Amazon is the world’s largest retailer.
In 2018, nearly 50% of all ecommerce sales in the US
were made on Amazon. If you’re an ecommerce merchant, you likely already have
a presence in their Marketplace or are considering one for
the near future.
Selling on Amazon Marketplace means playing by their rules.
There are many things that you’ll need to be concerned with
such as the type of product(s) you can sell, their potential
profitability, sourcing quality suppliers, pricing,
advertising, packaging and — most importantly — fulfillment.
Choosing a suitable fulfillment method is crucial to
becoming a successful merchant on Amazon.
There are two main ways of fulfilling orders with Amazon —
Fulfillment by Amazon or Fulfillment by Merchant. Both leverage
Amazon Prime — the paid subscription service that offers fast
and free delivery on over tens of millions of products. As of
January 2019, Amazon reported having more than
100 million Prime subscribers in the US, making this a very important target demographic for Amazon
Fulfillment by Amazon (FBA)
With FBA, inventory is stored at Amazon fulfillment centers and
orders are picked, packed and shipped by Amazon once they’re
received. Free two-day shipping is available for Amazon orders
placed by a merchant’s Prime customers (along with free shipping
for other eligible non-Prime orders).
These fulfillment centers can also be used to fulfill your
third-party orders, for example, orders from your own website or
other sales channels. This is called Multi-Channel Fulfillment
Fulfillment by Merchant (FBM)
With FBM, you store inventory at your own warehouses (or with
your own suppliers) and it’s on you to coordinate the picking,
packing and shipping of orders received from Amazon.
FBM also allows you to offer free Prime shipping, but your
products must follow very stringent guidelines. This is known as
Seller Fulfilled Prime (SFP) and sellers (and their products)
must qualify in order to participate.
Before we go into more detail about these fulfillment methods,
it’s worth noting that an Amazon merchant doesn’t need to stick
with just one of them. In fact, they can mix and match to better
fit what they’re selling and who they’re selling to.
has many benefits and is ideal for merchants looking to scale
their businesses. Here are some perks:
You do not have to worry about storing inventory, picking,
packing, shipping, customer support or returns as Amazon
handles all of these things.
At no additional cost to you, FBA orders are eligible for
free Two-Day Amazon Prime shipping (and free shipping on
other eligible orders) which is enticing to Prime members
shopping your products.
You have a higher chance of winning the Buy Box (more on
that later), as Amazon gives FBA merchants higher scores for
certain Buy Box criteria.
You have more time to focus on marketing or growing your
business because you’ve offloaded all fulfillment and
customer service to Amazon.
Participating in FBA does come with some downsides. The biggest
one is paying handsomely for Amazon’s inventory storage and
fulfillment services. For storage, Amazon charges per cubic foot
of space your inventory occupies in a warehouse on a monthly
basis. Fulfillment fees are levied on a per item basis and vary
based on weight. To help calculate what the monthly overhead
Amazon provides a full breakdown of the fees and rate
Additionally, if inventory sits on a shelf in a fulfillment
center for over 365 days, you become susceptible to a
long-term storage fee
(LTSF). Inventory optimization is the key to avoiding this. You
need to work diligently to keep your top-selling products in
stock, while removing or marking down low-performing products to
avoid these additional fees and holding costs.
On top of that, Amazon measures the merchant’s overall inventory
health with a metric known as the
Inventory Performance Index
(IPI). The IPI is calculated with many variables including
excess inventory percentage, stranded inventory percentage,
sell-through rate, and in-stock rate. A low IPI score could mean
additional fees and storage limits. Amazon provides
that help you track these performance metrics and take action to
improve your IPI.
Amazon’s fulfillment centers can also be used to handle orders
coming from third-party sales channels like Magento, Shopify,
WooCommerce or Volusion. This is called Multi-Channel
Fulfillment (MCF). With MCF, you can offer faster shipping
options — like 1-day or 2-day delivery — for your non-Amazon
customers. This can help you scale your business without adding
to your supply chain complexity.
Just like for FBA, there are
storage and fulfillment fees for MCF. The storage fees are the same for both, but the fulfillment
fees differ, as they depend on the type of shipping method
chosen (higher fees are charged for faster delivery options).
To access MCF, you’ll need to connect your third-party ecommerce
account so that Amazon is able to receive orders as they’re
placed. Many sales channels — like the ones mentioned earlier —
already have connections with Amazon. However, if you’re on a
custom or brand new ecommerce sales channel, an integration to
Amazon will need to be built using the
Amazon Marketplace Web Service API.
Want to sell on Amazon, but not pay them to fulfill your orders?
Fulfillment by Merchant (FBM) might be the right option for you.
With FBM, you have the benefit of listing your products on
Amazon, but the onus is on you to store your products and ship
them once an order is placed. You also lose access to the all of
the Prime shipping benefits, but that also means you don’t have
to worry about the stringent performance standards Amazon has
for Prime shipping.
There are two FBM pricing plans:
Professional and Individual. The Professional plan is for higher-volume merchants and has
a monthly subscription fee along with additional per-item
selling fees. The Individual plan is geared towards merchants
who sell less than 40 items per month. There is no monthly
subscription fee for Individual. Instead, merchants pay a fixed
cost per item sold along with some additional selling fees.
Why choose FBM? Well, it could be a good way for first time
sellers to get the hang of listing on the Amazon marketplace
before committing to FBA. Also, merchants who sell niche
products (without much competition on Amazon) may find that FBM
is a more cost-effective way of fulfilling orders for those
types of goods.
Seller Fulfilled Prime (SFP) is really just FBM, but with better
marketing for your products. You store and ship things yourself,
but SFP allows you to display the Prime badge on your Amazon
listings. This gives you access to the large network of Prime
customers that Amazon has to offer, while saving you on FBA
storage and fulfillment costs. Prime customers are more likely
to make repeat purchases than non-Prime members, so it’s a good
idea to appeal to them as much as possible on the marketplace.
Furthermore, your chances of winning the Buy Box are also
improved with SFP, which is a boon for increasing sales.
Sellers must first go through a trial period to show that they
are able to adhere to
before gaining full access to SFP. Here are the criteria they
Offer premium shipping options (like one-day or two-day shipping options to Non-Prime
- Ship over 99% of your orders on time
Have an order cancellation rate of less than 0.5%
Use Amazon Buy Shipping Services for at least 98.5% of
Deliver orders with Amazon-supported SFP carriers
- Uphold the Amazon Returns Policy
Allow for all customer service inquiries to be dealt with by
There are no additional subscription charges for SFP — aside
from the usual FBM fees — you do, however, have to pay for the
Prime two-day shipping costs for each shipped order. On top of
that, you need to consider the added costs of offering free
standard shipping to non-Prime customers. They can add up
quickly, so you need to evaluate whether or not you want to
factor this cost into your product prices.
The area that houses the “Add to Cart” button on every
Amazon product page is known as the Buy Box. More than
82% of the sales on Amazon go through it, with an even
higher number for mobile purchases. Since different
merchants can sell the exact same item on Amazon, the
Buy Box is Amazon’s way of singling out the best
purchasing option for shoppers. The Buy Box is not
allotted to just one seller, but instead rotates through
multiple qualified sellers of a product. The merchant
that “wins” the Buy Box at a given time will have their
product ordered when the shopper clicks “Add to Cart” or
“Buy Now,” so it’s a high priority to receive top
To even be considered for Buy Box placement, you must
first meet some eligibility criteria:
- Have a Professional seller account
Have a Buy Box eligible status for the given product (you
can check your status on Amazon seller central)
Sell new items (used items are not eligible for the main Buy
Box, but are eligible for the Buy Used Box)
Ensure that the product for sale is in stock
Once you meet the above criteria, you are now eligible to
compete for the Buy Box. Winning the Buy Box requires you to
have high seller metrics combined with competitive prices. Of
course, Amazon doesn’t disclose the exact metrics that go into
deciding Buy Box winners, but below is a list of the most likely
Merchants who fulfill their orders using FBA or SFP have a
higher chance of winning the Buy Box.
The sum of the total price plus shipping costs is the landed
price. A lower landed price is typically better for winning
the Buy Box.
This is the amount of time it takes the merchant to ship the
item out. Quicker shipping times (two days or less) are
Order Defect Rate (ODR)
This metric comprises of negative feedback rate + A to Z
claim rate + chargeback rate. Amazon requires sellers to
have an ODR of less than 1%. But to win the Buy Box, sellers
should aim for even better — as close to 0% as possible.
Valid Tracking Rate
This metric tracks the percentage of total packages shipped
with valid tracking numbers. For Buy Box eligibility this
metric should be greater than 95% and as close to 100% as
possible to have a chance of winning.
Late Shipment Rate
This measures the number of orders shipped later than the
expected ship date. A late shipment rate of less than 4% —
preferably close to 0% — will aid your chances of securing
the Buy Box.
On-Time Delivery Rate
This is the percentage of orders that were delivered on
time. Sellers should aim to deliver between 97% to 100% of
their orders on time.
On a scale of one to five stars, this is the average rating
score of all customer feedback the seller has received. An
average score closer to five stars will help a merchant win
the Buy Box. Another thing to note — more recent customer
ratings are given more weight than older ones.
This is the number of customers who have given the seller a
rating. The higher the amount of ratings, the better.
Customer Response Time
This measures how quickly the seller responds to their
customer inquiries. A merchant should shoot to respond to
customers within 12 hours of being contacted to help bolster
their Buy Box chances.
How often does the merchant run out of stock for a product?
If it happens often, then your chances of winning the Buy
Box are very low. Amazon expects sellers to have a
well-stocked inventory in order to keep up with Buy Box
This metric tracks how often a merchant cancels an order.
The rate should be well under 2.5% in order for the merchant
to stand a chance in winning the Buy Box.
This is a measurement of how often customers ask a merchant
for a refund. Just like the Cancellation Rate, this number
should be as close to zero as possible.
One other thing to keep in mind is that you do not have to be
the lowest priced seller to win the Buy Box. If your seller
metrics are in good standing, then you may be able to have
slightly higher prices than your competitors and still win the
Buy Box. On the other hand, if you have low-scoring seller
metrics, then you will have to be priced very competitively to
even stand a chance of winning.
In summation, securing the Buy Box is a common goal for all
Amazon merchants, regardless of the type of fulfillment they
choose. As mentioned previously, maintaining high seller metrics
are paramount to making this happen. Furthermore, maintaining
high fulfillment metrics are also important for ensuring your
FBA or SFP status. It’s a lot of work, so it might be worth
tapping centralized multi-channel order fulfillment software
(like Ordoro) to help you
stay on top of your inventory, shipping and resupplying efforts
so that you stay in good standing with Amazon.