Online shopping is quickly replacing brick and mortar storefronts. In addition to the benefit of added convenience, customers are given a wider selection of products at lower prices. New developments, such as same day shipping, have motivated retailers to set up their own online shops.
As the internet has grown over the past two decades, the online retail landscape has evolved along with it. Today, shoppers can buy products from two main sources: Amazon or the retailer’s official site.
Getting Web Traffic
Getting traffic to your site and converting this traffic into sales is the biggest challenge for any online retailer. Since Amazon seems to have perfected this approach, using them as additional sales channel can be a big help to retailers who are looking to expand their reach.Beyond the Sale
Of course, making the sale is the just the first step. Retailers will also need to make sure the order is delivered. This is another area where Amazon has excelled. Their warehouse locations and Prime delivery service have reshaped the entire industry and molded customer expectations. Fast and cheap delivery is no longer a luxury, it is the new standard.Thinking Logistics
The process of packing and shipping an order (a.k.a. order fulfillment) has a direct impact on the profitability of a retailer’s online business and the company as a whole. The costs of fulfillment are complicated and risky. For example, if the wrong item is shipped or if the order is not delivered in a timely manner, the customer will have a negative experience which could affect the company’s reputation.Online retailers need to consider the options of doing their fulfillment in-house or through a third party. Many retailers have trouble tending to this aspect themselves as sales start to increase. At some point, a choice must be made as to where, not if, order fulfillment should be outsourced. This is essentially a choice between Fulfillment by Amazon (FBA) and a third party logistics provider.
FBA versus Third Party Logistics
While you don’t have to use FBA for your fulfillment if you sell on Amazon, they sure give you plenty of incentives. For example, benefits such as eligibility for Amazon Prime give customers free 2 day shipping. Retailers also get preferential placement in search results and on screen in relation to sellers who do not use FBA. While the cost of FBA is a bit higher than with third party providers, it also provides better access to customers.
Fulfillment Pricing
FBA pricing is structured very similar to other third party providers. However, since each company has their own fees and pricing systems, it is best to ask to for pricing in similar formats so there are no surprises when you get your first invoice. Costs generally fall into 4 categories:
- Storage – The amount of shelf space your product takes up can be charged by the piece, per shelf, or a flat monthly fee.
- Pick/Order Fee – Each item in an order will incur a fee to be “picked” for the order. The more items in an order, the higher picking fee will be.
- Materials – The cost of boxes and packing materials can vary greatly among different providers.
- Shipping – Shipping costs can vary depending on a variety factors. Rely on a third-party freight broker to provide you with freight quotes from all major carriers - you never know how much you may save.
Is FBA better than a third party?
It may or may not be. Many retailers will sell their products on different sites such as Amazon, eBay, and other online stores. The more you rely on Amazon for sales, the likelier it is that FBA will be your best option. If most of your sales come from other sites, than a different order fulfillment provider may be better. If your company falls somewhere in the middle, search for a freight services provider with multichannel experience to get the best of both worlds.
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