THE ULTIMATE GUIDE TO SELLER FULFILLED PRIME

As an online merchant, you need and want access to Amazon’s huge base of Prime members. Most Prime merchants use Fulfilment By Amazon (FBA) to meet the 2-day delivery requirement for Prime orders, but FBA comes with significant costs and operational limitations.

Enter Seller Fulfilled Prime, an Amazon program introduced in 2015 that allows qualified sellers to display the PRIME badge on orders fulfilled via their own warehouse or a third-party fulfillment partner.

 Is Seller Fulfilled Prime right for you? This guide will provide the information you need to determine if and how you should leverage the program to cut costs and gain more control over your fulfillment process.

 Amazon Prime is a force unto itself, with about 112 million subscribers each spending about $1,400 per year on Amazon.com

DO THE MATH.

It’s a lot of money. Anyone can sell through Amazon Marketplace, but suppliers must qualify to become Amazon Prime certified by proving that they can fulfill the Amazon Prime promise of 2-day delivery. Suppliers that use Fulfillment By Amazon (FBA, Amazon’s logistics arm) are ensured of meeting the 2-day delivery requirement. But it requires giving up control of your inventory and absorbing FBA’s high storage and delivery fees, which can seriously erode margin.

THAT’S WHERE THE SELLER FULFILLED PRIME (SFP) PROGRAM COMES IN.

This Amazon program was introduced as a reward for high-performing sellers, who were given the option of fulfilling orders
 themselves if they could meet certain criteria (see inset). The program takes advantage of businesses that have a robust
 fulfillment capability, either themselves or through a third-party fulfillment partner.

 The key to the attractiveness of the SFP program is Amazon’s own criteria for who wins the “buy box” among multiple sellers
 of the same product. The most important factor in its algorithm is “fulfillment method,” and SFP and FBA sellers are given
 equal weight on this measure. That means a top-notch seller with its own fulfillment program can win the Buy Box just as often
 as an FBA seller, while avoiding high FBA fees.

Amazon has about 100 million square feet of warehouse space in the U.S. across more than 110 fulfilment centers. That doesn’t even include Prime Now hubs, Whole Food grocery DCs, delivery stations and other distribution locations.

But guess what? Amazon still doesn’t have the volume of distribution center space in high-population areas to keep pace with its sales growth. And, although Amazon is certainly in the warehousing business in a big way, its primary goal as a business is to increase online sales revenue.

The Seller Fulfilled Prime program supports this goal by allowing sellers to be responsible for their own order fulfillment. These companies can either do it themselves or through a contracted third-party fulfilment company. It doesn’t matter, as long as they meet the criteria for Amazon Prime Certified sellers.

Amazon today is less focused on warehouse expansion than it is on optimizing its current space and removing slow-moving inventory.

Want evidence? Amazon now charges monthly inventory storage fees and adds an aged inventory surcharge for products that remain in its warehouses for 180 days or more, increasing the penalty as time goes on. This is to discourage current FBA sellers from using Amazon as a long-term storage facility. Amazon’s support for the SFP program and sellers who want to handle their own fulfillment is further proof that Amazon, first and foremost, wants to grow sales, not warehousing space.

 If you are doing all your own fulfilment, it’s likely worth getting certified for Seller Fulfilled Prime just for the predicted sales uptick of 30% to 40%. Sellers who fulfil their own orders love the fact that gaining Prime status makes them just as likely as FBA sellers to win the Buy Box.

 High storage costs. These relatively high rates actually increase significantly during the high-sales 4th quarter. In the summer of 2018, Amazon introduced its Inventory Performance Index (IPI)  as a measure for sellers to efficiently manage inventory. Bottom line: under the IPI  program you’ll pay more to store slow-moving inventor and Amazon may actually limit your ability to supply Amazon more products if your IPI falls below a certain threshold.

  Inability to customize. Over many years of working with growing eTailers, we found most want and need some hand-holding when initially outsourcing order fulfillment. But when you sign up with FBA, there are no planning meetings to review requirements. With FBA, they tell you how it’s done.

But perhaps the biggest growth driver for SFP has been the influx of sellers moving away from Fulfillment By Amazon due to frustrations over FBA’s high costs and operational limitations. Do a search on “FBA” within Amazon’s Seller Central Forum and you can read about some of the frustrations. Among them:

  Inability to leverage inventory. If you are like most businesses, Amazon is not your only sales channel. Seller Fulfilled Prime gives you more flexibility to fulfill orders to all channels, not just Amazon.

  Poor brand experience. When your package arrives at the door, you want the customer’s excitement and anticipation to be associated with your brand. When FBA ships your product, it is shipped in an Amazon box. The customer experience is around Amazon. FBA does give you the option of shipping in blank “brand neutral” boxes. But strangely, you’ll pay an additional fee to be generic.