The Pros and Cons of using Fulfilment by Amazon and Shipwire
What is Fulfillment By Amazon? Some advantages
Amazon indicates a number of advantages of outsourcing fulfilment to them, conveniently summarized by us for you in bullet-points:
- Prime members have free Two-Day shipping, and all Amazon.com customers can get free shipping on orders over $35.
- Benefit from customer awareness of discounted shipping – because most FBA listings are ranked without shipping cost, you get an edge when competing
- Customers get Amazon’s customer service and returns, signified by listings displayed with the FBA logo
- Fulfillment centers can handle practically any inventory requirement, has no minimum number of units, can scale “seamlessly”
- Pay as you go – charged for storage space and the orders fulfilled
- In a 2013 survey, 73% of FBA respondents reported that their Unit sales increased on Amazon.com more than 20%, since joining FBA.
What are the disadvantages of using FBA?
In e-commerce marketing, customer data and brand building are central to making repeat sells and growing your business. When using FBA, only the Amazon brand will benefit from your sell on their channel. Indeed, the customer bought on Amazon, and when s/he received the parcel it comes in an Amazon branded box. All communication runs through Amazon and any problems are solved by Amazon’s customer service. What is more, you don’t get any customer data and are not allowed to contact the customer to share deals, conduct e-mail marketing and try to create those lucrative repeat purchases. As is well-known in e-commerce, in most areas* it is easier to sell to an existing customer than to a new customer. Repeat purchases also tend to have a higher transaction value than first time purchases.
Amazon seeks to build their own brand and they collect new customers from all possible sources, including affiliate merchants. Because Amazon has such a huge selection of products, they use sophisticated marketing to increase repeat sales from their customer customer base. There is not much room to build your own brand on Amazon.
*I say most areas as there are some areas in which it is hard to create a repeat purchase. I sell hammocks, for example, and most customers tend to need just one hammock. Especially if you sell such high-quality, durable products as I do 😉
Using Shipwire or a third fulfilment partner while selling on Amazon
Shipwire, itself being a huge fulfillment company, of course knows about the latest developments in ecommerce and the role of its competitor Amazon. It proposed the following strategy, to “have control of your brand” and your customer relations: “The trick is not use FBA unless you absolutely must.”
The propose to use Amazon like just a sales channel like any other, instead of as a service provider. You will keep your customer data in that way and control your brand. Shipwire:
“• For on-Amazon sales, leverage FBA only if other retailers or
Amazon is selling the same product. If not, control your brand
delivery experience with Shipwire.
- For off-Amazon sales, control your brand delivery experience
by partnering with Shipwire for your fulfillment.”
Of course there is no need to use Shipwire as an alternative, you could also use another fulfillment company. As you can see below, Shipwire markets itself as offering the same and more as FBA does, while they also care for your brand.
Comparison of Costs, Shipwire vs. Fulfillment by Amazon
With Shipwire, one order with one product costs you 2.31 USD. If you have 300 sales per month with an average of 1 product per sale and use 2 pallets in one of their warehouses, it costs you 756.75 USD/month.
With FBA, if you sell one cd that costs 20 USD, this will cost you 5.83 USD in various costs.* The biggest costs are Amazon referral Fee (15%/3 USD) and Variable Closing Fee (1.35 USD). 300 sales per month is 1.749 USD. Please do note that cd’s are one of the lightest types of products you could sale – heavier items will be more expensive because of separate costs for weight handling.**
The biggest difference in costs is the 15% referral fee that Amazon applies. This makes it much more expensive (about 1000 USD for 300 orders) than Shipwire. The fulfillment is actually cheaper for Amazon – 1.48 USD for Amazon versus 2.31 USD for Shipwire.
*3 USD for “Amazon referral fee” (15 %), 1.35 USD for “Variable Closing Fee”, and 1.48 USD for Fulfillment costs (1.02 USD for “Pick&Pack” and 0.46 USD for “Weight Handling”)
** A 2 pound book will cost 1.23 USD versus the 0.46 USD for a cd for weight handling.