Sizing Up Amazon’s ‘Fulfillment By Amazon’ Program by Cliff Ennico

Cliff EnnicoAnyone who’s ever sold anything online – either directly from a website or on one of the major e-commerce platforms such as eBay and Amazon – knows that often the most unpleasant part of the process is packing, shipping and fulfilling orders.  It is labor-intensive, and the time involved can eat into your profits (by limiting the number of orders you can process at any one time).

So it should come as no surprise that one of the hottest things in online retail right now is the “Fulfillment By Amazon” service (“FBA” for short) offered by Amazon.com (http://www.amazon.com/fba).

Amazon has been building warehouses and distribution centers throughout the United States to ensure that customers receive orders quickly and inexpensively (often for free).  With FBA, online sellers can take advantage of those facilities and “outsource” the packing, shipping and fulfillment part of their business, even if they are not selling on Amazon.  For a fee, of course. According to Chris Green, a leading FBA expert and author of “Retail Arbitrage: The Blueprint for Buying Retail Products to Sell Online for Big Profits” ($25.00 paperback, $9.99 Kindle), FBA is the future of online retail, at least for small business sellers.   “Setting up an Amazon business that uses FBA is much like buying a franchise,” says Green.  “With a franchise, you buy a package, get some knowledge and equipment to get started, and then it’s up to you to run the business.”  Unlike a franchise, though, buying and selling online using FBA does not require an initial investment.  “There are no major upfront costs to get started,” says Green, adding that FBA fees can be as little as $2.00 for orders placed through Amazon.com.  “All you really need is a little knowledge, some motivation, and some inexpensive tools and services.” Green’s company, FBAPower (www.fbapower.com), offers a variety of software solutions, mobile phone applications, webinars and information products designed to enable sellers to take maximum advantage of FBA. FBA is a five step process. First, the seller opens an Amazon seller’s account and selects the “FBA” option. Second, the seller sends its new or used products to Amazon. Third, Amazon catalogs and stores the products in one of its network of fulfillment centers. Fourth, Amazon fulfills orders placed directly on Amazon.com or fulfillment requests the seller submits for sales not on Amazon.  When listed on Amazon.com, each seller’s listings are sorted by total price (price plus shipping) so sellers who use FBA are often first even if they have a higher list price.   Fifth, when an order is placed, FBA picks the seller’s products from inventory, packages and ships the products to the customer. “FBA is a win-win for everyone,” says Green.  “The customer gets prompt and professional delivery at little or no cost, and the seller can focus on sourcing inventory, expanding their product lines, increasing margins, and putting merchandise up for sale without the hassle of fulfilling and keeping track of individual orders.” So what’s the catch? “You have to know and understand the rules of selling on Amazon, and especially FBA,” says Green.  “Amazon is much different from eBay where you can mess up and eBay pretty much isn’t going to do anything about it.  If you’re caught breaking Amazon’s rules or provide a poor customer experience, Amazon will ban your account, and there will be no second chances.” Your merchandise must also conform to Amazon’s product listings and categories.  Precisely.  So, for example, if you are selling a power drill with only one of the two batteries required, you will not be able to sell it on FBA even if you make proper disclosure. Probably the biggest catch – one which Amazon is taking steps to correct but may create problems for FBA sellers selling a wide variety of merchandise – is that FBA sellers may not be totally in compliance with state sales tax laws. Online sellers are required to pay sales tax in their home states and in any other state in which they have a physical presence or “nexus”.  By using FBA, online sellers have “nexus” in each state in which their merchandise is being warehoused (i.e. where Amazon’s fulfillment center carrying their merchandise is located).   While Amazon does send you periodic reports showing you where your inventory is located, Amazon can, without warning or notification, ship your inventory to a different fulfillment center.  Also, while Amazon does collect sales tax and remit it to you, it is up to you to register with each state tax authority and pay the taxes to them when due (usually quarterly).

Chris GreenThis situation may create compliance headaches for FBA sellers, especially in light of states’ increasingly aggressive efforts to collect sales taxes on Internet commerce.

Still, Green says, the benefits of FBA, especially for small sellers, far outweigh the risks.  “You are outsourcing your entire shipping department, Amazon is basically absorbing the shipping costs for you, and Amazon buyers prefer FBA sellers because they know they will get their item fast and that customer service will be top-notch.  What’s not to like?”

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

Sept 12 – FBA Tools With Chris Green

Show 29 Home Run Guide and Selling on Amazon

Home Run Guide by Janelle Elms & Amazon Selling with Chris Green & Tedric Paul!

Show #29 Corinna wins Schwag Package

 

Prizes

Show #29 on August 15th, 2011 was full of great interviews!  First Chris Green of FBA Power, then Tedric Paul, amazing Amazon Seller and Finally Janelle Elms announcing her brand new business idea, the Home Run Guide.  Our winner for this show was our wonderful loyal listener, Corinna of Anaroc’s House of Treasures! Congrats Corinna!

 

annirocs house of treasures

 

 

 

Corinna

 

corinna-wins-pkg-08-15

Chris Green, FBA Power, Scout, Repricer and More

Chris Green  Chris Green is an amazing person to learn from!  I’ve known Chris on a couple of email lists for a year or so and I’m constantly amazed at his brain!  He just thinks different. Comes up with these amazing products, does not know what “You Can’t Do That” means and really knows his stuff about eCommerce, selling on eBay and Amazon and much more.

I’m excited to announce a partnership between eCom Connections and FBA Power – if you sign up to try out FBA Power or the entire suite of FBA Products (FBA Scout, FBA Repricer AND FBA Power), you will get an EXTENDED free trial. Sign up at the official FBA Power website and you wil get a 2 week free trial. BUT use our link!  and you will get a full 30 day free trial! This is a great chance to TRY out this tool set and find out if selling on Amazon using FBA (Fulfillment By Amazon) is for you!

Now for the bonus info I promised the listeners today. This is an article Chris wrote for his own blog and was also posted in Skip McGrath’s newsletter.  I am re-posting the entire article here with a link to his blog so that you may follow his thoughts in the future. This is a fantastic piece on leveraging the power of Amazon’s amazing Shipping Costs to build your business anywhere, even, yes, EVEN, on EBAY!

FBA and eBay: Using Amazon’s Fulfillment Program to Ship your eBay Orders

There is a lot of talk lately about Amazon’s fulfillment program called Fulfillment By Amazon, or FBA, but is it only online sellers who sell on Amazon who can get in on all the fun? The answer is no. A common misconception is that FBA is for Amazon only and while Amazon and FBA certainly go hand in hand, a seller’s items are not tied to the Amazon sales channel once they are stored in an FBA fulfillment center.

Amazon’s FBA program has what is called Multi-Channel Fulfillment meaning that you can still list and sell your FBA inventory on other channels and fulfill those orders through FBA.

This article has two ‘A-HA’ moments. The first is that you can ship your FBA inventory to fulfill orders that you receive from any channel such as eBay or your own website at very competitive rates (likely less than what it costs you to do it yourself). Using Multi-Channel Fulfillment allows you to sell on any sales channel and still fulfill your orders needing only access to a computer. You don’t need to store your own inventory, multiple sizes of boxes, print labels, or go to the Post Office every day. You get the orders, Amazon ships them out. This goes on whether you are at home or on vacation. Once you get your inventory to an FBA fulfillment center, you can manage it from anywhere on the planet! A-HA!

The second is the big one; how to LEVERAGE this new information into increased margins and a more efficient business model. Using Multi-Channel Fulfillment properly can truly revolutionize your business. You can lower your overhead in shipping costs, warehouse space, and labor costs while at the same time increasing your margins on every item that you sell. This is because of the extremely competitive costs associated with Multi-Channel Fulfillment. More on this after the fee breakdown.

This is truly a win-win-win situation that most sellers would not believe is true:
Win #1: Increase margins and profits (higher payouts per item)
Win #2: Reduce work (outsource storage, picking, packing, shipping)
Win #3: Improve customer satisfaction (shipments arrive faster)

This would seem like a magic potion from business fairlyland, but it’s not; it’s simply learning how to use the available tools optimally. Run the numbers (shown below) and take the steps to streamline your business.

Fees Involved

Yes, there are fees involved but these fees are fixed and known upfront for Multi-Channel Fulfillment orders. Since they are your orders and not orders on the Amazon website, there is no Amazon commission.

Multi-Channel Fulfillment Fees
The Multi-Channel Fulfillment fees consist of a per order ‘Order Handling’ fee, a per unit ‘Pick & Pack’ fee, and a per pound ‘Weight Handling’ fee. These fees can be seen below:

You can calculate your Multi-Channel Fulfillment rates prior to sending inventory to FBA. You can also experiment with your FBA inventory by making ‘pretend orders’ and reviewing the rates for Standard (Ground), Expedited (2-Day Air), and Priority (Overnight) shipping services.

I just did a ‘pretend order’ in my Amazon seller account on a five pound item. Total fulfillment fees (inludes picking, packing, boxes, shipping, etc.) are as follows:

Standard (Ground): $7.75
Expedited (2-Day Air): $11.25
Priority (Overnight): $23

This is for anywhere in the USA. It is not based on zip code; it is based on fixed fees and weight. Once these costs are known, you can then price your items strategically on other channels (more on this later). For comparison, here are the UPS Published Rates and Daily Rates for a five pound shipment from Massachusetts to Washington State:

Ground Published: $13.98 – one week in transit
Ground Daily: $9.76 – one week in transit
2-Day Air Published: $44.25 – two days in transit
2-Day Air Daily: $35.04 – two days in transit
Overnight Published: $77.00 – one day in transit
Overnight Daily: $67.04 – one day in transit

Remember, in addition to being more expensive to ship myself, I would also have to store the product, be home to process orders, keep boxes and other packing materials on hand, pick and pack my own orders, print shipping labels, and then get my boxes to UPS or the Post Office. Easy choice if you ask me!

Inbound Shipping Fees
To use Multi-Channel Fulfillment, you have to get your items sent to an FBA fulfillment center. They have to be labeled properly with special barcodes so that Amazon can properly identify your items. You are able to use Amazon’s partnered UPS rates for inbound FBA shipments. These are the best rates around. Depending on where you are located and what fulfillment center your items are going to, this will be about $.20 – $.60 per pound.

Storage Fees
Amazon does charge storage fees based on unit volume. These rates are very low and can easily be managed by only sending in enough supply to match your sales. Many sellers find the storage rates to be so attractive that they want to send all of their inventory to FBA. It is recommended to only send in a maximum of one year supply at a time as Amazon charges $45/cubic foot for items left in FBA inventory more than one year.

Removal Fees
If you no longer want to have your inventory in Amazon’s fulfillment centers, you can request to have your items returned to you or destroyed. Having your items returned to you costs $.50 per unit for regular items and $.60 per unit for oversize items. If you want Amazon to simply remove and destroy your inventory items, the cost is $.15 for regular items and $.30 for oversize items.

‘A-HA’ Moment #2 – How to LEVERAGE Multi-Channel Fulfillment

Having access to Multi-Channel Fulfillment at Amazon rates a very powerful thing. Imagine UPS came to your small, fledgling eBay business and said that you can now have Amazon UPS rates for all of your shipping needs. Impossible? Too good to be true? You could lower your shipping costs drastically without having to be a big shipper? This is essentially what you get by using FBA’s Multi-Channel Fulfillment. Your shipping rates are now significantly lower than your competitors; use this to your advantage! Here’s how:

There is more to a purchase than ‘just the item’. There is more to a transaction than just price; even on commodity items where you and your competition sell the exact same item. Consider ways to differentiate yourself as a seller on eBay: feedback, return policy, a well designed listing page (or not), and shipping options/speed (among others). The shipping is where you can now trump your competition by offering your customers something that they simply cannot offer (at least not at the price that it costs you).

There are several strategies that you can use. Since your shipping rates are now lower than your competitor’s, you can beat them on price and still make the same profit per item. This is an ‘apples to apples’ comparison. You may now be able to sell at a price that is profitable for you, but not for them. This may cause them to stop selling a product and you would not have to compete against them anymore (and prices will rise). You can also set up barriers to entry to new competition who can’t figure out how you are able to make a profit on your items since they don’t know you are using FBA Multi-Channel Fulfillment.

Another strategy to use would be to offer premium shipping such as 2-Day Air on your products at the same price as your competitor charges for Ground shipping. This makes it a ‘rotten apples to fresh apples’ comparison. You are both selling apples and for the same price, you are able to offer the customer MORE than your competitor can. If a buyer on eBay is buying a commodity type item and they can get it for $100 from you in two days or they can get it from your competition for $100 but will have to wait a week or more, who do you think will get the sale? You are able to maintain margins and take the lion’s share of the sales by offering your customers more but not increasing your overhead. This will drive your competition crazy as they will think that you are paying high shipping rates to ship 2-Day Air and must not be making any money. Let them think that all they want; just keep it your little secret.

How to Increase Margins with Multi-Channel Fulfillment

The previous examples are valid ways to use Multi-Channel Fulfillment, but personally, I don’t recommend these strategies, especially for small sellers. You are able to capture more sales, but that also comes with more work. I prefer to increase margins and differentiate myself as a seller from my competition and not compete solely on price. What I’ll show you below is how using Multi-Channel Fulfillment allows you to market you items at higher prices effectively, while keeping your overall fulfillment costs the same. This increase in margin goes directly towards your business’ bottom line.

I strongly recommend this book:
http://www.amazon.com/Sell-Margins-Higher-Than-Competitors/dp/0471744832/
It will change the way you see price, buyers, and your competition. It is worth every penny. I only wish I read it before I started selling on eBay where I tried to compete solely on price!

Above we talked about how you can use Multi-Channel Fulfillment to stop fighting in the ‘apples to apples’ comparison game. When you can change it to an ‘apples to oranges’ comparison, you can then market your oranges against your competitor’s apples (even though the actual items that you both sell are the exact same). You can make your oranges more attractive for the same price and capture sales, but I prefer to position my oranges as a premium seller. I can offer the same commodity item as my competition but with faster shipping and charge more for it. I can charge more because I am offering more (fast delivery options vs. slow delivery options). You will find customers that will see the difference and the added value that you provide with your oranges and they will pay you more for it. This is how you increase your margins on the same items that your competitors sell.

On eBay, you can also now add the Get It Fast option to your shipping settings. I recommend offering 2-Day Air shipping for free and factoring in your fulfillment costs into the price of your item. Then, just calculate the difference between Expedited (2-Day) and Priority (Overnight) and make that the upcharge for Overnight shipping (or round it to something neat like $9.95). Again, these are options that you competition simply cannot offer at a competitive price. EBay makes these options available because they know some buyers want their items FAST and these buyers are willing to pay more to get their items fast. They even let you sort search results showing only items with the Get It Fast option. You are able to charge more because you are offering more. Here are two images I made to pomote my eBay listings. Feel free to use them if you like.

 

Check out this example with costs and fee breakdowns. Note the increased Return On Investment (or ROI). This is the key.

$17.53 – $22.60 more on each transaction and 35.1% – 45.2% higher margins.

This isn’t even an ‘apples to apples’ comparison! In addition to making more money per sale, I’m doing less work AND my customers get their items faster. But don’t just take my word for it; run the numbers yourself.

It’s all about the perceived value of what you are offering. 2-Day Air shipping is incredibly valuable, especially to a buyer who needs their items fast. It would normally cost $30-$40 for 2-Day Air shipping on that five pound item, but they get that value from you for less. This is what makes your items more attractive than your competitor’s.

This is not a volume game; it’s a margins game. Sellers who consistently make the most margins will thrive in the good times and survive in tough times. Sellers who ignore margin and try to ‘make it up in volume’ will work way too hard for too little of a reward. Always run the numbers!

Different channels may fare better by using different strategies. Learn the customer base of each one and market your items appropriately. What works on eBay may not be the best strategy for your own website. A combination of these strategies is also something to consider.

Limitations:
FBA Multi-Channel Fulfillment is currently only for domestic orders although I would expect that Amazon is working towards adding more international options. If you get a lot of international orders, you may want to consider keeping some of your items on hand to ship yourself and only sending a portion of your inventory to Amazon’s fulfillment centers.

PART TWO

Chris wrote up this amazing piece and posted it in the FBA Forum. He sent it to me this morning with permission to repost for you. The FBA Forum is a help site for FBA Power users and FBA Power recently hired one of our favorite guests, Bob Wiley, to help out there so it should be run well!

Years ago I would never dream of sharing info like this, but I’ve mellowed out a bit since then. This the type of deal that we make big bucks on. It’s too easy. Check it out:

Only good through 8/18/2011
They are likely trying to move a bunch of inventory to make room for Q4 (Christmas) stuff.

This works because multiple things are happening at once. Price drop on both kits: $149 down to $129 and $269 down to $199.

Buying these kits for RESALE means you do not pay tax. Anyone buying these kits should to go the Post Office on the way to Home Depot and ask for a Mover’s Packet and get the 10% off Lowe’s coupon. That makes the OUT THE DOOR price for these kits $116.10 and $179.10.

Buying the smart way (tax free and with a 10% off coupon) means that you are paying LESS than any competitors. In Texas, this was 18.25% LESS! If we sold at the same price as our competition, we made more per sale because our costs were lower.

Plus you get a FREE TOOL on the spot (way better than a mail-in rebate).

Best tools to get free:

Ryobi P260 18V Impact Wrench
http://www.homedepot.com/h_d1/N-5yc1v/R-202340589/h_d2/ProductDisplay?langId=-1&storeId=10051&catalogId=10053

Ryobi P221 18V Rotary Hammer
http://www.homedepot.com/h_d1/N-5yc1v/R-202347155/h_d2/ProductDisplay?langId=-1&storeId=10051&catalogId=10053

Why are these the best? Because they have the highest resale value.

P260 on Amazon:
http://www.amazon.com/Ryobi-P260-Lithium-Battery-Included/dp/B004G27J1Q/

P260 on eBay:
http://shop.ebay.com/i.html?_from=R40&_trksid=m570.l2736&_nkw=p260+ryobi

P221 on eBay:
http://shop.ebay.com/i.html?_nkw=p221+ryobi&_sacat=0&_odkw=p260+ryobi

P221 isn’t even on Amazon yet.

You could sell as kits, or the money-maker way is to part them out. This is like a ‘chop-shop’ where the pieces are worth more than whole kit. RUN THE NUMBERS YOURSELF. See what you can sell the tools, batteries, chargers, even the bag: http://cgi.ebay.com/New-Ryobi-22-Large-Contractor-Tool-Bag-18-12-volt-/310297750572

HomeDepot.com even has them pre-bundled:

http://www.homedepot.com/Featured-Products-Ryobi-Free-Tool-Offer/h_d1/N-5yc1vZbzwy/R-202549550/h_d2/ProductDisplay?langId=-1&storeId=10051&catalogId=10053

http://www.homedepot.com/Featured-Products-Ryobi-Free-Tool-Offer/h_d1/N-5yc1vZbzwy/R-202549546/h_d2/ProductDisplay?langId=-1&storeId=10051&catalogId=10053

How do you get tax free online?
You will have to pay tax at checkout, but you can fax your tax exempt status to Home Depot afterwards and they will refund it back to you. Spend $249+ to get free shipping.

If you have a Home Depot 10% code for online use, you can enter it here. The best price would be in store. Go to the Pro Desk and explain what you want to do.

hope you see what I see – LOTS to learn here!

Fulfillment By Amazon (FBA) with Bob Willey and Chris Green

Bob Willey

This week’s show had two amazing guests, both experts at using Fulfillment By Amazon (FBA) to grow their own businesses and help others learn to use this powerful tool.

Our first guest was Bob Willey, who owns Bob’s Neat Books & Bob’s Neat Stuff.

Bob has been selling on Amazon using FBA since June of 2008, and on Amazon since 2005. He is mostly FBA and uses FBA to sell practically anything! When it comes to selling on Amazon using FBA, he doesn’t discriminate. The only requirement is that the items are profitable! Bob sell toys, games, books, and media items such as DVDs, CDs, even VHS tapes! He has also been selling on eBay since 1998 with over 11,000 feedbacks (100% Positive)!! Bob’s been an eBay Trading Assistant for over 5 years. Also sell some Media items on eBay. I also moderate the YahooGroup BookSellersFBA (see link below). My background is varied, as I owned a computer consulting business for 28+ years, and a Brick-n-mortar Auction House for 5 years with a weekly auction filling a 15,000 sq ft building. Plus I have done over 150 Estate Appraisals. OK, I enjoy STUFF….

Bob’s newest addition is a dedicated teaching/mentoring class that we are proud to be a part of called the Proven Amazon Course.

Our next guess was Chris Green, the Founder of two fantastic tools that can help make using FBA easier and more efficient, FBAPower and FBAScout.

FBA ScoutChris launched FBA Power in July of 2010 and FBAScout in October 2010. The iPhone app just released on 3/31/2011 and has just begun to spread.

iPhone app is now available in the iTunes store and is free. You can use it for 50 scans before registering the App. If you go through Bob’s FBA site, you will get a 30 day free trial of BOTH FBAPower AND FBAScout. The normal trial is for 14 days. FBA Power

FBAScout is $39.95 a month OR $20 a month if you are an FBAPower user. FBAScout works on iPhone, iPad, iTouch, Droid and many more – specific model details can be found on the FBAScout website.

For FBAScout you can use the RED LASER (free) app to scan barcodes, or purchase and use a bluetooth scanner for more speed.

 

 

 

 

Thinking about FBA ? Check out the PAC !

Recently I’ve been having a lot of sales through the Amazon FBA (Fulfillment By Amazon) program and really enjoying using one of Chris Green’s tools – FBA Power.FBA Power

Today at 3:30 PM Bob Willey of Bob’s Neat Books and Chris joined us to announce the launch of a training program they both helped create, along with Jim Cockrun, Skip McGrath, Suzanne Wells, and Stephanie Inge, the PAC or Proven Amazon Course.

Bob also launched his own new FBA resource site, FBA Rocks! where you can sign up for his yahoo FBA seller’s group or find out any information you might want about the FBA program!

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