The Top Amazon FBA Alternatives: Pros and Cons
Fulfillment by Amazon (FBA) is a great way to get started selling online. As an entrepreneur, you can offload much of the busy work required to Amazon and allow them to carry it. No more having to pick, pack and ship every piece of merchandise that sells and hope that it arrives to your customers in one piece, and having to deal with the implications if it does not.
The flipside of Amazon FBA is Amazon Fulfillment by Merchant (FBM). With FBM, you are responsible for everything Amazon covers under FBA. Another option is Amazon Seller Fulfilled Prime. Amazon FBA isn’t perfect. There are some tradeoffs. And some of these tradeoffs are substantial enough you’ll want to consider other options. We’ll get into those options a little later on.
- Amazon’s Latest Inventory Restrictions & Warehouse Storage Limits
- Why Use Amazon’s Fulfillment?
- Pros of Working With Amazon FBA
- Top Amazon FBA Alternatives
- Pros & Cons: Amazon FBM
- Pros & Cons: Amazon Seller Fulfilled Prime
- Why Utilize a 3PL Service Rather Than Amazon’s Fulfillment?
- In Conclusion
Amazon’s Latest Inventory Restrictions & Warehouse Storage Limits
With the onset of COVID-19 and the effects it has had on online businesses around the world, Amazon has made some efforts to change its policies based on your Inventory Performance Index (IPI) score.
In the last quarter of 2020, Amazon introduced an inventory requirement that sellers could only send 200 units of a product new to their mix into Amazon fulfillment centers. Amazon lightened this requirement in early January 2021. The restriction, instead, was dependent on the quality of your IPI.
Starting on January 4th, 2021 – and carrying on to today – sellers with an IPI of 450 or above are not subject to storage volume limits, assuming your score was 450 or above in the final week of 2020. In essence, they made the requirement retroactive to late December 2020.
These new restrictions were seen as harsh enough by many Amazon FBA merchants, they have started to consider alternatives that would still provide a positive profit margin. Both on and away from the platform, but not require such close attention to IPI. Especially with all of the other factors an Amazon store owner has to worry about daily.
That’s not to mention Amazon’s other inventory requirements, which require plenty of bandwidth.
So if it’s a challenge to work with Amazon’s fulfillment centers, why is it still a good option?
Why Use Amazon’s Fulfillment?
- You won’t have to deal with complex and confusing logistical and shipping standards. These are straightforward and easy to understand – especially for new Amazon sellers.
- Amazon takes care of returns when those come around
- Because you can sell more with Amazon’s help, it’s easier to establish and continue to offer discounted shipping rates to your customers
- Amazon’s extensive warehouse space helps you scale to whatever size you have in mind
- Customer service won’t be a headache for you. Amazon takes that off your shoulders and takes it seriously, as your brand’s reputation is both at stake along with Amazon’s in these transactions.
- Amazon only operates with one speed: urgent. This urgency works in your favor. There’s no need to worry if they’re working quickly or resolutely to solve issues that may arise.
- Using FBA provides you with the opportunity to work efficiently through multi-channel marketing campaigns using Amazon’s resources. Something that wouldn’t be as easy if you were going the FBM route without a marketing team!
You can leverage all of the tools, resources, and cache that Amazon has established as a brand rather than build this yourself. Then turn to Amazon to help you sell the products you set under this brand.
No matter how much your business scales, Amazon’s fulfillment operations will scale with you. This reason alone is enough for most people to want to work with them as a fulfillment partner and leave the brand-building stuff to the side.
There are some cons as well.
FBA can get very expensive, very quickly. Returns can happen more often, product prep can be a challenge, pooling products can be a pain, and long-term storage fees can make a dent in your bottom line. However, those cons rarely outweigh the pros of using Amazon’s fulfillment rather than going the FBM route or using a Third Party Logistics (3PL) company to carry the weight for you.
There are specific cases, though, when using a 3PL may make more sense for your business’s growth and future.
The pros and cons of working with Amazon FBA are similar, but some differences are worth considering.
Pros of Working With Amazon FBA
Amazon FBA is wildly popular for a reason. There are a large number of pros of working with Amazon as a fulfillment partner, including, but not limited to:
- Customer Support – You aren’t the one who has to deal with logistical issues, customer complaints, or customer support issues. All of that is in Amazon’s hands when you use FBA.
- Instant Credibility – When you work with Amazon, you get to leverage the brand they’ve built, and there’s little more powerful than the “Fulfillment by Amazon” box that shows up on your products as a way to build trust with your loyal customers.
- Amazon Prime – When you use Amazon FBA, you automatically qualify for Amazon Prime and Prime shipping. This identifier makes your listings more attractive to buyers when compared side-by-side with the competition.
- Buy Box Priority – One of the goals of any Amazon seller is to get into the Buy Box as often as possible. Being directly partnered with Amazon FBA makes this much easier than it would be otherwise.
- Comparatively low shipping costs, easy returns, and endless storage options – You’re probably already aware of the difference these can make on your bottom line with all of the articles out there about Amazon FBA.
There are a handful of cons of working with Amazon FBA, most of them having to do with cost:
- As we’ve mentioned before, Amazon isn’t a charity. If your product stays in their warehouses for long periods and you’re taking up substantial space, you’ll pay for it in long-term inventory fees. As long as you have a decent understanding of how your inventory moves, you can mitigate these costs, but they’re still a challenge.
- Being 100% reliant on Amazon is both a blessing and a curse. While you get to leverage the brand they’ve already built, you also give up control for individual customer interactions, helping you build trust in your brand. If these go sideways too often, the interactions can have the opposite effect.
- When you work with Amazon FBA, you can’t use your company branding because part of the deal is that Amazon uses its own. If you want to eventually white-label your brand and take back more control, this aspect makes that virtually impossible.
- When you depend on Amazon, you rely on them to care about you above your competition. And they’re only going to do so when your products are selling. The platform adds over 3,000 new sellers a day, and they’re absolutely are someone selling what you’re selling.
- With the pure volume of sales that happens daily through Amazon FBA and the number of processed transactions, mistakes will damage your business. It’s only human, even with the best intentions from everyone involved.
While many of the most successful Amazon sellers go the FBA route for the fulfillment, it isn’t the only game in town.
Top Amazon FBA Alternatives
If you decide FBA is too risky, expensive, or doesn’t provide you enough leverage to build your brand in the way you’d like to, there are three Amazon FBA alternatives to consider:
- Amazon FBM
- Seller-Fulfilled Amazon Prime
- Working With a 3PL
Pros & Cons: Amazon FBM
By its nature, Amazon FBM is more hands-on and requires more of you as an Amazon seller daily, but the positive side effects are worth it. If you’re a deal-finder, you can have much greater control over inventory and Amazon’s fulfillment management, leading to consistently lower costs.
When you find the best deals upfront, your margins open up, and when you get good at managing the inventory and Amazon’s fulfillment processes, things open up even more. Because you aren’t turning brand building and logistics over to Amazon as you do with FBA, your fees are much lower to sell on Amazon. Beyond that, if you’re using multiple platforms – like Selling on Shopify and Walmart, for example, it’ll be much easier to track inventory and sales velocity. Since brand building is your responsibility, you can do whatever you’d like with your packaging, inserts, and other promotions to drive awareness.
The primary cons of working with FBM rather than FBA have to do with your limited relationship with Amazon. Because Amazon isn’t your fulfillment partner, your products aren’t automatically Prime eligible. You’ll have to work through that process on your own to ensure having Prime on listings is still an advantage for your customers. Winning the Amazon Buy Box is everything – as we’ve reiterated constantly – and without a relationship to Amazon, it’ll be much more difficult for you to compete for it. Because Amazon is not in charge of your fulfillment and isn’t leveraging its network to deliver packages to your customers, delivery times can be substantially larger. Because they aren’t baking in shipping costs to their prices as they do with FBA, you’ll have to. And sell those increased prices to your customers as part of the cost of doing business.
Pros & Cons: Amazon Seller Fulfilled Prime
Let’s check out the pros and cons of SFP.
Like what you experience with Amazon FBM, SFP allows you to have complete control over your branding and more control over your business’s day-to-day details. The kicker, though, is you can also offer Prime products without having to keep up with all of the little nuances required with FBA.
SFP allows you to treat inventory fulfillment like you would within FBM, but you still can use the Prime label and enjoy all of the social proof benefits it provides. Because your startup and fixed costs are low, you can also consider hiring a 3PL or another type of fulfillment partner to handle the dirty work. In a way, it’s the best of all worlds because you have complete protection over your branding, can use Prime, and can offload logistics.
The biggest drawback of SFP? How difficult it is to qualify. Amazon’s requirements to be eligible for SFP are notoriously tricky, including, but not limited to:
- Keeping an on-time shipment rate of 99%
- Maintaining a 99% valid tracking rate
- Keeping a cancellation rate of 0.5% or less
- Using Amazon’s Buy Shipping for at least 98% of your orders
On the surface, this seems practically impossible. Practically impossible isn’t impossible, however. When you keep an efficient inventory, ensure fast deliveries across all of your shipping methods, scale with consistency but care, and outsource some of the more significant headaches to a fulfillment provider, it’s possible. Just don’t lose sight of the forest for the trees, and keep focused on the little details that may be challenging today but have a massive payoff when you become SFP-eligible.
Why Utilize a 3PL Service Rather Than Amazon’s Fulfillment?
It’s easiest to think about this when listing out pros versus cons, so let’s take a look.
There are five pros of working with a 3PL for fulfillment:
- An established 3PL will have all of the warehouse space you could want to use to store inventory and have integrated technology tools to manage inventory.
- It’s in the best interest of the 3PL to ensure you grow – your growth is tied to theirs, after all – so you can rest assured they will take care of you.
- The best 3PLs have various experts available that will use that expertise to streamline the third-party logistics behind handling your products and make sure they get to customers quickly.
- The unique value proposition (UVP) of 3PLs often lies in the customized services available to clients. These value-added services include stylized package inserts marketing your brand, specialty packaging, and the ability to support a multi-channel approach to marketing your products across platforms.
- 3PLs are also very effective at helping you keep shipping and storage costs in check due to their ability to negotiate prices with a wide variety of service providers.
Working with 3PLs isn’t all sunshine and daffodils, however. There are some risks and potential headaches that are worth considering.
Cons of Working With a 3PL
It’s not the best idea to start working with a 3PL if you don’t have a solid idea of your baseline order size. If some months are blowing up and the others are quiet, you can quickly get over your head, and your profit margins can get turned upside down.
Ensure you have a concrete idea of your typical order volume before starting to work with a 3PL.
- Setup – There’s almost always a one-time setup fee which includes making sure all of your ducks are in a row from the technology side etc.
- Storage – 3PLs either charge a flat monthly storage fee – that’s irrespective of the square footage you need – or they charge per square feet, or by the number of pallets you need in the warehouse to store your inventory
- Receiving – Almost all 3PLs charge you per shipment to receive your inventory into their warehouses. Again, this could be a flat rate, or you could be charged hourly, depending on how their accounting and staffing practices work.
- Fulfillment – This cost is obvious. It’s for the picking, packing, and everything else that goes along with getting your products ready for customers. The cost ties to the number of actions that have to be performed by the 3PL.
- Shipping – Because 3PLs earn bulk shipping rates due to their ability to scale quickly and provide high order volumes to specific carriers, that becomes helpful to you. But shipping costs are expensive, no matter what.
The Four Best 3PLs to Consider
There are plenty 3PLs out there to consider, but these five consistently outrank the others in terms of reputation, business volume, and trustworthiness:
- DHL, and
- Red Stag Fulfillment
ShipBob must be a relatively impressive 3PL company because they were listed first – or in the Top 3 or so – of every article we searched on the best 3PL providers for 2021.
They partner with Google’s Free and Fast Shipping Label, which appears to be a unique value proposition for them and give a leg up in the 3PL provider wars. They have a deep fulfillment network and web-based software to manage third-party logistics. ShipBob offers 2-day express shipping to your customers and can ship to over 220 countries and regions. Sounds like a winner to us.
FedEx is, well, FedEx. The massive 3PL based in Tennessee has a fixed presence in various industries and a massive network to leverage as an Amazon seller. Their transportation management and eCommerce integrations are some of the best in the business. And their supply chain services and consulting are undoubtedly the best in eCommerce. If you work with a complex supply chain and sell products across several industries, building a relationship with FedEx as your 3PL is a no-brainer.
Similar to FedEx, DHL has plenty of clout from name recognition alone. Their 3PL services focus on sectors like consumer, retail, healthcare, and life sciences and are perhaps a little more limited than FedEx, but still plenty extensive for the average Amazon seller. They also have a strong reputation for being an environmentally-friendly option for those of you concerned with the knock-on impact of your daily eCommerce activities.
Red Stag Fulfillment
Red Stag Fulfillment is notable for having a few uncommon features within their warehouses. And are an excellent option for eCommerce sellers with specific needs. They built warehouses with extra-wide aisles and use oversized equipment to accommodate notably bulky and heavy products.
If these types of items make up the lion’s share of your product line, Red Stag is a fantastic choice as your 3PL. This good fit is particularly true due to Red Stag’s experience balancing shipping charges for these oversized items, so they don’t put too much of a dent in your pocketbook.
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Amazon FBA isn’t the only game in town, but it’s one of the most popular. Depending on your business model, your tolerance for risk, and the level of control you want in building your business, working with a 3PL or sticking with Amazon FBM may be right for you.
And let’s be honest, you all probably should be pushing for the rights to be an SFP seller no matter what, right?
No matter what you choose, DataHawk is here to help. Check out our blog and resources section for more great content on the world of Amazon selling and eCommerce.