FBA V SFP V FBM: Which Fulfilment Method is Best for Your Amazon Seller Business

Post by Tom Baker
14 Jul 2019


Once a brand has decided to launch on Amazon through the Seller Central programme the first big decision they will face is which fulfilment method to use.

There are three choices, Fulfilled by Amazon, Seller Fulfilled Prime and Fulfilled by Merchant.

The route taken will have a significant bearing on profitability and operational processes.  To get this decision right brands will need to understand 

  • What are the options
  • What are the pros and cons of each option
  • Which option is best suited to their business and product range

In this article, we’ll run through the answers to these questions so you can make an informed choice. 

So, strap yourself in. There’s a fair amount of new terminology and lots of small details that need to be understood.

Before we jump into the pros and cons let’s introduce each Amazon fulfilment method

What are the Main Differences between FBA, SFP and FBM Fulfilment Methods

  1. Fulfilment by Amazon (FBA) – inventory is sent to Amazon’s warehouses and Amazon manages the entire fulfilment process. Amazon charges a fee based on product size and weight. Sellers may also incur additional storage fees.
  2. Seller Fulfilled Prime (SFP) – inventory is kept in the Seller’s warehouse and delivery is managed through an Amazon preferred carrier. The warehouse must match FBA service levels to qualify. Entry to SFP is only granted after a successful trial period.
  3. Fulfilled by Merchant (FBM) – as the name suggests the Seller fulfils from their warehouse but is under no obligation to match FBA delivery times. As such FBM Sellers don’t enjoy the benefits of being a Prime Seller.
How FBA fulfilment works
Seller Fulfilled Prime Fulfilment Process
Fulfilment by Merchant Fulfilment Process

Fulfilled by Merchant Process

  1. Select FBM option for each product and set account handling and delivery times
  2. Store inventory in your own warehouse
  3. Process orders in your Seller Central account
  4. Pick, pack and ship your orders as per the account shipping settings
  5. Manage customer service and returns

We’ll look at each fulfilment method in detail later in the post but for now it’s important to understand how responsibilities are shared between Amazon and the Seller.

It may be the case, that even with this small amount of detail you can confidently make your choice. If for example, you know you don’t have your own fulfilment operation FBA becomes the inevitable choice. 

Even if that is the case, I recommend that you continue reading. 

It’s vital to know exactly what each fulfilment method entails so that you can be sure of the cost and operational implications before making a commitment to one particular method.

With that in mind let’s look at the pros and cons of each method.

What are the Strengths and Weaknesses of FBA, SFP and FBM 

FBA Pros and Cons
Seller Fulfilled Prime Pros and Cons
Fulfilment by Merchant Pros and Cons

So, there are the pros and cons in a nutshell.  You might consider some pros to actually be cons. For example, having full control over deliveries is a pro for some businesses and an operational burden for others. 

To come to your decision you must factor in your business priorities and where you want to focus your attention.

Let’s now go into a bit more detail on some of these factors.  Understanding the details is the crucial part of the process.

Amazon Prime Eligibility

Both Fulfilled by Amazon and Seller Fulfilled Prime Sellers enjoy the huge benefit of being eligible for Prime delivery.  This opens up access to over 100 million customers worldwide.

Prime is so important because customers want fast and guaranteed delivery. They’ll look for the Prime badge knowing that those products and Sellers can provide next day delivery without any additional delivery fees.

This is a significant competitive advantage. Access to 10s of millions of customers and higher conversion rates are a heady mix.

Winning the Buy Box

The buy box is the add to basket feature. Sellers compete to ‘win’ the buy box by competing on 14 account performance metrics. After price, the fulfilment method is the most important factor.

Fulfilment by Amazon and Seller Fulfilled Prime Sellers will be given priority over Fulfilled by Merchant Sellers because of the quicker and cheaper delivery process. This is often true even if an FBM Seller is cheaper.

If you’re one of a number of Sellers selling the same product you have to be FBA or SFP or you will have no chance of competing for the buy box.

Access to Europe-wide Customers

If you use FBA in one of the 5 European marketplaces (UK, Germany, France, Spain and Italy) then you can switch on listings in the other 4 countries and Amazon will automatically manage fulfilment in these new countries.

As business expansion tactics go this is one of the most powerful moves any e-commerce business can make.

Packaging Marketing Material

Amazon has very tight restrictions on how Sellers communicate to customers and what they say in those communications.  They take a dim view of FBA Sellers trying to move customers on to the Seller’s brand website for future sales. One common way that Sellers do this is by including marketing material in the packages.

If your inventory is fulfilled by Amazon then it’s more likely that Amazon will find any communications that infringe on their terms and conditions.

Of course, if you fulfil without going through Amazon, either through SFP or FBM, then you can include whatever marketing material you like and Amazon will have no control over this.

Amazon Fulfilment Fees

Both Seller Fulfilled Prime and Fulfilled by Merchant Sellers bear the cost of warehouse storage and delivery.  If you run a significant logistics operation you probably already have competitive storage and delivery costs. You will have also invested significant time and money in that infrastructure.

Handing fulfilment to Amazon may seem like a needless exercise. You’ll also need to factor in Amazon’s costs for storage and fulfilment.  If you do consider FBA then you must understand these costs and compare them to the other options.

Fees are based on product weight and dimensions so every business will have different costs. You can review the FBA fulfilment costs for each marketplace based on product dimensions here;

As you can see there are many pros and cons to all three options but cost is always going to be one of the most important factors.  With one hand Amazon provides phenomenal customer demand and with the other, it takes many individual fees that aren’t always apparent to brands when they first launch.  It’s vital to understand the fee breakdown for each method.

What are the Cost Implications?

Being a profitable Amazon Seller means being aware of all of the logistical costs that eat into margin. 

FBA SFP FBM Cost Considertations

Assumptions and Other Considerations

  • Even if FBA is used, the Seller will still incur inbound shipping, storage and some order processing costs to move products to Amazon warehouse
  • ‘Fulfilment to Amazon’ assumes a cost to process inventory that is sent to Amazon warehouses
  • ‘Fulfilment to Customer’ is the Seller warehouse cost (order handling, pick & pack and weight handling) to fulfil a customer order
  • Additional long-term storage penalty costs will be incurred if products remain in Amazon warehouses for more than 181 days. Between 181-365 days the fee is £12.50 per cubic foot – more details here for European fees and United States fees.
  • Amazon’s referral fee (commission on each sale) is the same for FBA, SFP and FBM
  • Referral fees are dependent on the product category – more information on European referral fees and United States fees.

How to Calculate FBA and SFP Fulfilment Costs

To make life easier here’s a very handy spreadsheet from RetailOps which will spit out the commission and fulfilment costs for any type of product.

Amazon SFP V FBA cost calculator

Instructions

  • Open the file and make a copy – File > Make a Copy
  • Choose either the USA or UK calculator
  • Select Media or Non-Media – Media is defined as Books, Music, and Video & DVD
  • Enter retail price
  • Enter Cost of Goods (COGs) and package weight and dimensions
  • Enter shipping to you and shipping to customer costs

Now you’ll be able to calculate the gross and net profit on each product and compare FBA and SFP costs.

The spreadsheet also lists the FBA storage fees should your products not sell within the first month.

Please note that whilst the SFP and FBM cost lines are the same the actual amounts will differ. This is because to qualify for Seller Fulfilled Prime you must provide one-day delivery. More on the qualifying criteria to come…

If you are comparing FBM to SFP then simply reduce the Shipping fee.

Which Method is Best-Suited to Your Business and Product Type

Having reviewed the pros and cons of each approach and the cost implications you should have a much clearer idea of which method is right for your business. 

There is no right or wrong approach as every business is different but each method is suited to particular types of brands and products.

FBA SFP FBM business product type

Can Sellers Use Multiple Fulfilment Methods?

In a word, yes. But there are a few buts. 

  • A Seller can sell as both FBA and FBM but not for the same product in the same country at the same time
    • If your FBA stock runs out then you can switch to FBM and fulfil orders from your warehouse
    • You can sell as FBA in one country and FBM in another
    • You can sell some stock as FBA and some as FBM in one country
  • A Seller can sell as SFP in some countries and FBA or FBM in others
    • This is necessary if you want to sell in all European marketplaces, see below
    • SFP Sellers can also sell products as both SFP and FBA in the same country by creating regional selling rules (be conscious of the fact Amazon will fulfil by FBA for sales local to their warehouses and pass the more expensive long-distance sales to SFP)
    • SFP can be used as a back-up if FBA stock sells out

With all of this mind you may now consider Seller Fulfilled Prime to be the best option.  Unfortunately, it’s not as straight forward as enrolling with FBA. Amazon will only bestow SFP privileges on to a Seller once they have successfully completed a trial period.

If you’re interested in FBA then read these resources to learn how to ship and manage your inventory

Here’s how to be SFP eligible and the processes you have to complete during the trial period to qualify.

How do Businesses Qualify for Seller Fulfilled Prime (SFP)?

To qualify for SFP the Seller will need to meet the following criteria. 

European Sellers

  • Delivery orders within 24 hours at no extra cost to the customer
  • Ship over 99% of your orders on time
  • Have an order cancellation rate of less than 1%
  • Buy shipping labels through the Buy Delivery Services or the Amazon Shipping website
  • Deliver orders with Amazon’s supported Seller Fulfilled Prime carriers 
  • Agree to the Amazon Returns Policy
  • Allow for all customer service enquiries to be dealt with by Amazon

United States Sellers

Amazon US has similar but slightly different criteria.  If the account meets the criteria then the Seller can apply for SFP. 

  • Offer Premium Shipping Options
  • Ship over 99% of your orders on time
  • Have an order cancellation rate of less than 0.5%
  • Use Amazon Buy Shipping Services for at least 98.5% of orders
  • Deliver orders with our supported Seller Fulfilled Prime carriers
  • Seller must agree to the Amazon Returns Policy
  • Allow for all customer service inquiries to be dealt with by Amazon

*NOTE* SFP enrollment is only open at certain times of the year. If you’re in the US you can join the waitlist. European Sellers can register by completing this form.

What Happens in the SFP Trial Period?

Once the account has met the qualifying criteria the account will be eligible for the trial period. Prior to the trial the Seller must fulfil through fulfilled by merchant (FBM) in order to build up the required fulfilment performance history. During this period the products will not qualify for Prime.

During the trial, Sellers will need to ship a minimum of 50 Prime orders with 100% on time shipping. The trial period lasts for 90 days. If fewer than 50 orders are received during the 90 day period the trial will reset. 

If during the trial Sellers do not meet the criteria they will not be accepted onto the Seller Fulfilled Prime program.

It’s worth going into more detail about the returns policy and the management of customer service. With FBA, Amazon handle returns and customer service. With SFP, Amazon manages customer service but the Seller handle returns. However, the Seller must abide by Amazon’s returns policy standards.

What does the Amazon Returns Policy Entail?

Full details are here and here but the key points are:

  • Customer can return the product within 30 days
  • If a refund is due the Seller must process the refund within 2 business days
  • Seller will refund of costs of sending the item back to us if defective, damaged or incorrect item
  • Seller will refund original delivery costs if defective
  • Seller does not have to refund costs of sending the item back if due to cancellation
  • Seller will refund original delivery costs if order is cancelled – only applies if delivery fee is applied at point of sale. This doesn’t apply to FBA or SFP as they both offer Prime delivery.

For European Sellers wanting to use SFP outside of their home country e.g. a UK business using SFP in Germany there are additional returns policy requirements. International returns policy dictates that as the Seller is located outside the countries it’s selling in, the Seller must do one of the following:

  • Provide buyers with a return address that is in the country you are registered to sell in.
  • Provide buyers with a pre-paid returns label.
  • Offer a refund without requesting the item to be returned.

If Amazon is managing returns they will send the Seller a general box of returned goods. It makes it nigh-on impossible to connect the goods to a particular order.  If fraud is a concern then SFP provides advantages as you will know which product goes with which order.

Are There any Differences for Customer Service?

Amazon handles post-order customer service for both FBA and SFP.  Customers can track orders, request refunds and submit returns through Amazon.

Is SFP Available in All European Countries?

Currently SFP is only available in the UK, Germany and France. 

The Seller has the option to sell in those three countries plus Italy and Spain. 

In the instance that the Seller can’t meet the fulfilment and returns policy criteria for non-UK countries they need to decide whether to fulfil through FBA or FBM.

Who are the Approved SFP Carriers in Europe and USA?

Options are limited here. Amazon has squeezed out private carriers and placed itself as the dominant supplier for SFP in Europe. Royal Mail also provides an SFP service.

If you do decide to apply for SFP then you must research the best options in terms of location coverage and price. 

For example, in the UK Amazon Logistics doesn’t cover the entire country. Even if they are the best option to lead with, you will still need a second carrier for the rest of the country.

And breathe…

There’s a lot to take in but this is a fundamentally important decision that requires careful analysis. 

Let’s now summarise what we’ve learnt.

Conclusions

When deciding between FBA, SFP or FBM you need to consider these factors

  • Business priorities
  • Fulfilment costs
  • Current logistics performance
  • Resourcing each method
  • Which marketplaces you intend to sell on

Our recommendation is to only ever use FBM if you’re a small business with particular fulfilment challenges e.g. personalised goods.

The debate is then between FBA and SFP. 

Given that they confer the same Prime advantages the choice is most likely to be based on the type of products you sell and current fulfilment costs.  Everything else will be secondary to these main factors.

I’m interested to know which factors are most important to your business?  Share your thoughts and questions in the comment section below and let’s start to work this out between us!

Tom Baker

The guy writing this stuff. Previously worked in-house doing all sorts of marketing for start-ups and large brands. Now helping business to sell on Amazon and growth their D2C revenue

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