For the e-commerce business, selling online has never been easier. Businesses now have numerous options beyond traditional retail models, which can streamline order fulfillment, shipping, and logistics.
For companies that don’t want to handle the complexities involved with shipping, packaging, order fulfillment, customer support, these responsibilities can be outsourced to Amazon through the fulfillment by Amazon (FBA) program.
Three Different Business Models
As an FBA seller, you have three different sales options available to you. These are private label, arbitrage, and wholesale.
Private label products
Private label FBA sellers establish a virtual online store using Amazon as a platform, relying on brand recognition. These sellers often use social media for marketing and develop their own product listings using graphical assets — i.e., photos or images of your own creation.
Private label selling requires commitment and, for some, a higher initial investment. However, the private label method can be highly lucrative if you can establish your brand and market your products correctly.
In retail arbitrage selling, you purchase marked-down retail products and resell them on Amazon to turn a profit. As you’re reselling goods manufactured by other companies under unique brand names, establishing a brand identity and building your own storefront is unnecessary. While this has been a popular sales method for years, Amazon has begun to scrutinize those sellers who do not have explicit authorization to resell branded merchandise.
Wholesalers buy branded products to sell on Amazon, eliminating the need for a brand identity or storefront. Unlike retail arbitrage selling, however, wholesalers purchase products in bulk from manufacturers on the understanding that they will be reselling these goods. As a result, they’re both authorized resellers and can negotiate rates with manufacturers or distributors.
In addition, as a wholesaler, you don’t need to create a separate product listing. You can simply piggyback on an existing one, offering an alternative to the customer.
Dropshipping is an increasingly popular alternative to the three common retail business models used on Amazon. As a drop shipper, you don’t house or store physical inventory. In fact, you never take receipt of inventory. Instead, you order products from a wholesaler, supplier, or manufacturer when a customer places an order.
You act as an intermediary between the customer and the manufacturer, facilitating the sale. The manufacturer packages and ships the product directly to the customer or, in the case of Amazon drop shipping, to an Amazon fulfillment center.
Before you decide what kind of business model you want to adopt as an FBA seller, ensure you are familiar with general sales on the platform. Once you’ve launched a product, sold a few units, and established a reputation for reliability, you can expand your business. As an Amazon seller, you should be familiar with the following fulfillment methods:
FBM, or fulfilled by merchant, places the entire order fulfillment process under your control, from purchase to delivery. You are responsible for storing and managing your inventory, shipping orders, and providing customer service.
As Amazon’s order fulfillment service fees are based on size, weight, category, and other factors, FBM can be the more cost-effective option for large items, reducing storage and fulfillment fees.
FBA, or fulfillment by Amazon, is a storage and order fulfillment service in which you send your products to Amazon warehouses. On receipt, the company can pack and ship your products, provide customer support, and process returns.
Amazon charges FBA fees for order fulfillment and inventory storage, which limits its practicality for some product categories, quantities, or dimensions. For example, if your products are lightweight, compact, and sell rapidly, FBA is highly cost-effective.
FBA, however, is less cost-effective regarding heavy and bulky goods. Furthermore, if your products don’t sell quickly, you risk racking up storage fees for keeping them in Amazon’s warehouse. Storage fees aren’t the same throughout the year — they increase between October and December. Keep this in mind when determining your fulfillment strategy.
Although Amazon does not disclose the specifics regarding its search algorithm, it’s widely thought that your FBA status positively affects your search rankings if your performance metrics are in good health.
Choosing the Right Product
When starting an Amazon store, your first step should be to choose a product that customers want to buy. Many online businesses that sell private label or wholesale products on Amazon source a manufacturer or supplier in China capable of delivering non-patented products for sale to U.S. customers.
A freight forwarding and logistics service can help you through the process of finding a supplier, clearing customs, and importing and shipping inventory to a U.S.-based receiving point.
Some Amazon FBA sellers choose to ship inventory to an intermediary first for inspection. As a low defect rate is a critical seller–performance metric for determining eligibility for an Amazon Prime badge, inspection before shipment is useful to both FBM and FBA sellers.
One of the benefits of FBA as a fulfillment method is that it allows you to use Amazon Prime without undergoing a trial period. If an Amazon customer has a Prime membership, they can choose 1-2 day shipping at no extra cost depending on the area.
About one-third of Americans are subscribed to Amazon Prime and are more likely to buy a product with a Prime badge; therefore, this has the potential to help you drive sales.
If you’d prefer not to use FBA, you can still take advantage of Prime shipping to boost your appeal. You can use SFP or Seller Fulfilled Prime instead. However, the performance metrics that you must meet are more demanding than they are for FBA sellers.
You will need to be a high-performance seller, to begin with, and pass a trial period of 5–90 days to demonstrate that you can consistently meet a specific set of key performance indicators (KPIs), such as:
- 99% or more of your shipments must be on time
- Your cancellation rate must not exceed 0.5%
- 99% or more of your orders must use Buy Shipping
- 97% of your Prime orders must be delivered on time when the customer buys shipping outside of Buy Shipping services
- When using Prime-enabled shipping templates, you must have nationwide delivery coverage for all products in the standard size range
- You must operate at least six days per week, including either Saturday or Sunday
- You must offer weekend delivery six days per week, including either Saturday or Sunday, for Prime products in the standard size range
- Achieve delivery speed targets for 1- and 2-day delivery expectations
Buy Box Eligibility
In addition to securing your Prime badge, you should also be aware of Amazon’s Buy Box eligibility requirements. Amazon product listing pages include a Buy Box, located on the right side of the page when viewed on a desktop computer browser.
The Buy Box includes the “Add to Cart” and “Buy Now” buttons and information regarding the product and the seller. Most of the time, when a customer places an order, it’s through the Buy Box. As the Amazon marketplace is highly competitive, placement in the Buy Box can significantly increase your ability to generate sales.
If you are an FBA seller, you are automatically eligible to win the Buy Box. However, if you’re an FBM seller, you’ll need to meet a specific set of requirements, though the company does not guarantee placement in the Buy Box. These requirements include the following:
Have the right seller account
First, you’ll need a Professional selling account. You can check the status of your account at the Seller Central page on the Amazon website.
Meet performance metrics
The performance metrics you need to meet are your order defect rate, cancellation rate, and late shipment rate. As your performance improves, your likelihood of becoming Buy Box eligible increases. You can check your Account Health page to see how you are performing.
Have sufficient order volume
Depending on product categories, you’ll need to maintain a sufficiently high order volume for Amazon to be able to accurately gauge your performance.
Take Advantage of Freight Forwarding
In the highly competitive landscape of the Amazon marketplace, you need to take advantage of every order fulfillment and inventory technique available. At Asiana USA, we specialize in international freight forwarding and logistics with offices across Southeast Asia, China, and the United States.
We can help you manage everything from sourcing suppliers to transporting products by air or sea. If you’d like more information about our services, call us at (855) 500-1808.