In fact, most sellers fail to calculate all of the fees associated with selling on Amazon and end up losing money as a result. To make matters worse, Amazon doesn’t exactly make it easy for merchants to tabulate all of their costs associated with selling on their platform and there are many hidden costs that Amazon doesn’t tell you about. And in 2022, Amazon FBA fees are just increasing even more.
This post can help you understand all of your costs including all unexpected fees. This post will also show you how to use Amazon’s fee calculator and enumerate all of your Amazon FBA costs.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
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Building an eCommerce business can be an exhilarating and lucrative journey. You’ve likely poured your heart and soul into growing your brand, meticulously selecting products, and building an efficient supply chain.
However, when it comes to putting a price tag on your business, it’s not just about the sweat and toil you’ve invested. There are many other factors that come into play.
Whether you’re thinking about selling soon or simply want an accurate gauge of your business’s performance, understanding how to value your business is crucial.
We’ve sold hundreds of eCommerce businesses on our marketplace, so we know a thing or two about accurate valuations.
In this article, we’ll share some of that knowledge with you, taking a closer look at the factors that play a pivotal role in the valuation process.
So, let’s explore the ins and outs of valuing your eCommerce business.
How to Value an E-Commerce Business
While you likely already have a figure in mind when it comes to how much your business is worth, accurately valuing an eCommerce business hinges on important, measurable factors instead of gut feel.
While many factors play a role in valuations, the actual valuation formula is surprisingly simple.
Average Net Profit X Multiple = Valuation
As you can see, your net profit plays an important role in your valuation. This is because, for the most part, the more money a business makes, the more it is worth.
When calculating your net profit, it’s best to use a rolling 12-month average to account for any fluctuations in earnings or any seasonality the business experiences.
There’s more that goes into a valuation that we’ll discuss later on, but first, let’s take a closer look at the two most common methods used to calculate net profit.
The idea here is to level the playing field by removing the current owner of the business from the equation. This allows for easier comparisons between different businesses, as it standardizes the earnings calculation by eliminating owner-specific variables.
To figure out SDE, you start with the business’s profit. Then, you add back the money the owner pays themselves, as well as any special benefits they get from the business (like health insurance).
One-time or non-recurring expenses are added back too, as they won’t affect a new owner. Non-cash expenses like interest, taxes, and depreciation are also added back, along with any other discretionary expenses.
SDE is the most common valuation method and most suitable for businesses up to around $5 million in annual revenue.
When businesses earn over this amount, they usually have a more complex structure in terms of a hierarchy of staff, as well as multiple stakeholders. This is where the EBITDA model comes in.
When businesses scale up and get more complex, they often have a whole hierarchy of staff and multiple stakeholders. Therefore, unlike SDE, EBITDA won’t add back salaries for managers and employees, considering them necessary operational costs.
While EBITDA is a powerful tool, we won’t dive too deeply into it here, as it’s typically more relevant to larger enterprises and is unlikely to apply to many business owners reading this.
Nevertheless, understanding these two methods allows you to choose the right tool for the right job when it comes to assessing the value of your business. So whether you’re running a small Amazon FBA business or a bustling eCommerce empire, there’s a valuation method tailored to your unique circumstances.
What are Add-Backs?
Add-backs are costs that a new owner doesn’t need to incur to keep the business running. These expenses can also include one-time costs that won’t recur.
For instance, if you run an Amazon FBA business, the associated Amazon fees are considered a necessary operating expense. On the other hand, expenses related to a home office are not essential because eCommerce businesses can typically be managed remotely.
Therefore, a new owner wouldn’t need to continue the home office expense. This is why a home office is considered an acceptable add-back, while Amazon fees are not.
Some other examples of add-backs may include:
Trademark expenses
Personal travel costs
A one-time website redesign
Co-working space fees
Subscription fees to industry newsletters and communities
It’s important to note that there can be some ambiguity regarding what qualifies as an add-back, and there might be disagreements between the broker, buyer, and seller.
Generally, eCommerce store add-backs tend to be relatively small compared to the overall earnings of the business. Therefore, if certain costs are not added back in, they usually won’t have a significant impact on the final valuation.
In case there’s uncertainty or disagreement about an add-back, it’s crucial to ensure that it’s clearly documented in the profit and loss (P&L) statement. This transparency allows potential buyers to analyze the add-back as part of their due diligence process, helping them make informed decisions about the business.
What About Inventory?
When it comes to determining the value of an eCommerce business, inventory is normally excluded from the calculation.
Inventory only becomes significant when your store has recently faced stock shortages or foresees upcoming supply chain or manufacturing difficulties.
The reason behind this exclusion is that if the buyer can’t sell the inventory, it loses its value. Moreover, perishable goods may, well, perish if they can’t be sold quickly.
For these reasons, inventory is typically treated as an additional cost for the buyer, based on the product’s landed cost. This approach ensures fairness for both the seller and the buyer.
At Empire Flippers, we don’t charge a commission on the inventory’s cost, but it’s worth noting that some business brokers do. It’s crucial to consider what happens to inventory when selecting a broker for selling your business.
Pricing Windows
Referring back to the valuation formula, we mentioned that it’s best to use a rolling 12-month average in your calculation. This is known as a pricing window.
It’s essentially the length of time we calculate the profits over. The length of the pricing window can fluctuate to best reflect the current state of the business.
A 12-month pricing window is the most desirable option as it presents the most accurate representation of the business as a whole, rather than only capturing a sharp period of growth or decline.
For example, if you sell jet skis, you likely experience a slump in sales over the winter months, and then an increase in summer, with a larger boost over the summer holidays. A 12-month pricing window will accurately reflect these ups and downs.
Since a 12-month window gives the most accurate reflection of the business’s health, it makes the business more desirable to buyers.
That said, there are some instances where you may want to use a shorter pricing window.
This is most common in businesses that have experienced rapid growth or steep decline. It may have taken a hit from a Google algorithm update and declined as a result, or it could be experiencing an acceleration of demand. In these cases, the current state of the business may be drastically different compared to 6 months ago.
A shorter pricing window can also benefit fledgling businesses where the initial months were primarily about getting the business off the ground. During this early phase, revenue tends to surge, and the most recent six months better depict the business’s present state.
A shorter pricing window reflects a level of uncertainty and instability and therefore results in a lower multiple and smaller pool of buyers.
Speaking of multiples, let’s take a closer look at what goes into this crucial part of the valuation formula.
What Goes Into a Multiple?
The multiple is essentially a representation of the strength, stability, and potential of your business. In other words, all of the other things buyers care about over and above profitability.
Almost all aspects of your business will be considered when determining a multiple.
Here are some of the main considerations that will be taken into account when valuing an eCommerce business.
Growth Trends
The direction your business is heading is one of the first things buyers scrutinize when assessing whether your business is the right fit for them.
Clearly, upward growth is more enticing than the opposite, and it often leads to a higher valuation for your store.
Yet, it’s not just about whether you’re growing; the rate of growth matters too.
While hyper-growth is exciting, most buyers prefer a sustainable eCommerce store. Rapid expansion can be unpredictable, leaving buyers wondering where it will plateau. Scaling aggressively can also come with inefficiencies, which buyers will investigate during due diligence.
At the end of the day, businesses that can demonstrate stable, healthy growth trends will attract the largest pool of buyers.
But if your business doesn’t fall into this category, don’t let that deter you from putting your business on the market. While most buyers look for growing businesses, others seek businesses with untapped potential in processes or marketing channels, recognizing room for improvement.
Even declining businesses can find buyers, though the severity of the decline will affect the valuation. These businesses generally command lower multiples due to the reduced buyer interest.
Business Age
A business is typically judged on its track record, with buyers assessing the consistency of its profitability and performance over time.
While many businesses experience rapid or gradual growth over a short period, one that consistently earns over several years proves its stability.
It also takes time for a business to establish itself within a niche. A long-standing business showing steady growth has likely secured a position as a leader in its specific market segment.
Therefore, businesses with a longer track record typically receive higher valuations.
A business with less than a year of profitability is considered young, lacking sufficient data to demonstrate market staying power.
Once a business crosses the two-year mark, it likely finds its footing, catching the attention of more buyers. For those with three or more years of profitability, they’ve not only proved their worth but can often command a higher multiple.
Owner Involvement
For the most part, buyers are looking for an investment, an opportunity that will get them one step closer to financial freedom. They are not looking for a full-time job that requires them to work tirelessly after investing thousands of dollars.
While it can be challenging to entrust others with your hard-built store, excessive owner involvement can deter potential buyers.
Ideally, spending around five to ten hours a week on your business is acceptable, but beyond that, it may adversely impact the valuation multiple.
Fortunately, many eCommerce tasks can be outsourced, such as order fulfillment and customer service, often without the need for full-time employees. Implementing standard operating procedures (SOPs) simplifies task delegation and can be valuable during the sale process, helping buyers understand your operations.
Before selling, communicate with freelancers you’ve employed to ensure their willingness to collaborate with the new owner. Transferring your team streamlines the transition and enhances your business’s appeal.
Put simply, the key to making your business more marketable and scalable is to make yourself redundant.
Stability of Earnings
Buyers are on the hunt for a healthy business that promises a solid return on their investment. This makes the stability of your earnings a key concern.
Steady earnings indicate that your business operates on optimized processes, you have a reliable supply chain, and an established customer base.
Unstable earnings, on the other hand, may point to underlying issues within the business, such as inventory mismanagement or a lack of product-market fit.
Stability in your earnings also indicates that your business has built-in defensibility to help it ride out natural fluctuation in the market.
At the end of the day, buyers are looking for an income they can rely on, regardless of changing trends or economic conditions.
Strength of your Supply Chain
Your supply chain forms the very backbone of your eCommerce store, with the success of your business hinging on how products are manufactured and delivered to your customers.
To fortify your supply chain, consider sourcing from at least two different manufacturers, ideally from different countries. This strategic move provides flexibility, allowing you to pivot quickly to avoid unexpected delays, as demonstrated during the global pandemic’s restrictions.
Outsourcing fulfillment is equally crucial. Handling inventory in-house can complicate the sale of your business. Remember, the majority of buyers are looking for a streamlined, turnkey business. They don’t want the complication of managing fulfillment and storage over and above running the business.
Consider hiring a third-party logistics (3PL) provider. These specialists manage inventory and ensure timely customer delivery.
Formalize agreements with manufacturers and fulfillment providers whenever possible. Buyers will value transferable deals, especially if you’ve negotiated advantageous rates. Contracts can serve as valuable assets for your business.
Diversity of SKUs
Buyers will also pay close attention to the diversity of your product offerings.
Having a variety of different products prevents the business from relying solely on one item. You’re essentially ensuring that all your eggs aren’t in one basket.
If one product faces a drop in popularity, gets delisted on platforms like Amazon, or falls out of favor due to new laws or regulations, your business can still thrive thanks to the revenue generated by your other products.
All of this works towards protecting the buyer’s return on investment once they take over the business.
Stability and Diversity of Traffic
Much like with your earnings, buyers are looking for stability when it comes to traffic growth. Buyers will want to dig deeper into any sudden spikes or dips in traffic to understand the underlying reasons behind these fluctuations.
Buyers and business brokers will also need an easy way to view your traffic data, so it’s a good idea to have an analytics platform like Google Analytics or Clicky installed on your website. To protect any sensitive data, make sure you give buyers read-only access.
This will allow buyers to look at data like:
The geographic sources of your traffic
Top-performing website pages by traffic percentage
The bounce rate.
These details provide valuable insights into what’s working effectively and where potential opportunities lie.
Traffic channels that drive revenue are another area where diversification is key. While most eCommerce businesses use paid advertising to attract customers, pairing this with organic traffic from search engine optimization (SEO) is particularly attractive.
Unlike paid ads, SEO requires minimal ongoing investment once it’s established. Having a strong social media following and a robust email list are also great ways to diversify your traffic.
Protecting Your Products
Trademarks are another factor that speaks to the longevity of your business.
A buyer doesn’t want to purchase the business only to have a competitor undercut the business by selling the same products.
Trademarking your products shields your brand identity and reputation from copycats and counterfeit products, reassuring buyers and reducing the risk of competition dilution.
If you sell on Amazon, registering your brand as part of Amazon’s Brand Registry adds yet another layer of defensibility to your business.
Reap the Rewards of Your Hard Work through an Accurate Valuation
Knowledge really is power. When it comes to making a life-changing decision like selling your eCommerce business, you’ll want all the power you can get.
Knowing how to value your business empowers you to make informed choices.
This knowledge means you won’t go into a sale blind. You’ll be armed with the information you need to confidently negotiate with buyers and avoid falling for lowball offers.
Understanding the metrics and factors that play a role in valuations also gives you a checklist to work from in order to increase the value of your business and make it more attractive to buyers.
As you can see from this article, valuing an eCommerce business is a complex and nuanced process. But don’t let that stop you. If you’re not a numbers person or simply don’t have the time to do in-depth calculations, you can use our free valuation tool to get an idea of how much your business is worth.
Discovering the true value of your eCommerce business gets you one step closer to a profitable exit!
Lauren Buchanan, Empire Flippers
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
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Podcast: Ecommerce Wizards Podcast – What is Amazon’s Buy With Prime Button?
Guillaume Le Tual, host of the E-Commerce Wizards Podcast, interviews Manish Chowdhary, CEO of Cahoot, about Amazon Buy With Prime. The service allows merchants to install the Amazon Prime button on their product page, shopping cart, and checkout. Customers can then log in to their Amazon Prime account to check out and receive one or two-day free shipping, free returns, and no minimums. For customers, it’s a great service, but for ecommerce merchants, it’s a Trojan Horse. Amazon Prime circumvents the entire order checkout process from the merchant’s platform, and payment processing goes through Amazon, which also collects data about the customer and charges the seller for order fulfillment. While Amazon FBA can be a benefit for merchants who lack a strong shipping distribution system, there’s also a cost of 15% that some merchants say is too high to make a profit. Amazon Prime service is a big deal for merchants because it can replace their whole checkout experience and be a disadvantage for them.
Guillaume:
Hello, everyone. Guillaume Le Tual here, host of the E-Commerce Wizards Podcast, where I feature leaders in e-commerce and business.
Today, for a second time, our guest is Manish Chowdhary, who’s the CEO of Cahoot. And we’re going to have a chat together about what is Amazon Buy With Prime.
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Guillaume:
So Manish, thanks for being here for a second recording.
Manish:
Thank you for having me, Guillaume. Thank you very much.
Guillaume:
All right, can you enlighten us? What is, first of all, Amazon Buy With Prime?
Manish:
Amazon Buy With Prime is the Amazon’s mission to dominate the world, as it always does. But let’s break it down.
What Amazon Buy With Prime is, it’s essentially an option for websites outside of Amazon to install the familiar Amazon Prime button on the product page, in their shopping cart and checkout. So the user, instead of checking out through your native platform’s shopping cart and checkout, you can check out by logging into your Amazon Prime account, as you would on your Amazon.com website.
And as a result of that, you will get all the benefits of Amazon Prime, which is one or two-day free shipping, free returns, and also there’s no minimum and so on. So you log in, and you check out using Amazon, and then Amazon will ship the item to you from its FBA, Fulfillment by Amazon Warehouse, and you’ll get it in one or two days.
So great service for the consumer, but of course, not so great for the sellers, which I can talk about further.
Guillaume:
Yes, exactly. From an entrepreneurship and business point of view, it’s like, oh, big red flags here showing up. So, okay, what do you see as a red flag for merchants here?
Manish:
Right. So for the merchants, for the sellers, I call Amazon Buy With Prime a Trojan Horse. It’s essentially, what Amazon did with its AWS, the web services or the hosting division, they started using the web hosting for themselves. And then they converted that into a mass service that we all, many of us use, Amazon’s Web Hosting Services.
So this is Amazon’s attempt to basically get into the 3PL, the order fulfillment world. They built the Amazon FBA for themselves, for products that are sold on Amazon, and now they’re opening this up to the larger internet. So if you are selling on your own website, how can Amazon participate and get a share of that wallet from your website, because they have 150 million subscribers? But essentially, what Buy With Prime is doing is essentially encapsulating three different Amazon services into one, which is Amazon Advertising, Amazon FBA, Fulfillment by Amazon, and Amazon Payment.
So essentially, when the user checks out using the Buy With Prime, it completely circumvents the entire checkout process from the platform, and it basically puts payment processing with Amazon. And then, of course, Amazon collects all the rich data about the customer. What are you buying? When are you buying? And also, Amazon gets to charge the sellers for order fulfillment.
And so, this is a very, very attractive service for the consumer. But of course, for the seller, it creates a lot of challenges. And I can continue to elaborate, but basically, it’s a Trojan Horse and there are lots of disadvantages for the sellers, and there are some advantages as well, to be fair.
Guillaume:
Yeah. I like your term, Trojan Horse, and it is a powerful move from Amazon. You can see, for example, Shopify CEO, that will slip up about this at first and say, “Yeah, yeah, we’ll do it.” And then they will backtrack on this, and say, “No way,” because it would replace Shop Pay, which is one of the competitive advantage of Shopify.
So, it is a big deal for a merchant to have your whole checkout experience totally replaced by Amazon. So yes, on the positive side, if you don’t have a strong distribution system already in place, having Amazon FBA, Fulfilled by Amazon, can be a strong benefit. But also, there’s a cost to this, and the cost is not always the best.
I know some merchants that say, “If I sell myself and I fulfill myself, I make money. If I use FBA, well, it’s not worth the trouble anymore. I don’t make much money anymore.” You know? So there’s that aspect, about the extra 15%, it can make a difference. For the merchant, cost will not be zero to fulfill themself, obviously. But that 15% sometimes is too much for merchant, that it doesn’t make it worth it for them to run the business if all the sales will come into that channel, with FBA.
Also, you give up a lot of your control. That order is going to go into Amazon. How much control do you retain personally as a merchant over this transaction? How much information do you have about the customer? How much customer service do you need to do? And so on. Perhaps you can elaborate a little bit on that aspect.
Manish:
Absolutely. All good points, Guillaume. But even beyond that, Buy With Prime infiltrates the entire customer journey from discovery, conversion, post purchase, which includes fulfillment as you said, and the repeat purchase. And I’ll give you some example for each one.
Discovery is essentially, Amazon, you would install a familiar Buy With Prime, the blue Amazon Prime, with the swoosh, the very familiar icon that we know. So now, that will get installed, say, right below your Add to Cart button, if you’re on a Magento site, for example. And so, just imagine the button itself on your site is a reminder for the customer to go check out Amazon, because you’re putting Amazon branding on your product details page and so on. So the Amazon, even if you acquired this traffic and brought it to your website, now the customer is being potentially invited to go, reminded of their Prime membership, so that they can possibly go on Amazon and compare prices and so on. So that could lead to siphoning of traffic. That’s one.
On the conversion side, most ecommerce brands, most websites, retailers, like to encourage larger shopping carts. We know that on your DTC website, most brands have free shipping on orders over, say, $49. So, it’s not free-free for buying a toothpick or buying a toothbrush, but that’s what you get with Amazon Prime.
Amazon Prime does not have those limits. So if you’re a Prime member, the people could actually, this could lead to lower cart size on your DTC site, as opposed to encouraging a larger cart. That’s the conversion part.
And then, let’s say you add the item to the shopping cart and you abandon the cart. We know that 85% of the Amazon Prime members visit Amazon.com at least once a week, and 45% of them make a purchase, a transaction, once a week. That’s a very high repeat loyalty that these Amazon Prime subscribers have to Amazon. And part of it is because they’ve paid $139, $140 annual membership, so they want to exploit that.
But imagine somebody added the item to the shopping cart and they didn’t check out. Now, it’ll be very difficult for the brand to re-market to this customer. And if they hop over to Amazon once a week, they might be targeted with the ads of another product that competes with this product. And you are the one who helped add that item to the cart in the first place.
So, those are some of the challenges on the order fulfillment side to continue with that school of thought. The product is going to come in an Amazon branded box. We’ve all seen the familiar Prime tape that goes on the brown box, with Amazon advertising. So, you bought the item from this DTC brand that’s looking to promote its ecommerce brand, its value proposition to the customer. But the customer is being reminded of Amazon every step of the way. And so, that is not very good.
And then finally, on the repeat purchase, the customers are more likely to go back to Amazon. And if you are selling on Amazon, you’ll have to not pay anywhere between that eight to 20% commission. So there are many aspects of it is not so enticing for the seller. And of course, there are some advantages which I can cover as well, Guillaume, to be fair.
Guillaume:
We’ll cover after. I think we’re not done with the downsides, quite frankly, which to me is way larger than the upside. Because if you want to use Amazon’s email, FBA or whatever, fulfillment services and so on, well, you can just list your product on the marketplace.
Also, Amazon’s fees, the normal fees plus the fees for fulfillment, they are fair when Amazon is bringing you the customer. And it’s the reason why you want to put your products on the marketplace in the first place, because Amazon is going to bring you traffic, going to bring new customers there.
But if you paid for the customers yourself separately, maybe with your own Google Ads, your own marketing efforts and so on, and then you’re still going to pay all those costs and send over the customer to Amazon, and then you sort of lose traction. And I really like your other point. What if the customer does not buy right away? It happens. You add stuff to cart, you don’t finish, get interrupted, kids calling you, whatever. You come back, and then you’re going to see ads and similar product, maybe cheaper on Amazon. It is really a Trojan Horse. From my point of view, it is a really big mistake from business point of view.
I am all for selling on marketplaces like Amazon. Do it. Go for it if it makes sense for your business. It’s a good idea. But your own website, your own .com or whatever, is a separate thing, is a way to diversify. So, you do not want to tie it even more to Amazon. And Amazon is just trying to take buys more and more into what it currently does not control.
It would prefer that all transaction worldwide goes on Amazon, and they don’t currently control all those independent websites. Now, that’s one way to sort of control them, to a great extent. So, I see more negative than positive. But let’s go with the positive. Let’s be fair. So, what’s the positive?
Manish:
Well, positive is, if you have a website, an ecommerce brand that’s not very well-known, and you don’t have a lot of customer trust, Amazon Prime button can install that trust. It’s sort of like many websites that I don’t want to check out and provide my credit card information to that website, because maybe I don’t have trust.
And that is how PayPal gained prominence in the first place. People love checking out through PayPal. And consumers, of course, we all want that free one-day, two-day delivery. So, if the brand does not have the ability, if the seller’s not utilizing services like Cahoot, it would be very difficult for them to offer that level of service.
So, this would be a great way for them to get traction, if they don’t want to take any hassle with fulfillment, operations and logistics, and even customer care. Because remember, as part of the Prime purchase, you’re also delegating a lot of your customer service to Amazon. So, whether it’s a good thing or a bad thing. But that’s certainly like, I’ll give you an example, and we actually did the study.
So the Skullcandy, you’re probably familiar, it’s a very popular headphones brand, very popular with gamers. And they’re selling a product that, let’s say they’re offering four to seven-day delivery, which is what we found when we checked their website, when we did the study about a few months ago, in the summer.
And then another company called Razer, which is an up and coming brand, and if they installed Buy With Prime, and both the products are priced equally, as a consumer you might be motivated to check out through Buy With Prime on Razer.
So in the absence of date certain shipping, let’s say I have a birthday party, I need to buy a gift and I need to have it arrive by Saturday. Today is Thursday. So, my options are very limited. So it can be quite advantageous in those cases for the people who don’t want to fully outsource fulfillment to FBA.
And just to add to that, by the way, the cost of fulfilling orders with Amazon through Buy With Prime is not the same as if the order arrived on Amazon.com. Because Amazon makes the 15, whatever, 15% commission on those, they will not make that commission on these orders. And therefore, these orders will be classified as multichannel order fulfillment.
And we know that if you try to get a Magento order Fulfilled By Amazon (FBA), you pay more. So it’s not the same low price that if the order originated on Amazon. And we’ve done some calculation, in many cases, it works out to be 51% more expensive to do multichannel fulfillment. And of course, if you want the map, there’s tons of webinars on our Cahoot.ai, on the Resources section. Check out or contact us, we’ll be happy to elaborate on that multichannel fulfillment.
Guillaume:
And just to clarify it, so you’re saying that 51%, just to be sure I understood it well. So 51% more expensive from multichannel fulfillment if you send the order then to Amazon, so if it came from your on e-commerce store, is that what you’re saying?
Manish:
That’s right. Because, let’s say, you’re selling socks. I have black socks and I have red socks. And Amazon FBA, routine FBA will cost you $4 and 22 cents. But if I send Amazon that order from Magento to fulfill, it’ll cost me $6 and 31 cents to ship the same identical item. The only difference is this is a Magento order versus an Amazon.com order.
Now further, let’s say a customer buys a pair of black socks and a pair of red socks. Amazon treats them as two unique items. They don’t put them all together. What’s the composite weight? The weight of the items, the two pairs of socks, is not going to be different. You’ll pay double because you’re paying 4.22 for one pair, you’ll pay $8 and 44 cents for two pairs of socks. And if it was a multichannel, if it was a Magento order, it’ll be $12 and 74 cents. That’s how we arrived at the 51% more expensive amount.
Guillaume:
Okay. So, it is not optimized in the merchant’s favor for cost saving and bundling boxes and so on, because actually Amazon will typically ship to you in all separate boxes as fast as it can. But somebody’s paying for all this, this, quote, unquote, free shipping. The merchant’s paying for it.
Manish:
Well, that is just the way Amazon’s pricing model. So the product may still arrive in the same box, but the way how FBA prices its services, it does not. It simply looks at a price, flat price per item. Per item. Now it does not take the weight into consideration.
So FBA, especially multichannel fulfillment through FBA, becomes quite pricey when you have larger number of units per order. So, if you’re a apparel ecommerce brand, if they try to do multichannel order fulfillment, let’s say you have a Magento store or a Shopify store, and you want to get those orders fulfilled through FBA, the cost will add up and it becomes quite expensive. Because apparel, and certain product categories, lend themselves for larger number of units, average number of units per order.
Guillaume:
Okay. All right. Okay, thanks for that clarification. Is there anything else that people should know about the Amazon Buy With Prime?
Manish:
I think you covered it. Shopify has banned it. Shopify, they’ve openly come out and say that this is against the Terms of Service, and you’ll get a big warning if you’re a Shopify merchant.
It’s still a By-invitation Only program. We know a little about it so far. So, I think merchants should… Essentially, this is a call to action for brands and retailers, that faster shipping, the two-day shipping, it used to be an Amazon thing. Now it’s going to be an internet thing. It is what’s expected from you.
So I would encourage brands and retailers to look at their order fulfillment strategy, their operation strategy. You don’t need to go build tens of warehouses. That’s very expensive. In fact, right now, the warehouse rents are at all-time high, Guillaume, all-time high. And the vacancy is an all-time low. So even if you wanted to go and look for warehouses in California, or the West Coast of the US, you can’t find them.
If you find them, you’re going to have to sign a multi-year lease. You’re going to have to make a very large capital investment. It’s like the days of, you know, we no longer see competitive advantage in owning servers in the age of cloud computing.
So order fulfillment is going through a similar transition, that services like Cahoot are democratizing that service. And in fact, if you have excess capacity in your warehouse, we encourage you to come apply at Cahoot.ai, to join as a fulfillment partner.
So this is my recommendation for brands and retailers, to not take delivery and shipping lightly. In fact, we have a saying internally in our circles, that half your shopping experience is now your shipping experience. So, you got to really think of it from a customer experience standpoint.
Guillaume:
Yes. Okay. And I think this is pretty good coverage for Amazon Buy With Prime. It can be seductive for some consumers to check out at equal price point and so on. I’m going to benefit from that checkout experience. But you can compete with it, no matter the size of the merchant. It’s more a question of, can you deliver quickly? Can you write the date of arrival on your own website?
And of course, inviting Amazon on your own .com is, generally speaking, a very bad idea as a business move. It should be a diversification, unless it’s sort of a mini site that you more or less don’t care about. That is just a marketing site that is there to drive traffic, a bit like some brands have a lot of mini sites, and blogs, and so on that just drive traffic to a store. Then, if that’s the role of your small e-commerce store, that would be perfectly fine.
But if it’s your real, branded e-commerce store that you care to build a brand and brand value, I would not invite Amazon, as much as possible, on that site. I think it’s a bad business move.
So, that’s it. Well, Manish, thank you for this discussion. If people want to get in touch with you, what’s the best way?
Manish:
Well, hop over to www.cahoot.ai. That’s singular. And fill out the Contact Us form. I would love to chat with you.
And you can also find me on LinkedIn. Just Google, well LinkedIn, my name. Search my name on LinkedIn, with Cahoot, and I will personally respond to you.
So I’d love to chat with merchants, brands, retailers. Because there’s much to learn from practitioners, as much as we know about logistics, and share stories and try to find a better way to do business, that puts more money in the pockets of the business owners.
Guillaume:
All right. Well, Manish, thank you for being here today.
Manish:
Thank you for having me.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Cahoot has just announced a partnership and integration with Sellercloud so that users of the two solutions can enjoy seamless information sharing and complete data visibility across both platforms. Sellercloud and Cahoot together make multichannel selling easier for merchants by helping brands and retailers convert better by enabling Amazon-like free and fast delivery for shoppers across all channels. With the new native integration, sellers will enjoy powerful listing, products, order and inventory management from Sellercloud along with fast, efficient fulfillment and logistics from Cahoot.
Cahoot Founder and CEO, Manish Chowdhary explained the power of the partnership: “Brands and retailers are finding it increasingly hard to compete and grow profitably on marketplaces because consumers want an Amazon-like experience. However, achieving this is really hard for merchants who operate in slim margins. Together, Cahoot and Sellercloud make the task easier for sellers. With our integration, sellers can now optimize their strategy everywhere they sell, from product listings, pricing, inventory to next-level fulfillment and logistics. Sellers now have all of the data and insights they need to make fast and smart data-driven decisions.”
Moving Fulfillment from Cost Center to Profitable Growth Opportunity
Cahoot offers fulfillment services to online sellers who want to turn their operations from a cost center to a profitable growth lever. With its large and rapidly growing network of facilities nationwide, Cahoot is a preferred choice of sellers on marketplaces such as Amazon, Walmart, and eBay and ecommerce platforms such as Shopify, Magento, and BigCommerce. Cahoot transforms ecommerce order fulfillment from a headache into a fast, reliable, and affordable growth lever. Merchants win more customers with fast shipping, all while paying less for fulfillment thanks to Cahoot’s patented business model and innovative technology.
“Sellercloud is always looking for ways to help our sellers improve their customer experience, so we’re excited to partner with Cahoot. Cahoot’s innovative technology and proven ability to power affordable, fast fulfillment across all channels will help our sellers grow faster.” said Shelly Boisvert, VAR Partner Development Manager of Sellercloud
Sellercloud’s mission is to provide merchants with tools that empower them to compete and win in today’s highly competitive landscape. Its products span a comprehensive range of features to help multi-channel sellers manage their ecommerce business in one streamlined and powerful tool. With Sellercloud, merchants can consolidate catalog and inventory management, push changes from one place out to multiple channels, make smarter purchasing decisions, and more.
Growing Fearlessly Without Adding Complexity
Sellers that enjoy success on one channel often find themselves challenged to replicate that success on new ones due to the exponential increase in business complexity. Solutions like Cahoot and Sellercloud are designed to keep the back-office simple so merchants can easily expand and grow on new sales channels.
For most sellers, adding channels increases managerial complexity and puts additional strain on operations. Unlike other fulfillment providers, Cahoot is built specifically to enable sellers to scale fearlessly across channels as diverse as Seller Fulfilled Prime and B2B retail replenishment. No other 3PL can handle such a wide variety of use cases or do so at the high level that Cahoot does.
Sellercloud and Cahoot teamed up to enable a joint customer, Healthyline, to exploit many growth opportunities at once without being overwhelmed.
“We have ambitious growth goals for our own DTC site and in physical retail all at the same time. Using Cahoot and Sellercloud together gives us a powerful solution for managing all our channels” said Kristof Hommonai of Healthyline. He continued, “Before Cahoot, we were considering signing contracts with multiple 3PLs to put together a comprehensive nationwide solution for Amazon SFP. It was extremely complicated, expensive and we would have had to still find new technology to glue them all together. Consolidating with Cahoot helped us grow triple digits last holiday season and they’ve saved us money. We are now ready to offer the same Prime-like guaranteed fast delivery on all our channels.”
Cahoot is available for merchants looking to increase their online sales with affordable, fast delivery services across all popular selling channels, including Amazon, Walmart, eBay, Shopify, BigCommerce, and more.
ABOUT CAHOOT
Cahoot is the world’s first peer-to-peer eCommerce fulfillment network. The innovative Cahoot network enables online merchants to offer nationwide 1-day and 2-day deliveries at costs lower than what they’re paying for standard shipping today. Its best-in-class fulfillment software and highly vetted fulfillment partners combine to offer one of the highest SLAs in the industry, including late order cutoffs, fast receiving, and >99.95% on-time shipping. Through Cahoot, merchants help other merchants grow with the power of Amazon-like fulfillment on all channels.
ABOUT SELLERCLOUD
Sellercloud provides robust tools that can meet all of your operational needs – inventory and warehouse management, publishing listings to marketplaces, order processing, shipping, and even reporting. Sellercloud help e-commerce merchants optimize their operational workflow and focus on efficiency and growth. Founded in 2010, Sellercloud has 600+ clients, 2000+ Amazon and eBay accounts, employs 90 staff and is headquartered in Lakewood, New Jersey.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Amazon is offering steep discounts of up to 75% on warehouse storage fees to incentivize merchants to store more of their popular products with the company, in an effort to facilitate its transition to a one-day shipping standard for Prime members, according to CNET.
The promotion will begin in June and run through January; to qualify, sellers will need to have sold 60 or more of a product per month or have products specifically selected by Amazon. They’ll also have to keep the level of inventory they supply to Amazon at a certain level.
Here’s what it means: The push for one-day free shipping can’t be a unilateral move by Amazon: It’ll need sellers to work with it.
One-day shipping is likely feasible for Amazon, but more than half its sales come from third-party sellers, making them critical to achieving this new goal. Third-party merchants were responsible for 58% of Amazon’s sales in 2018, an enormous jump from 3% in 1999.
Because of this, if Amazon wants to have any chance of making the lion’s share of the items on its marketplace available for one-day delivery, it’ll need help from those sellers. It shouldn’t be too difficult to get them on board, though, given that one-day shipping is likely to increase consumers’ enthusiasm for Amazon, leading to more sales for the sellers working with it.
The bigger picture: Amazon’s one-day shipping goal will highlight the importance of its relationship with sellers (both FBA and FBM doing their own ecommerce order fulfillment) as well as the fine-grain control it has over its private-label products.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
More Apple products are getting the stamp of approval from Amazon, which will officially enable the sale of a range of new devices on-site from the tech brand.
Amazon is approving the sale of the latest iPad Pro, iPhone and Apple Watch models by authorized resellers rather than just through the third-party marketplace, according to TechCrunch. Independent sellers will, in fact, have their listings removed. Amazon already allows the official sale of some products, such as laptops and Beats headphones.
The change in the trade partner relationship raises questions about the extent to which Amazon considers Apple to be a competitor and what Amazon’s long-term plan might be for the device market. The two companies have been involved in an ongoing push/pull over their competitive devices, with Amazon sometimes removing Apple products from its site or Apple refusing to play ball with Amazon in some other manner.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Amazon has long downplayed its delivery ambitions, claiming its own shipping and delivery services are only intended to “supplement” existing partners such as UPS and FedEx, saying it just wanted to address capacity shortfalls. Until now, that is.
Amazon has long downplayed its delivery ambitions, claiming its own shipping and delivery services are only intended to “supplement” existing partners such as UPS and FedEx, saying it just wanted to address capacity shortfalls. Until now, that is.
In its 2018 10K filing, Amazon for the first time listed “transportation and logistics services” as a competitive sector in the boilerplate “risk factors” section, along with the existing list of categories including “physical, ecommerce, and omnichannel retail, ecommerce services, digital content and electronic devices, web and infrastructure computing services.”
Amazon clearly needs to get a handle on the growth of its shipping spend, which hit $27.7 billion in 2018, up 31% from $21.1 billion in 2017 and up a whopping 72% from $16.2 billion in 2016. For 2018, fulfillment represented 14.6% of Amazon’s net sales. Analysts see the company’s many and growing logistics initiatives as a way to offset some of that cost.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
As your ecommerce business grows, the operations behind it become more complex. One of the most significant is warehousing and order fulfillment, which must scale alongside sales and customer growth to remain profitable.
While in-house order fulfillment may be cost-effective initially, those expenses can skyrocket as you need more warehousing space, on-demand workers, and closer relationships with 3PL shipping providers. Scaling means either taking on a primary role as a warehouse manager or finding an alternative solution to managing your fulfillment.
For most growing ecommerce businesses, handling order fulfillment is a large and time-consuming role that they didn’t sign up for. Instead, many merchants are outsourcing this task to reliable third-party logistics (3PL) providers.
In this article, we’ll discuss the benefits of working with an order fulfillment partner and quick steps on how to outsource your logistics.
5 Signs it’s time to switch to an outsourced 3PL company
If you face logistics and shipping issues, reexamine how you ship. As you analyze your operations, keep the following five indicators in mind to determine if you should outsource order fulfillment.
1) Your logistics are hindering your growth
Today’s consumers place significant demands on logistics. For many small ecommerce businesses, that means scaling at the pace of your fulfillment. If you’re canceling orders because you can’t keep up with the logistics, or your sales are limited by your order fulfillment capacities, it’s time to invest in an outsourced 3PL company.
Similarly, if your organization’s internal warehouse and logistics management is bottlenecking and you’re slowing the growth of your ecommerce company to invest in internal fulfillment services, consider whether a 3PL is a better and ultimately cheaper solution.
2) Items are getting lost
As order volume rises, so do the chances of mistakes, especially if you’re unable to expand your warehousing capacity quickly enough. Orders get missed or lost, items get delivered late, and tasks fall through the cracks.
A 3PL company typically uses some form of distributed order management software to monitor inventory and shipments, which greatly reduces the occurrence of order errors.
Beyond that, packages have a higher tendency of getting lost or stolen when shipped in big cities, so hiring a 3PL provider with insurance will avoid the expenses associated with missing items and help your customer service team offer better resolutions.
3) You’re relying on manual order tracking
Many ecommerce stores start out processing orders manually: You place an incoming order into a spreadsheet, pack it, and manually update shipping. From there, you write down the actual cost of packaging, postage, and other details.
This process is slow, requires significant human effort, and introduces human error. It also fails to provide the metrics and insights obtained with automation. A 3PL company will have the shipping software in place to track orders and automatically collate costs, expenses, and revenue to better project profitability.
4) Deliveries are late
More than 90% of Americans expect a shipment to arrive within two to three days. However, if your warehousing and shipping network is overburdened, you’ll likely be unable to keep up with projected shipping deadlines.
If your shipments are increasingly falling behind, that’s a good indication you lack the infrastructure to keep up with current demand. A 3PL, on the other hand, will have that infrastructure in place for accurate tracking and delivery projection timelines so customers won’t be disappointed due to poor order fulfillment.
5) Order fulfillment costs are too high
Handling order fulfillment in-house means negotiating your own contracts and potentially missing out on savings that come from large bulk orders. When you work with a 3PL that can leverage economies of scale, they often can negotiate more favorable pricing on packaging, storage, as well as shipping.
In addition to better rates, working with a 3PL may help eliminate other overhead expenses, such as the need to hire, train, and manage warehouse staff, as well as rent your own prep and storage locations.
Finally, if you ship from a single location—as is common with many in-house order fulfillment setups—you may be spending on expensive shipping for orders far away from your warehouse. Working with a fulfillment partner that has locations on both the West and East Coasts, for example, can help shorten the distance items need to travel and allow for more ground shipping while meeting shipping speed service level agreements.
How to shift from in-house warehouses to an outsourced 3PL
Partnering with a 3PL provider can remove the burden of warehousing overhead and infrastructure, freeing your organization to focus on sales, production, and growth.
While there are numerous benefits, including potential cost savings, reduced carbon footprint, and faster, more reliable shipping, keep in mind that outsourcing order fulfillment is a complex process.
Below are our suggestions for making the switch.
1) Pick a reliable 3PL company
Knowledge is power, and researching the best 3PL company for your unique brand is half the battle in making a smart, strategic switch.
There are dozens of 3PL providers on the market, but finding a good fit for your ecommerce business requires effort. Choose a 3PL partner that matches your business growth, technology needs, and distribution needs.
Ask yourself:
Does the 3PL provider have geolocations that match your customer base?
Can you scale with this 3PL provider, or will you quickly outgrow them?
Are they small enough to be a partner?
Do they offer customization or services like packing slips, marketing material, etc.?
Do they support all of your channels?
Do they have a history of operation and a stable client base?
Does their software integrate with yours?
Does the 3PL provider meet all of your needs (fulfillment, reverse logistics, kitting, subscription boxes, etc.)?
Do they have security in place? What about certifications like FDA or DEA? Do you need HAZMAT?
What’s their customer service like?
Order fulfillment is a critical component of your success, so take your time choosing the right 3PL for your business.
2) Do a test run
Generally, it’s smart to try out the 3PL with a small amount of inventory or a few products. This gives you the chance to get to know the 3PL provider before committing all of your inventory to their care. For this test run, it’s helpful to choose a fast-moving product that you know will sell quickly. (You may also want to order a few products yourself to see how they arrive.)
Route a few orders to the 3PL warehouse and monitor their performance to decide if they’re a good fit for your ecommerce business.
For example, do orders arrive on time? Are customers happy with how orders arrive? How is their tracking system? Is inventory management complicated or easy to use? Do they employ order routing?
Make the most of this hands-on trial run so you know what you’re getting into and feel confident you’ve chosen the right 3PL partner.
3) Send in your inventory
Arrange distribution with your 3PL company. You may have existing warehoused inventory you want to ship directly to the 3PL. Other times, you’ll want to keep that inventory and simply route all new deliveries from your suppliers or manufacturers directly to the 3PL warehouse.
The option you choose will depend on total inventory, its movement speed, and how much inventory you want to send to the 3PL.
Tip: Don’t send in aged or deadstock. If you don’t foresee the items selling in the future, it will just cost you more to send into your order fulfillment center and you’ll end up having to pay long-term storage fees.
4) Decide how to split inventory
A recommended best practice is to keep some inventory on hand. This is important whether you handle returns yourself or outsource to a 3PL.
Maintaining a small amount of inventory allows you to take care of emergencies and provides a safety net in case problems arise with distribution. Often, an 80/20 split (with 80% of inventory at the 3PL) is a safe bet, but it’s important to do the math yourself to decide if you need to split inventory and how much.
You might want to retain more inventory in certain situations. For example, if you have stock that’s large and slow moving, you may decide to keep it in house. This will alleviate most of the pressure from your own warehousing without incurring extra storage costs with slow-moving products.
Leverage a distributed order management system when splitting inventory between your own internal warehouses and 3PL warehouses. This tool will help ensure accurate counts across different inventory locations and strategic order routing depending on availability, location, sales channel, and more.
5) Monitor and refine
Your 3PL must be able to adapt to your growing ecommerce business. Partnering with a 3PL company is a long-term commitment, which means keeping an eye on data, communicating with your 3PL provider, and growing together.
In turn, your partner has to adjust to your expansion, add capabilities to meet your growing needs, and offer the data you require to track stock and order performance.
Get the best of both worlds: Join an order fulfillment services network that seamlessly extends your operations
What if you already have invested significant time and energy into your own operations, and don’t want to give up on that entirely when moving to an outsourced partner? Most 3PLs aren’t optimized to work alongside merchant-owned order fulfillment, but Cahoot has re-written the rules with a flexible fulfillment network and shipping software.
Cahoot enables merchants with in-house ecommerce order fulfillment to strategically add Cahoot locations across the country as they expand while retaining their existing operations.
Deploy inventory in Cahoot locations along with your own facility, and then let the intelligent, automated Cahoot shipping software rate shop for labels and choose the best facility to fulfill each order as it comes in. If the order comes in near your facility, you’ll fulfill it. If it’s near a Cahoot location that you’re using, they’ll fulfill it. You get the benefits nationwide USA order fulfillment centers while still making the most of the investment you’ve put into your existing facility.
Of course, if this article has convinced you that it’s time to move on from managing your own order fulfillment entirely, Cahoot will happily work with you to take all of your inventory and power your online channels with low cost and fast delivery.
Want to learn more? Contact Cahoot to access affordable, flexible order fulfillment for merchants of all sizes.
About the Author
This is a guest post from Rachel Go. Rachel is a content marketer and strategist at Flxpoint, an enterprise ecommerce operations platform. Flxpoint enables merchants and brands to unify and automate every aspect of your ecommerce operations, and scale without manual processes or custom development slowing you down.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
The Cahoot eCommerce fulfillment network has announced a partnership with the Shipsurance by Assurant (NYSE: AIZ) to offer discounted all-risk shipping insurance to merchants who use the Cahoot platform. With Shipsurance, Cahoot merchant partners have full, integrated access to insure their parcels for loss and damage while in transit.
Cahoot is the world’s first peer-to-peer eCommerce order fulfillment network. It enables online retailers and brands to affordably provide one- and two-day delivery nationwide by storing and shipping merchandise for each other. With its rapidly growing network of over one hundred eCommerce merchants coast-to-coast, Cahoot is quickly becoming the fulfillment choice of high-volume sellers on ecommerce platforms such as Shopify, Magento, and BigCommerce and marketplaces such as Amazon, Walmart, and eBay.
Shipsurance provides small to medium-sized businesses and enterprise eCommerce shippers alike with low-cost shipping insurance for packages shipped with major US and International carriers such as FedEx, USPS, DHL, and UPS. Shipsurance provides all-risk insurance with fast and easy claims processing, making it an affordable and convenient alternative to the declared value coverage offered by carriers.
Merchants who work with Cahoot now have access to worldwide shipping insurance powered by Shipsurance. Offering package protection to all Cahoot merchants adds another layer of protection to the fulfillment process. It can also save shippers thousands of dollars in shipping fees when compared to the carriers’ offerings. The shipping carriers offer declared value protection that is often costly, and the coverage is contingent on proving they are at fault if a package is lost or damaged. The insurance product offered through Cahoot provides coverage for packages in transit, often at a fraction of what the carriers charge. Shipping claims are typically paid within a week with multiple payment options, in sharp contrast to declared value claims with carriers that can take months.
Some of the benefits of using Cahoot’s insurance offering are:
Low-Cost Coverage – Save up to 90% over the carrier declared value costs
Broader Coverage – Coverage is all-risk with easy-to-read and understand coverage rules with clear and concise coverage terms
Actual Insurance – This is not declared value coverage and does not require proof of negligence
Paperless Claims – The claims process usually takes less than one week. A personal claims agent is available to you that is courteous and helpful throughout the process
“Our novel business model and patented software enable Cahoot to offer the highest fulfillment standards in the industry at drastically lower pricing. Partnering with Shipsurance to reduce the cost of insuring packages during transit helps make our service even better and more affordable,” said Cahoot Founder and CEO Manish Chowdhary.
Shipsurance’s all-risk coverage is broader and more robust than declared value coverage. For example, Shipsurance covers a lost package even if the carrier generated a delivery scan if it was mis-delivered. The declared value coverage provided by carriers does not. Shipsurance covers a situation where a package was delivered to the incorrect address.
“Fast and free shipping is essential to delivering a great customer experience. However, most importantly, the buyer must receive their items in good order. Shipsurance’s coverage, rapid-claims processing, and dedicated claims agent bridge this gap – making it a great addition to Cahoot’s fulfillment services,” states Ariel Shmorak, Vice President of Operations for Shipsurance.
Shipsurance is available for all merchants using the Cahoot platform. It’s an excellent combination for merchants looking to expand their reach for one- and two-day delivery services and lower shipping insurance costs. Merchants that signup for Shipsurance via Cahoot by September 15th, 2021, can enjoy an additional 10% discount over the already low rates. Merchants can reach a Cahoot fulfillment expert at www.Cahoot.ai
ABOUT CAHOOT Cahoot is the world’s first peer-to-peer eCommerce fulfillment network that helps online businesses offer nationwide 1-day and 2-day deliveries. Cahoot offers drastically lower fulfillment fees because it enables merchants to store and ship the merchandise for each other. This novel business model also enables merchants to make extra money using their existing warehouse space and personnel.
ABOUT SHIPSURANCE BY ASSURANT Shipsurance Insurance Services, Inc., an Assurant, Inc. company (NYSE: AIZ), is a shipping insurance provider that offers all-risk shipping coverage for shipments sent via the major shipping carriers at rates often more than 90% less than the carrier rates. Shipsurance provides rapid, online claims processing, with most claims paid within a week. Shipsurance has been insuring eCommerce businesses for over eighteen years, and coverage is underwritten by an ‘A’-rated insurance company.
Offer 1-day and 2-day shipping at ground rates or less.
E-commerce Revolution with Strategic Packaging Solutions Like anyone in the e-commerce world, small business owners are always looking for ways to streamline their operations and
Hazardous Materials What is a Hazardous Material? What Items Are HAZMAT? Classes of HAZMAT Items What Classes Can Ship on Various USPS Services? What Changes
Amazon’s third-party seller marketplace has grown from its humble beginnings in 2000 to account for nearly three million sellers and more than half of Amazon’s retail sales. One of the biggest enablers of that tremendous growth was Amazon’s launch of Fulfillment by Amazon, or FBA, which today dominates the logistics landscape for third-party sellers. The tide is turning, though, with more and more sellers turning to FBM.
Source: Jungle Scout’s 2021 State of the Amazon Seller
In 2021, 43% of Amazon sellers used at least some FBM – a huge jump from only 34% the previous year. This shift asks two questions: first, why are sellers shifting to FBM, and second, is FBM right for you?
In this post, we’ll explore the relative advantages of FBA vs FBM, why more sellers are shifting to FBM, and how you can make the choice that’s right for your business.
What’s the difference between Amazon FBA and FBM?
First, a few definitions. Fulfillment by Amazon, or FBA, is a service by Amazon for 3rd party sellers that handles inventory storage, picking & packing, and shipping. It’s a full solution that qualifies products for the coveted Prime badge and covers customer support on the back-end.
In contrast, Fulfillment by Merchant, or FBM, is the description for 3rd party sellers that don’t use FBA for fulfillment. With FBM, the seller (or a third-party logistics company that the seller hires) handles storage, picking & packing, and shipping for products sold on Amazon.
What are the relative advantages of FBA vs FBM?
Fulfillment strategy is an underappreciated aspect of eCommerce, and both FBA and FBM bring their own advantages and disadvantages that can make or break a seller. So – what are the biggest differences between the two approaches?
Prime badge eligibility
First up: the all-important Prime badge. Simply turning on a Prime badge for a product can boost sales by 50%, so if you can get it, you should.
FBA makes it simple – if your product is in FBA, it gets the badge.
FBM is more complicated – it depends on if your fulfillment approach qualifies for Seller Fulfilled Prime (SFP). SFP sets rigorous targets for how quickly merchants deliver items to customers, as of course fast & free shipping is the central value proposition of the Prime subscription. As of late 2021, Amazon isn’t accepting new applications to the SFP program, so new FBM sellers can’t access the Prime badge.
Inventory limits
Due to the sheer number of sellers using FBA, Amazon can’t keep up with demand for the program. They’ve responded with ever-escalating rules for what inventory sellers can place in their warehouses, which often leave sellers unable to place all the product they’d like in FBA.
FBM, on the other hand, is only limited by how much warehouse space a seller can rent or purchase on their own, or by how much space they can get from a 3PL. 3PL space is essentially limitless from the perspective of an individual Amazon seller, so you’ll never ‘run out’ of space for FBM.
As we’ll cover later, many sellers don’t even have a choice when it comes to FBA vs FBM. They simply need FBM because they can’t use FBA as much as they’d like to.
Fulfillment fees
FBA and FBM each have their own unique cost advantages – neither is better 100% of the time.
FBA excels with small, fast-moving SKUs. They offer the best prices in the industry for fulfilling small and standard size SKUs, so if that’s what you’re selling, you’ll generally want to use FBA as much as possible.
That comes with a huge caveat, though – FBA has punishing long-term and holiday storage fee increases. If you have a new SKU that will have a low fulfillment fee with FBA, but you’re unsure of how well it will move, it’s often best to start that SKU in FBM so that you don’t open yourself to the risk of big FBA fees.
It’s also worth noting that FBA is increasing its fees in 2022, and in particular it’s raising storage fees and adding a new, shorter time limit before long-term storage kicks in.
As you can see in the example above, FBA’s fulfillment price advantage collapses for large and oversized items. While the small cables and standard headphones shave significant costs off of DIY shipping, FBA’s fulfillment fee for the oversized dog bed is nearly double that of DIY shipping.
Control of the customer experience
If you use FBA, then Amazon controls your customer experience – full stop. Your item will ship in Amazon boxes, with Amazon branding, and issues will be handled (or not) by Amazon’s customer service.
In contrast, with FBM, you’ll own much of the post-purchase experience. That means that you have the opportunity to use the unboxing experience to cross and upsell, for instance, and you’ll also handle issues with fulfillment.
So, FBA makes fulfillment easy, but it also represents a missed opportunity to upgrade the customer experience. With FBM, you can turn your post-purchase process into a value add for the customer, build loyalty, and increase your profit-boosting repeat rate. Additionally, successful resolution of customer issues can actually increase customer loyalty, so with a great customer service team, you can turn challenges into opportunities. With FBA, you give up all of those great opportunities for growth.
Maximizing your time
As a seller, you want to focus on selling, not logistics. FBA handles fulfillment for you, so less of you and your team’s time will have to go into operations. This difference between FBA and FBM is especially apparent if you’re fulfilling orders yourself, in which case you could be buried by a surge in orders.
On the other hand, FBM with a trusted third party logistics (3PL) provider can be just as easy, if not easier than FBA. Just like FBA, a great 3PL will take fulfillment off of your hands and leave the majority of your time free to focus on growth.
Enabling multi channel growth
What if you want to grow outside of Amazon? More and more sellers are pursuing a multi-channel sales and fulfillment strategy that diversifies their portfolio and gives them more avenues for growth.
Amazon FBA can be used to fulfill orders for select eCommerce shopping carts like Shopify, and when it does so it’s called Amazon Multi Channel Fulfillment (MCF). Amazon MCF uses the exact same infrastructure as FBA, but it comes with all of the drawbacks of FBA and few of the benefits.
As you can see in the below table, MCF is significantly more expensive than FBA. It will deliver your products fairly quickly, but it doesn’t guarantee the same SLAs as FBA. On top of that, your orders for non-Amazon products will ship in Amazon boxes. Not ideal!
On the other hand, FBM with a great third party logistics (3PL) provider will unlock multi-channel growth for you. The best 3PLs integrate seamlessly with all major marketplaces and shopping carts, so getting your operations set up with a new channel can be as simple as a few clicks.
Why are more Amazon sellers shifting to FBM?
Remember our data point from the start of the blog – in 2021, 43% of sellers used at least some FBM, up from 34% in 2020. Why?
The first and most obvious driver is that Amazon FBA’s inventory limits are forcing sellers to adopt a mixed fulfillment strategy. After all, only 9% of sellers are fully FBM – so most that use FBM also have some FBA. If you can’t place all the inventory that you’d like in FBA, though, you have no choice but to find an FBA alternative.
Even if you can place all of your inventory in FBA, FBM is vital to protect your Amazon business. Given how tightly Amazon sets inventory limits, your best sellers are likely susceptible to stockouts if a promo or your peak season results in unanticipated growth. FBA sellers are often beset by weeks or even months-long receiving delays, so even if you’ve done everything right, your product can still go out of stock because Amazon didn’t get it on their shelves quickly enough.
As you likely know, stockouts are incredibly punishing for FBA sellers because they trigger a negative cycle that hurts sales rank, which hurts sell through rate, IPI score, and then inventory limits. It can be difficult to recover, because you’re then even more susceptible to another stockout, which further hurts the product’s results. That’s why many sellers are mixing in FBM to their Amazon fulfillment strategy – it serves as backup for FBA to make sure stockouts never occur.
Last but not least, multi channel selling is a huge growth opportunity, and FBA isn’t a competitive fulfillment option for other channels. So savvy sellers are adopting FBM to build resiliency in their Amazon business and also open up new sources of revenue.
How to choose FBA vs FBM for your business
When considering whether FBA, FBM, or a mix of the two is right for your business, ask yourself a few questions:
Do you need the Prime badge to succeed?
What size are your products?
Do you have plans to sell on channels other than Amazon?
Are you comfortable with letting Amazon dictate the customer experience?
How accurately can you predict demand?
You only need FBA if you’re selling small products only on Amazon, you’re comfortable letting Amazon control your customer experience, and you can predict demand fairly comfortably. FBA will take care of fulfillment for you and qualify you for Prime, enabling you to focus your efforts on growing on the channel.
For anything else, you’re going to want FBM. Large products are more cost effective to ship via FBM, so there’s a strong case that you should immediately find an efficient 3PL for them. Likewise, if you have multi channel growth ambitions, you’re going to need to fulfill yourself or a fulfillment partner other than Amazon, so the sooner you can consolidate operations under one roof, the better it is for your efficiency. If you want to use the post-purchase experience to improve your customer loyalty and repeat rate, you’ll need FBM as well.
Then of course, so many sellers use a mix of FBA and FBM because they fall somewhere in the middle. They have some small & light products for which they want to adopt a “set it and forget it” approach on Amazon – so they put all of those into FBA. They then realize how many growth opportunities they fundamentally can’t pursue by just using FBA, so they adopt a partial FBM strategy to cover those other avenues. The truth is, you’ll probably fall somewhere in the middle as well. If so, your 3PL should be able to do FBA forwarding in addition to its excellent eCommerce operations – that way, you’ll only need the 3PL plus FBA to cover your fulfillment needs.
On top of that. our innovative peer-to-peer fulfillment network offers low-cost, fast fulfillment by design. We’re changing the industry by empowering merchants with excess warehouse space and resources to provide high-quality order fulfillment to other merchants. Unlike other 3PLs, we empower merchants to help other merchants, and our community levels the playing field with Amazon. Thanks to our unique model, our pricing is typically lower than what you’ll find from other 3PLs, but we can beat them on fulfillment speed and reliability.
If you’d like to find out how Cahoot can help your business, please get in touch with us. We can’t wait for you to join our community and boost your profitable growth.
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