For most business owners, the answer to the question: “Should I sell my product on Amazon?” is something of a no-brainer. Sales on Amazon account for almost half of overall e-commerce sales revenue in the US, and selling on Amazon allows brands to take advantage of a massive amount of online traffic that continues to increase year over year. However, making the decision to expand your sales channels to include Amazon will lead you to another set of questions, and at the forefront of these is: “How should I sell my product on Amazon?”
On their Seller Central platform- which allows you to manage your listings, pricing, and advertising- Amazon offers two options for you to get your product to your customers: Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA). If you select Fulfillment by Merchant, you will be responsible for packing and shipping your orders, handling all returns, and working directly with the customer when there’s a problem with their order. If you choose to take advantage of FBA, Amazon will do all of those for you, and they’ll even give you a “Prime” badge next to your product name, which tells potential customers that they can get free two-day shipping on their order.
But Amazon won’t do it for free. There are two main costs associated with selling through FBA- the first is a fulfillment fee that Amazon charges to pick, pack, and ship your order to a customer; the second is a monthly storage fee that is charged based on how much space you’re using in Amazon’s warehouses. In order to determine your fulfillment and storage fees, Amazon divides products into one of two overall categories based on the size of the product’s packaging.
Once your product size category is determined, it’s pretty easy to see how much your FBA fees will be. Take note of the storage fee increase, which happens annually from October through December.
Now that you know the cost associated with having Amazon handle your fulfillment, it might seem pretty easy to determine whether or not it’s worth paying for. Before you make that decision, there’s one more factor you need to consider. Remember that “Prime” badge on your product that we talked about earlier? That little label could help you make a lot of money.
It’s no secret that there are tons of Amazon Prime customers out there, but how many are there? Research done by Morgan Stanley indicates that by the end of 2018, over 50% of US households will have access to Amazon Prime. Not only are these customers more inclined to buy something on Amazon- Morgan Stanley’s research shows Prime members spend an average of 4.6 times more than non-Prime customers- but Prime members are also motivated to purchase products that have free two day shipping. Having that “Prime” badge will also help increase conversion rates, improve your click-through percentage, and rank your product higher in Amazon’s search algorithm.
Source: AMAZON DISRUPTION SYMPOSIUM WHERE SO FAR? WHERE TO NEXT? WHO IS SAFE?, MORGAN STANLEY, SEPTEMBER 18, 2017. (PDF, 88 PP., NO OPT-IN)
The bottom line is this: If you choose not to take advantage of FBA, you risk losing out on purchases from Prime Members. Without FBA, there’s a good chance that your products will be ignored by the largest group of consumers in e-commerce, or worse- be doomed to the bottom of the search results. If you’re serious about growing your business on Amazon, FBA is an investment that will help accelerate that growth and increase your revenue. For successful sellers, FBA isn’t a question, it’s a necessity.