Ask any ecommerce retailer what their biggest expense is, and they won’t point to web hosting, design, or marketing. They’ll point to shipping as their biggest expense—and with good reason. Although the cost of many business expenses has risen over the years, shipping costs have skyrocketed. They surged along with fuel prices and haven’t calmed down since.
Amazon’s FBA (Fulfilled by Amazon) program seems to be the answer to ecommerce business owners’ prayers. The service uses Amazon’s extensive warehouse system and sophisticated ecommerce engine to pick, pack, and ship. Retailers send pallets of products to Amazon, which in turn ships them out on the retailers’ behalf. As part of this deal, retailers agree to accept returns and ship replenishment stock at Amazon’s request.
If it sounds like too much of a good thing to be true, it might be. Some small business owners love the service, while others find it’s overkill. Whether you proceed with Amazon FBA depends on several factors.
Business owners face many pros and cons when deciding whether to use Amazon FBA. Consider these when comparing Amazon with other fulfillment services.
For retailers looking to expand their online reach, Amazon FBA can be a good option. The biggest benefit you get is the expanded reach from Amazon’s website. Because customer shipping costs are wrapped into your prices, you pay only one price for each pick/pack/ship item sold through Amazon, and you won’t have to worry about order fulfillment and tracking. Amazon takes care of all that for you.
Amazon isn’t the only outsource fulfillment warehouse available to small business owners, and you always have the option of fulfilling and shipping orders yourself.
The main carriers for small retailers include the U.S. Postal Service, UPS, and other services such as FedEx and DHL. Among these four, the U.S. Postal Service and UPS are the most small-business friendly in terms of pricing and services.
With both DIY vendors, you need to store items on your own and provide your own shipping materials. You are responsible for readying the order for shipment, weighing the package, and completing forms or printing labels to ship the packages out. Both vendors offer package pickup and various shipping options to help you control costs.
There are 4 costs associated with fulfillment:
Each of these costs by themselves might not seem to be too bad, but when added up, they can be substantial. Among the various costs associated with shipping, labor costs are usually the highest. Most companies hire hourly workers to pick, pack, and ship goods from their warehouses. Seasonal or temporary workers can be used to round out the workforce. Take into consideration these costs as you tally up your annual budget and assess fulfillment costs.
Another area where fulfillment costs can quickly escalate is if you are shipping heavy, fragile, or oversized goods. Not only must you take into account the increased postage from heavier or oversized objects, but the packaging costs also change. Oversized objects might need special boxes. Fragile objects might call for additional packaging materials, double-walled boxes, and other materials to cushion them during shipping. Some objects cannot be handled by certain freight companies, or companies charge a premium to ship them. All of these factors can alter the costs of shipping and should be factored into your assessment when considering DIY versus Amazon fulfillment costs.
Amazon FBA offers many advantages but also numerous disadvantages. Depending on your business model and the breakdown of the costs impacting your shipping, you might choose to go with a different vendor.
There are cheaper alternatives to Amazon. You should compare costs across multiple vendors. Here are a few tips for comparing outsourced fulfillment vendor prices:
Amazon might have the most name recognition when it comes to fulfillment services, but companies have plenty of other options. Whether you conduct fulfillment operations yourself or outsource the work, it’s always a good idea to research services annually to make sure you continue to receive the best price for your needs.
It’s also a great idea to review warehouses—especially those providing customer service for your company—in person. When you actually see their services in action, you can ensure that they’re providing you with the same quality of service you’d give your own customers.