How To Execute a Profitable Fulfillment Strategy
FBA is the single most influential lever third-party sellers can pull to improve Marketplace performance. For both brands and resellers, having an advanced fulfillment strategy is critical when it comes to gaining more Buy Box share, increasing detail page conversion rates, and optimizing the overall profitability of Amazon as a channel.
The benefits of FBA are well-known:
- Warehouse units
- Pack and ship orders to customers
- Provide customer service for those orders
- Influence role on Buy Box ownership
- Safeguard fulfillment latency & seller rating
- Access to Amazon Prime user base
- Increase sales performance
There are a number of obstacles about FBA allocation that many sellers find intimidating including:
- Stagnant in strategy – don’t know where to push forward
- Increased sales velocity but can’t quantify how profitable it is
- Operational elements (labeling, inbound shipments, etc) are painful for your team
This warrants a shift in mindset for third party sellers. As a result of the growing sophistication and technicality of the Amazon Marketplace sellers can no longer throw products in FBA and expect success.
Recently, we hosted a 3-day course series, Advanced Fulfillment Strategy for Amazon Sellers to better understand the strategic decisions involved in inventory allocation and fees – and how these decisions impact sellers.
Incorporating Fees in Profitability Assessment
When calculating profitability, sellers should be aware:
- FBA fees are not calculated off the price of an item
- If you are over 30% in feed, be aware of your margins
- Fee is unit based (this will differ across catalog), so an ASIN-level approach is required.
FBA Long Term Storage Fees
Unfortunately, many sellers are not even aware of the long term storage fees there products may be accruing.
Twice a year (Feb. & Aug) FBA will clean house and sellers may be forced to pay a fee per cubic foot as seen in the below chart.
There are several ways retailers can improve their strategy to avoid being hit with long term fees including:
- Discover which products are at risk for fees
- Increase Sales Velocity through (Sponsored Products & Pricing Strategy)
- Request a removal order (see below)
There were a lot of questions surrounding long term storage fees we didn’t get a chance to touch on during our webinar, below we break it down with follow up responses from Pat Petriello, Head of Marketplace Strategy at CPC Strategy.
Misconceptions about FBA Fees – Answered
Q. If I want my items removed and sent back to me, how long does this take?
A. It depends on how many products you are requesting the removal for. The most important thing for you is getting that removal order in before the August 15th.
Once that removal order is in your account, Amazon will exclude that inventory from your long term storage fee. They will try to send those orders back to you in bulk. So that inventory can actually take a week to two weeks to get back to you, depending on how much you are requesting.
Q. One of my products is sold as a set, how do I calculate the storage fee?
A. Any of those sets or bundles are going to exist as an individual ASIN within your seller account, so it’s still being sold as one unit.
In order to get that into FBA, you will have to factor weight, length, height, product dimensions, and package dimensions. Those package dimensions are going to drive those fees – so it’s just going to be the package dimensions of the aggregate set, once that set is put together.
Q. If my fees are over 30 percent, should I disregard those items from FBA?
A. We use 30% as the marker for products to make sure that product is still profitable for you in FBA. If your margin is 80%, then at that 30% – you are still left with 40% and that may work for your business model. It really depends on seller goals.
Q. If I have products subject to long term storage fees, can I remove them and send them back a few days or weeks later?
A. You can definitely do that – especially if you have a margin that’s high enough to support. What I might say is – why do you have products that have been sitting in FBA for 6 months? Did the competitive marketplace change? They can be removed but there is a cost. The real question is how can we avoid this situation in the future?
Q. Would it be a good idea to invest time to reprice until August 15th to try and sell my products?
A. Absolutely, repricing is really powerful. It has to be the right competitive landscape for it – you might be limited by MAP or by your margins. Assuming you have a handle on all those factors, repricing is definitely a way to increase that velocity.
Q. Do you sell more with FBA compared to FBM assuming your advertising is the same?
A. We definitely see an increase in conversion using FBA because its a more attractive offer on Amazon. It helps you win the buy box, FBA gets products in front of Prime customers which are the most loyal & highest converting user base on the internet.
Q. Could you further explain how to calculate eSessions and eConversions?
A. Those are proprietary metrics that we (CPC Strategy) came up with specifically to get more advanced around evaluating FBA allocation. eSessions stands for “effective sessions” and “effective conversions”. Basically, you can pull all the data you want out of Seller Central, but you won’t find a report that actually tells you how many sessions were in the buy box for a given period of time.
It will tell you how many sessions that ASIN got over a certain period of time (how many sessions that received for an active offer) but what we want to look at is how many sessions did you actually own (were in the buy box for)? The conversion rate amazon will give you is not necessarily the amount of sessions you were in the buy box.
For more information or to receive a copy of our 3-day FBA course, email [email protected].