one location to another at shipping costs.

If you’ve ever tried to ship something and like US Postal Service go down and look, they have a Zone card and you’ll notice some of the locations are some of the farthest away, and you got to be smart about where your sales are coming from. If you’re on DTC, it’s a little easier. You can do a quick analysis and see where’s the majority of my orders going to from people who are buying. On Amazon, you got to wait a little bit and figure out where Amazon’s distribution is sending all your products into which areas you’re getting the most sales from, which may take a little bit of time from the system. But obviously, Manish, you know your stuff. I mean, just listening to you for the last five minutes. You clearly understand this. What is your background in this business model?

Manish Chowdhary:

So I was involved with building the e-commerce platform before the word e-commerce platform was invented. This is going back to early 2000. I was involved with building one of the first Turnkey Shopping Cart Software long before Shopify existed. Magento wasn’t on the market at that time. So built a very successful Shopping Cart Software, Turnkey e-commerce platform as we see now. So I’ve seen e-commerce evolve from its infancy. And then went on to build another similar product, but it’s a full service mid market e-commerce order management system, inventory management system. So I’ve been dealing with online retailers, technologies God, for 22 plus years. So I’ve seen everything and just about anything. I’ve got deep experience with now logistics. I’ve got 10 US patents on business process, orchestration and collaboration. So a lot of experience in anything and everything to do with e-commerce and operations.

Neil Twa:

Yeah, no, that’s a very historic background. I mean, back to 2000, is post dot-com bubble. Did you get out of the bubble somehow into this or did you ride that out okay or what happened there?

Manish Chowdhary:

Yeah, I mean, I think we did phenomenally well because that was the time when e-commerce was just taking off. And I think some of the large, the eToys of the world, they pretty much laid the foundation for the SMBs. SMBs were getting on for the very first time, just like the pandemic did, brought in a ton of people who started to sell online. But in this case, there were businesses that were offline, the brick-and-mortar that suddenly saw themselves as an opportunity to sell online. And this is actually, I think this was before Amazon opened itself up as a marketplace. Amazon marketplace did not exist. Yahoo Shopping used to be the marketplace. May or may not remember that.

Neil Twa:

No, I do. But the eToys thing is taking me back in my brain for a second. I haven’t heard eToys in a long time.

Manish Chowdhary:

Yeah, so those were the early days. So I’ve seen the evolution of that. So I mean every time there’s a crisis as they say, or there’s a challenge, there’s an opportunity. I mean, right now we are going through some historic black swan event with the pandemic and so on, but I think there’s some great businesses that are going to emerge out of this. I mean, yes, for my own business, which is Cahoot, it’s an innovative peer-to-peer order fulfillment services network. For the very first time, if you are a merchant who has a warehouse, you have an opportunity to make money if you have excess space in your warehouse. This is something that did not exist. Similar to what Uber and Airbnb did in 2008 when the financial crisis hit. All of a sudden people were without jobs. So they were going and signing up to become drivers for Uber, which allowed Uber to offer low prices for short-term transportation, which really helped them take off.

Similarly, Airbnb also emerged during that time when people were trying to save on short-term stays. They don’t want to pay large, heavy amounts to the Hiltons and the Marriott’s of the world, and there was a great opportunity for them to monetize their spare bedroom. And so Cahoot is doing something very similar in the order fulfillment and logistics space. So if you have a warehouse and you have your act together and you’ve got spare capacity, for the very first time you can come to Cahoot, join our network and apply to become an order fulfillment partner and make some money.

Neil Twa:

So peer-to-peer order fulfillment services network, that’s new, that’s very innovative.

Manish Chowdhary:

Thank you. Thank you.

Neil Twa:

Yeah. Obviously your innovations and patents and other things have led you to some really new concepts. Where do you see that moving in the next year with some of the challenges around order fulfillment, longer shipping times? Where do you see that going?

Manish Chowdhary:

Yeah, I mean, I think that the order fulfillment companies should be embracing what I call merchant inclusive fulfillment. If you think about a merchant’s needs, a merchant wants to bring in inventory, whether it’s domestically or international. The inventory is going to come into one of the bigger ports. There are some of the less popular ports that I recommend right now. If you’re having trouble getting inventory to Long Beach or Oakland at New York, New Jersey, you can look into Charleston, you can look into Miami, you can look into some of the other ports that are less congested. I mean, I think merchants want a single provider that can handle their B2B, that they can stage their inventory and then drip it to FBA as needed for the items that make sense. They can do the order fulfillment for other channels, Shopify, Walmart, others, I know Walmart launched its Walmart fulfillment services.

Lot of sellers are not super excited about that. They still find that to be in early stages and infancy in its technology evolution. People are going and rushing to build new warehouses. But we believe that there are 2 million merchants in the US. Many of them do order fulfillment on their own, that there’s plenty of capacity available, just like how Airbnb helped unlock millions of rooms as opposed to going out and building new hotels in an already crowded space. When somebody builds a very expensive warehouse, they’re going to charge you something very expensive for their services because they got to recover their expenses. So Cahoot is very unique in that way to leverage existing assets so that we can get higher utilization for what already exists.

Neil Twa:

Fantastic man. And if I’m not wrong, it’s cahoot.ai, is that correct?

Manish Chowdhary:

Cahoot.ai, yes.

Neil Twa:

Okay. And when they show up, what should they expect to give you to get the right information necessary? And we’re talking about sellers who are already in the marketplace in one capacity channel or another, but we’re also talking about those who have additional warehouse space, maybe even other 3PLs who might want to utilize that space, if I’m hearing you correctly, can connect with you as well. Is that right?

Manish Chowdhary:

That’s right. We have two parts of our network. The sellers that are looking to outsource order fulfillment, they can come to Cahoot. If you have a great deal, come out to Cahoot, let us reconfirm that you still have a great deal, no harm done. It’s something to be aware of. Or if you have one location, you want to add a second location because you’re getting orders from nationwide. We have the technology, the software that can make that happen seamlessly. And if you’re super happy with your existing provider, we are not looking to replace them or displace them. That’s just not the way how Cahoot operates. We would invite them to come join the Cahoot network so they can participate and they can stay part of it. Because if you have got a good thing going, we know we have the technology to glue it all together.

And on the supply side, if you are a warehouse that has excess capacity that you want to monetize, then you come join and apply to become an order fulfillment partner. And we invite 3PLs as well to come join as a fulfillment partner. Because let’s face it, let’s say you are an East Coast based 3PL, your customers, your merchants are demanding a location on the West coast. So rather than losing that client entirely, you can come and partner with somebody so you can keep that client and meet that client’s needs. Because if you choose to ignore that client’s needs, because to your point, Neil, Zone 8 shipping from New York to California Zone 8, that’s very expensive however you slice it. And even if your fulfillment providers rates are the cheapest, you are still going to come out in the red because shipping orders cross-country has two problems, higher shipping cost, and longer transit time.

It takes five days for the item to be delivered, sometimes could be up to six, seven days. So we invite both 3PLs and warehouses of capacity to come check us out, apply to become an order fulfillment partner, and for the sellers to look out and find a merchant inclusive fulfillment solution. You got to have a backup. And I’m talking about the seller, Neil, that I spoke with last week. Sellers in the Amazon space – they are plugged in, they’re super smart, you would know them, even they don’t have a backup. And it’s appalling to me that how can you put all the eggs in one basket?

Neil Twa:

Once you get to be a certain size – Risk management needs to be a big part of your operational component. I would be surprised that they didn’t have some of that in place, but I’m sure they could help you. You’re obviously got an innovative, unique idea for both seller and 3PL. And folks, if you’re listening to this, I would encourage you to check it out. The link will be in the show notes, go to cahoot.ai, check out what Manish is doing. Obviously, you can hear he’s a super smart guy who’s figured something out that’s really cool. It will benefit both you and the 3PL provider you might be using at this point. Guys, I would encourage you to go check it out and take a look at that if both, again, you’re a seller and a 3PL. Manish, any other final words of wisdom you want to leave on us today?

Manish Chowdhary:

Thank you, Neil. I mean, there’s one more thing in the words of Steve Jobs.

Cahoot has the industry-leading shipping software. So if you are not ready to outsource fulfillment and you have a warehouse, you do order fulfillment or shipping yourself, Cahoot can save you a lot of time in rate shopping. We did a side-by-side comparison between ShipStation and Cahoot, which is a leading product on the market. And of course, as they say, Cahoot came out 21 times faster, that’s just the technology that Cahoot has built that reduces human error. It reduces a human trying to compare UPS, FedEx, USPS rates, figuring out which one to pick. And rather than doing it one order at a time or applying any kind of crude rules, Cahoot’s technology automates all of it. So if you want many hours back in your day, and I kid you not, we have a client that was spending four hours on a Sunday away from their family printing labels so that they could ship those orders out on Monday and they could not fulfill Monday’s orders until Tuesday because they just did not have the capacity.

And so there’s some unique technology even on the shipping software front. If you can save three hours, four hours of labor a day that’s money back in your pocket to do some other things that are more revenue producing.

Neil Twa:

Very smart and interesting angle on that. Definitely. So a shipping station comparison is a very good analogy for what your software does and obviously it’s very powerful. We may have to check that out ourselves, for some of the projects we’re working on. Thanks for bringing that up, man. I appreciate your time today, sir.

Manish Chowdhary:

Thank you. Neil, anything else you’d like to cover?

Neil Twa:

Look, that’s good for me at this point, unless you have something else you would like us to know.

Manish Chowdhary:

No, I mean, I think just merchants should be aware that Amazon FBA has added peak fulfillment surcharge of 6 to 8% for the very first time. That’s I think getting rolled out on October 15th. That’s a fourth increase in FBA fees this year. I think in the first quarter they revamped the Small and Light pricing. April 28th they added 5% inflation surcharge. And then of course the storage triples in Q4, as you know. So I would encourage sellers to go check out their bills and to make sure that nothing in the Amazon FBA world remains as is. So be mindful of that as you’re calculating your profitability, how much you’re allocating to your advertising, return on advertising spend and all that good stuff. And some other big news, I mean, Pharmapacks the number one Amazon seller going out of business –

Neil Twa:

Yeah. Their margins were too thin. And I was just going to cover a little bit of that actually, because on the antithesis side of that, one of the third largest native acquisitions just occurred for a cosmetics company in a $630 million acquisition. So on the other side, you got to look at the differences between the two. Why did one go out of business, and why did one have such a tremendous exit? And then how to deal with the rising costs of obviously inflation or fees, obviously, as you mentioned are going up.

And that’s a good topic because I mean, you got to look at the value of the brand and the value of the products you’re putting into it. That’s one of the things we always drive out here. If you’re going to sell something for $30 or less on Amazon, you better have a very high margin on it or not sell anything less than $30, or you’re going to run into these kinds of really razor thinned margins where you might be making it great or it cost is good, and the product is growing, but all of a sudden that 5% surcharge or changes at this fourth quarter of the year slice your margins down to a dollar in profit, which is really no for a business model.

So we want to encourage everybody on the back of that to remember, keep your product profitability above $10, if not higher to $15 in that profit per unit for your products. If you can’t achieve that on your products currently, you need to get products in the market that will do that. That will raise with price, can raise retail price against inflation and market hedges or of course increasing costs and operations and logistics as we just spoke about, won’t impact you as greatly. Yes, they’ll impact you, but it won’t be devastating. And I know there’s a lot of sellers in the market right now that are going to face that coming into fourth quarter.

As you mentioned earlier, there’s opportunity in everything. For some of us, there’s going to be great opportunity priced correctly and in the profit margins we need, whose fourth quarter this year is going to be great. But I think there’re going to be a lot of sellers who are coming off of a COVID bump who still haven’t right sized their metrics or expectations and rising cost of inflations are going to hurt them in this coming quarter. And many of them may not be able to make it through the end of the fourth quarter, even though they should be doing really well.

Manish Chowdhary:

Right. And business metrics have changed. I mean, if you’re looking to get acquired, that brings massive challenges of its own. Profitability is going to be key. The other advice that we are giving sellers is don’t wait for the last minute. Holiday shopping is going to happen earlier. There’s of course, a lot of talk about a second Prime Day. I mean, just think about it, why is Amazon considering a second Prime Day? It is because they want to push holiday forward. They want to push spending forward because they’ve got tons of excess inventory. We’ve heard from Walmart, lots of inventory challenges, aggressive discounting happening at Target. Their profit plummeted 89.9% year on year.

Neil Twa:

Yeah. Target is taking big hit, no doubt.

Yeah. And you mentioned Walmart – literally yesterday, I saw an article that said Walmart removed some of the major restrictions. It was making it very difficult for third party sellers to get approved on their platform. And in one day they had the largest spike in signups they’ve had to date since they opened the Walmart ecommerce platform. Because now you can actually get over there and open up your business, which is your name and your business in a few other details now. Whereas before it was highly restrictive. So there may be some additional opportunity for folks looking at Walmart because it has a market potential opportunity.

But you’re right, there are others that they’re suffering for a lot of different reasons. You bring up Target, but Target’s isn’t just operational or profitability. They’ve got other geo and political problems hitting them due to some policies and stuff that affected them, I believe. Just look at the market and the trends, and you can see what I’m talking about. But in terms of market share and stuff, the latest studies show that the even Walmart and Target combined still don’t make up Amazon’s 38% of market share. So if you’re going to play in the market, go with the juggernaut. Right?

Manish Chowdhary:

Certainly, certainly, but also diversify because if you’re successful at one marketplace, you want to dip your toe in the other.

Neil Twa:

Yeah, hints the Walmart point. You can get into Walmart a lot easier now due to those restrictions being lifted. Yep. So you should definitely consider it.

Manish Chowdhary:

That’s right. That’s right.

Neil Twa:

Yeah. Manish, thank you so much for your time, sir.

Manish Chowdhary:

Neil, thank you again for having me and pleasure speaking to your audience and if I can be of any help, please go check us out at www.cahoot.ai.

Neil Twa:

If you like this episode, please share it with people you think will enjoy it as well. Thank you for listening and be sure to tune in next week for a brand new episode of High Voltage Business Builders.

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Cahoot: Your Best FBM Solution

Frequently Asked Questions

What are the total costs of using Amazon FBA?

How do I get products ready for Amazon FBA?

What are the total costs of using Amazon FBM?

Up to 64% Lower Returns Processing Cost

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What are the new limits?

How can merchants maximize their Amazon FBA IPI score?

Peer-to-Peer Order Fulfillment^TM