Commerce & Sales Channels

Amazon Fulfillment: A Complete Guide for Third-Party Sellers in 2022

Commerce & Sales Channels
February 22, 2022
18 min read

Amazon fulfillment doesn’t have to be complicated. This guide contains everything you need to know about FBA, FBM, and SFP with tips for success on Amazon marketplace.

Table of Contents:

What is Amazon FBA?

FBA Storage Limits
What is Amazon FBM?
What is Amazon SFP?
New Standards for Amazon SFP
Is Amazon FBA Right for Me?
What Does a Successful Amazon SFP Network Look Like?

Amazon offers three fulfillment options for third-party sellers: FBA (Fulfillment by Amazon), FBM (Fulfillment by Merchant), and SFP (Seller-Fulfilled Prime). The simplest option for sellers of standard size items by Amazon’s standards is to allow Amazon to handle all aspects of fulfillment and customer service through FBA. FBA enables Prime status through Amazon’s internal fulfillment and delivery network. 

However, sellers of oversized items will likely be deterred from FBA by its heightened fee schedule for any items weighing over 20 pounds or shipping in a box larger than a shoebox. These sellers should consider whether additional sales afforded by Prime status outweigh the costs of meeting Amazon’s new SFP fulfillment and delivery standards or if higher margins can be realized by opting out of the Prime program and enrolling in FBM. The diagram below will help you determine which option may be best suited for your business.

Schedule a free consultation with an Amazon Fulfillment Expert

What is Fulfillment by Amazon (FBA)?

Amazon FBA, or Fulfillment by Amazon, is a program powered by Amazon’s in-house fulfillment and logistics network. The top priority of Amazon’s logistics network is offering 1 to 2-day delivery (and same day delivery for a growing number of listings) of Amazon’s products to Amazon Prime members.

The Amazon FBA program allows third party sellers to store their products alongside Amazon’s products in Amazon fulfillment centers. Amazon handles all fulfillment, shipping, customer interactions on the seller’s behalf, takes a percentage of the sale according to their fee schedule, and disburses payment to the seller on a cadence of every 1-2 weeks.

Sellers are responsible for preparing and shipping their inventory to Amazon’s warehouses according to FBA standards. This is a detailed process that includes packaging and adding scannable labels according to product type and uploading and monitoring reporting. Failure to follow these protocols exactly will result in additional fees and often rejection of the inbound shipment.

The distinct advantage of enrolling in the Amazon FBA program is Prime status, placing your products at the top of the search results and catching the attention of loyal Prime shoppers who spend more than twice as much money on Amazon as the average Amazon shopper. Some multichannel merchants enrolled in FBA opt to segment their fulfillment between Amazon’s fulfillment and services and another outsourced fulfillment providers, while others can satisfy multiple channel requirements through Amazon Multi Channel Fulfillment.

The disadvantages of FBA are a lack of visibility into inventory and order statuses, little to no customer data, and a confusing experience for end customers. When shoppers make a purchase from your Amazon storefront and it arrives on their front door in Amazon-branded packaging, they end up associating your product with Amazon, rather than your brand.

Amazon fulfillment FBA brand confusion

Amazon FBA Storage Limits

Amazon FBA was built to enable third-party sellers to offer Prime shipping, which gave Prime members more options when shopping on Amazon. At first, FBA storage limits allowed sellers to store products at FBA warehouses for up to 12 months at reasonable storage rates. However, as the program became more popular with sellers and FBA warehouses started fill up, Amazon began to prioritizing fast-turning inventory and incentivizing FBA sellers to store only a few weeks supply at a time.

Then in 2020, Amazon announced limits on storage of new products and began using sales history (what amazon calls an Inventory Performance Index, or IPI) to impose new limits on existing items. Amazon seemed to be sending a message that it was moving from an inventory storage solution to a fulfillment only solution. The ASIN-level restrictions caused many sellers to experience stockouts on their most popular items, limiting their growth and negatively affecting their advertising and search results due to the Amazon algorithm’s preference for items that are less likely to go out of stock.

In April 2021, Amazon announced yet another change to inventory limits. Limits would no longer be at the ASIN level but at the account level, dropping some sellers’ storage capacity by 20%-50%. This announcement came just before sellers started to stock up for Amazon Prime Day and persisted into peak holiday preparations, leaving may third-party sellers concerned that they wouldn’t be able to keep their high-velocity SKU’s in-stock to keep up with seasonal demand.

As a result, many FBA sellers are re-thinking their approach to Amazon fulfillment. Relying on FBA alone is proving to be a single point of failure. Amazon’s inventory limits paired with extended dock-to-stock times simply can’t support high-velocity sales. Sellers are likely to sell out of products before they can get another shipment inbounded, resulting in lost sales and lower search rankings on Amazon.

The solution for many sellers may be to take a multi-threaded approach to fulfillment. Rather than only relying solely on FBA, sellers can create two SKUs under a single ASIN: one SKU is fulfilled by Amazon, the other is fulfilled by merchant. Once the FBA SKU sells out, the seller can switch to their fulfilled by merchant SKU until FBA is re-stocked. By having a backup fulfillment method in place, merchants lower their risk of stockouts, and if they outsource FMB fulfillment to a reliable 4PL or 3PL network, they can provide the same 1- to 2-day delivery experience their customers have come to expect from Prime orders. FBM can be considered a back-up plan to FBA when inventory limits hinder growth.

Questions about using FBM as your FBA backup plan? Talk to one of our Amazon fulfillment experts.

What is Amazon Fulfillment by Merchant (FBM)?

Amazon FBM, or Fulfilled by Merchant, is a program that allows Amazon sellers to list on the marketplace and handle all fulfillment, shipping, and customer communications either on their own or through an outsourced order fulfillment partner.

The primary advantage of enrolling in the Amazon FBM program as opposed to Amazon FBA is a sense of autonomy and control for Amazon sellers. Sellers can maintain control over their branding with custom packaging, rather than orders arriving in Amazon Prime packaging, creating a confusing customer experience that may drive shoppers back to a competing Amazon seller rather than back to your primary sales channel. Through Amazon FBM sellers also handle all customer communications, assuring that all customer interactions are excellent and in line with the overall brand experience.

The most notable disadvantage of Amazon FBM compared to FBA is that FBM does not include Prime status. While the Prime badge will likely increase overall sales, it’s important to consider how much Amazon FBA’s storage and fulfillment fees might offset the profits of those sales. Measuring the sku-level profitability of your Amazon sales will help you determine whether the fees are actually outweighing the profitability of increased sales.

This is especially true for oversized items. FBA’s size requirements for standard sized vs oversized products are very tight, and both storage and fulfillment fees skyrocket once an item crosses the threshold of “standard size”. 

amazon fulfillment

Competitive Advantage for FBM Sellers

In May, Amazon notified FBM sellers that they could choose to change their default handling time from 2 days to 1 day. The default handling time is the amount of time merchants need to pick, pack, and ship their orders, and it’s used to calculate a product’s estimated delivery time.

Amazon stated that products with a shorter default handling time would have a faster delivery promise, and would therefore be more likely to win the “featured offer” spot. We also know that Amazon’s algorithm has always favored products with faster delivery times, so it stands to reason that switching to a 1-day default handling time will improve search rankings and ad performance, giving FBM sellers a competitive edge over their competitors who only have the operations to support 2-day handling times.

Looking for an FBM solution for 1-day default handling times? Reach out to one of our Amazon Fulfillment experts.

What Is Amazon Seller Fulfilled Prime (SFP)?

The third fulfillment option for Amazon sellers is Amazon SFP, or Seller Fulfilled Prime. The Seller Fulfilled Prime program gives sellers the best of both worlds. The seller handles all fulfillment and shipping processes and customer interactions either through an in-house solution or outsourced fulfillment partner. The key difference between SFP and FBM is that sellers enrolled in the SFP program are granted Prime status.

The Amazon SFP program was created out of a need to free up valuable warehouse space in Amazon’s warehouses and to add more sellers and options to the Amazon Prime program. Amazon’s priority for its storage space and warehouse labor is Amazon private label brands, so the growing scarcity of warehouse space could ultimately benefit sellers who want to fulfill their own products without giving up their Prime status.

It’s important to note that the SFP program is highly competitive and exclusive. It has been closed to new applicants for over a year. Merchants may add themselves to the waitlist, but Amazon has not disclosed how many sellers are on the waitlist or when it will fully open the program back up to new applicants. Amazon also screens all applicants to the program by first enrolling them in a trial period where their listings do not have the Prime badge, but they’re required to meet Prime’s same-day fulfillment and 2-day delivery requirements before being officially accepted.

New Standards for Amazon SFP

Last August Amazon notified merchants enrolled in its SFP program that as of February 1, 2021 it would be enhancing its already stringent Seller Fulfilled Prime requirements to include supporting Saturday pickups and delivery, meeting targets for 1 and 2-day delivery promises, and offering nationwide delivery coverage for all standard size products.

It’s important to note that the requirements for oversized products are less stringent than those for standard size products, and sellers may be surprised to find that their items actually fall into the oversized category.

How Do Amazon Fulfillment Requirements Define “Oversized”?

Amazon’s standards for oversized items take into account both weight and dimensions. Anything over 20 pounds falls into the oversized category. And (regardless of weight) items that exceed dimensions of 18” (longest side), 14” (median side), 8” (shortest side) are classified as oversized.

Other changes to the SFP program include a required percentage of page views that display a 1 or 2-day delivery promise based on the viewer’s geographic location.

One and Two-Day Delivery Coverage

Page View Requirements as of February 1, 2021

amazon fulfillment

Beginning June 1, 2021, these percentages will increase: 

amazon fulfillment

As Amazon continues to invest significantly in a fulfillment infrastructure to support even faster delivery for Prime members, they hope to create a streamlined and consistent delivery experience for all Prime purchases, regardless of the listing seller or fulfillment service. As merchants consider the pressures of these new requirements in light of changes to FBA’s Inventory Performance Index threshold and quantity limits announced last year, they may find this to be the perfect opportunity to reexamine their SFP strategy.

Beyond Seller Fulfilled Prime Requirements

These new requirements are likely not too surprising to savvy online merchants who have watched the so-called “Amazon Effect” shape consumer expectations for delivery since Amazon Prime’s inception in 2005. The graph below shows the explosive growth in online search for “2-day shipping” over the past 16 years as the offering grew from a novel added value to a general expectation.

The larger trend indicates that not only is 1 or 2-day delivery a driver of customer satisfaction and retention, but when advertised early in the customer journey, can actually capture shoppers at the top of the sales funnel and increase overall conversion rates. What’s more, we’ve found this to be true across all sales channels. Google Shopping’s recent consumer behavioral research named this phenomenon “The Power of Now”, and their research found that a fast shipping guarantee significantly influenced shoppers’ decisions to purchase one product over another. Likewise, our recent merchant survey indicated that 65% of merchants saw an increase in cart conversion rates of up 25% when 2-day delivery was offered at checkout, regardless of the sales channel.

Is Amazon FBA Right for Me?

These new standards may feel out of reach for merchants currently enrolled in SFP. If you’re wondering whether Amazon FBA is the best option for your Amazon fulfillment, the answer is in your product profile.

Products Best-Suited for FBA:

  • Standard-Sized Items: Amazon’s requirements for standard size are 2-fold: Items must weigh less than 20 pounds and ship in a box smaller than a shoebox. When it comes to fulfilling and shipping smaller inventory, Amazon’s network is best-suited for nationwide coverage and new weekend requirements.
  • Fast-Moving Items: Amazon’s storage rates are more competitive for fast-moving skus. This enables you to store more inventory in Amazon’s warehouse and inbound less often.

Amazon FBA may be convenient for some sellers, but due to the loss of visibility and strict size requirements of the program, sellers should consider opting instead for FBM or SFP if their products fall under any of the following categories:

  • Heavy or bulky: FBA’s definition of oversized may surprise you. Keep in mind that the additional fees associated with products over 20 pounds or larger than a shoebox may outweigh increased sales that come with Prime status.
  • High value: The more touchpoints in your supply chain, the more opportunity for items to be damaged. Protect your high value inventory by shipping directly to your fulfillment partner rather than adding the extra step of prepping and labeling inventory according to FBA’s standards. Additionally, the risk of commingling your genuine product with a possible counterfeit may be too great.
  • Seasonal: Especially if most of your sales come in the fourth quarter, Amazon’s peak season surcharges will eat into your profits. Additionally, many sellers complain that storage and ADV minimums are set according to peak season sales, meaning that sellers with highly seasonal products will be stuck paying for unused space in the off-season.

If your inventory is oversized by Amazon’s standards, talk to a Ware2Go fulfillment expert to determine if SFP or FBM is the best option for your business

Navigating the New SFP Standards

While the new SFP standards may feel too stringent for many sellers, it is possible to stay compliant with a qualified 4PL like Ware2Go. 

How to build a successful SFP Network

  • Opt-out of Under-Indexed Markets: To keep your percentages of page views with fast shipping guarantees high, opt out of SFP in regions with lower demand. Prioritize the markets with the highest demand when building your 1 to 2-day delivery network and only turn on SFP for those regions.
  • Carry Inventory Closest to Demand: Using machine learning and historical sales data to determine your highest-concentrated pockets of demand, you can prioritize 1 to 2-day delivery to those markets and easily meet Amazon’s fast shipping requirements for oversized items. Stocking a distributed warehouse network requires a greater capital investment in inventory, but research shows that 2-day delivery guarantees actually increases top-line revenue by up to 20% and lowers your overall cost to serve.
  • Prioritize ground shipments. Many sellers may be tempted to rack up next day air charges to maintain Prime status, but, especially in the case of oversized items, next day air prices will eat up your margins. Distributing inventory across a 3PL network is the only way to meet SFP standards without eroding profitability.
  • Optimize Demand Forecasting: Saturday fulfillment is a new ask for many warehouses, and understanding how to staff appropriately for demand will be the key to their success. Choose a fulfillment partner with the technology in place to predict weekend order volume to help warehouse partners ensure they’re sufficiently staffed to fulfill orders on time.
  • Update all product packaged weight and size dimensions. SFP delivery standards for oversized items are much more lenient, but you have to update your account settings. If your product dimensions are not saved in your account settings, the default classification will be standard size, and you will be held to those rigorous standards.

Leveraging Amazon’s Fulfillment Standards for Long-Term Growth

Amazon frequently serves as a litmus test for consumer sentiment, and this new policy indicates that 1-2 day delivery is here to stay as the industry standard for eCommerce fulfillment. The recent spike in demand brought on by COVID-19 highlighted the limitations of Amazon’s own internal fulfillment network and prompted the retailer to bolster its Prime fulfillment across the board, including these new requirements for Seller Fulfilled Prime.

Merchants capable of meeting these stringent requirements will not only see returns on their Amazon listings but will drive sales and top line growth across all of their channels. Ware2Go is committed to constantly innovating to keep its merchant partners one step ahead of fulfillment trends to deliver excellent customer experiences with a fully optimized B2E supply chain. Reach out to talk with a supply chain expert about building an SFP network for your business, and we’ll run our Network Optimization analysis to show you exactly where to place warehouses.

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