Fulfillment By Amazon – Is it worth it?

Hi gang,

Ahhhhhhh, the Midwest in late fall.  The land of grey skies and impending doom.  The land of black, brown, and gray coats. The land of leafless trees that shake and shudder in the constant and cold Midwestern wind. The place where I grew up and went to college. The place I moved 800 miles away from.

Yet, I keep returning here.  Sometimes, it’s to see old friends who didn’t move away. Sometimes it’s to cheer on my beloved Illini, who were 6-0 when I bought the Illini vs, Michigan tickets and have not won since (my bad! I shouldn’t have jinxed them by going to my first game in 18 years.) Sometimes it’s to go stare at the central Illinois cornfields that stretch on as far as I can see, while I reminisce about the good old days of high school football, past girlfriends, and detasseling corn. In that order.

I own a company that will do seven figures in sales this year, but you probably wouldn’t guess that by watching me on a daily basis.  In fact, I appear to be unemployed.  I read a lot. I exercise a lot.  I travel – yes, even to the Midwest.

I can do all of these things because I have outsourced several major components of my business to Amazon.  We sell 500 items a day, but I don’t ship anything.  We get dozens of customer service e-mails a day, but I don’t answer any of them.  We probably take up 2,000 sq. ft. of warehouse space, but not MY warehouse space.  I work out of my house. My warehouse is my garage, which holds 50 shipping boxes and some mailing labels.

“Are you high?” I hear you scream from your bustling warehouse full of human resource incident reports,  “What devilry is this? To run a business, you need a warehouse! You need people to shelve, pick, and ship products! You need to deal with USPS, FedEx, and UPS!”

Yep, you do need all of that – but it doesn’t have to be YOURS.  Enter Fulfillment By Amazon, or FBA.  In a nutshell, Amazon will store your product in their warehouses.  You sell them under your user id just as if you were shipping from your warehouse, but when they sell, Amazon will pick and ship them for you. Amazon handles all customer service issues for you as well, so you can kiss your weird CS Rep – who you have to put in a back office because they may or may not shower – goodbye. Also, because Amazon is responsible for shipping, your items are included in their Super Saver Shipping/Prime program which grows like a weed every year.

FBA has been wonderful for me and my business.  It is amazing how much of your time frees up when you don’t have to warehouse, pick, ship, and handle CS for your business.  Imagine being able to actually spend the majority of your time growing your business instead of renegotiating that FedEx contract.  I’m there.

But I’ll take off the rose colored glasses now and tell you the reality about the FBA experience, because I am sure it will not work for everyone – here are some not so random tidbits about FBA:

You are responsible for the shipping cost to send them the goods.  However, you are charged at Amazon’s UPS rate, not yours.  Yes, Amazon’s UPS rates will floor you.

Amazon still takes the normal seller fees (15% for media, etc.) when your item sells.

Amazon will also charge you a fee to store your item, another fee to pick your item, and a weight-based fee when an order ships.

Amazon has developed a very cool fee comparison between FBA and your warehouse.

From personal experience, I can state confidently that using FBA to sell media items on Amazon costs LESS than if I were to do it on my own, and the sales volume is higher. Win win.  HOWEVER, Amazon recently announced a very significant price increase on fees that will go into effect next February that will force myself and many others to re-evaluate the model.

Your fees are different depending on the weight of your item, the category it is in, and the average selling price of your item.  You can find that new FBA fee breakdown here.

Amazon can also store and ship your products that sell on other marketplaces besides Amazon.  Honestly, I believe these fees are too high to be competitive, but it’s an option.

Amazon also pulled a pretty nasty rabbit out of their FBA hat earlier this year –  they decided to implement a Long Term Storage Fee for items in the FBA warehouses for over a year.  Of course, logically, this makes sense for them to do, but unfortunately the effect for sellers who had been in the program for a long time felt like Amazon was holding their product hostage.  In other words, they changed the fee structure AFTER they had my product, and yes, they charge you a pick fee per item to return your product to you (or in my case they offered to destroy the items for free, which ended up being $25,000 cheaper than returning it).  In technical terms, it was kind of a big, fat, bummer.

Overall, I’d give FBA a B.  It is still a wonderful service that frees up my time tremendously and allows me to grow my business (or read all 5,000 pages of The Game of Thrones Series), but the upcoming fee increases aren’t looking good for my product and the long term storage charges really hurt as well.

Winter is Coming.

Kevin Harmon

Red Shorts Media LLC

kevin@redshortsmedia.com

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