In eCommerce (and business in general), you should avoid putting all your eggs in one basket. When selling on Amazon, that translates to a combined strategy for your fulfillment that leverages both your own network through Fulfilled by Merchant (FBM) and Amazon’s program, Fulfillment by Amazon (FBA).
Veteran sellers are familiar with Amazon’s policy fluctuations. As the eCommerce industry shifts and consumer behaviors evolve, Amazon tweaks its requirements and restrictions accordingly. That means it’s the seller’s responsibility to keep up with these changes, but that’s easier said than done.
To keep your head above water, sellers need to have an unshakable fulfillment strategy that leaves no gaps in the process. Read on to learn how to construct your own.
What is FBA?
FBA is a storage and shipping service Amazon offers for a fee. The majority of Amazon sellers today use it for some, or all, of their fulfillment needs. Through FBA, sellers send their inventory to Amazon fulfillment centers and Amazon subsequently picks, packs, and ships products to customers. Additionally, Amazon handles any returns or refunds and customer service inquiries that come in.
FBA is an excellent solution for high-volume products and for merchants who have a record of successfully moving large quantities of inventory via FBA.
Pros
- FBA gives you access to Amazon Prime members
- Amazon handles your fulfillment and customer service, saving you time
- Shipping/logistics are taken off your plate
Cons
- Storage limits and restrictions on inventory counts
- FBA fees for storage and prep
- Less direct contact with customers
What is FBM?
FBM (which stands for Fulfilled by Merchant) is the other choice for Amazon sellers. With FBM, sellers are responsible for fulfilling their own orders, either in-house or via a third-party logistics (3PL) provider. This means you, as the seller, pick, pack and ship your products to your customers directly and handle all customer service issues and inquiries.
FBM is often the “starter package” for businesses newly launched on Amazon. It’s relatively quick and easy to set up, and the pricing — either a per-product fee of $0.99 or a $39.99/month subscription — makes it affordable, too.
Pros
- Direct access to your customer, allowing you to build strong relationships
- Smaller cut paid to Amazon on your sales (removing FBA fees)
- Total control over your end-to-end process
- You can select your own 3PL provider to handle fulfillment, making it feel like FBA, but customized to your business
Cons
- Unless you have Seller Fulfilled Prime, you’re missing Prime members
- You’re responsible for the full logistics process, from picking to shipping and beyond
- Can be challenging and/or pricey to meet Amazon requirements on shipping times
Why You Need both FBA and FBM in today’s Selling Environment
According to Jungle Scout, 34% of Amazon sellers use both FBA and FBM to support their businesses, a number that will only increase now that Amazon’s policies have changed (again).
At the height of COVID-19 lockdowns, things went sideways with Amazon’s fulfillment centers as they found themselves unable to keep up with consumer demand. As a result, Prime shipping timelines exploded from two days to as long as a month, and sellers felt the pinch as their products remained in limbo and customers were disappointed.
Since then, Amazon has implemented restrictions on storage as well as inventory threshold limits, which has forced sellers to rethink their fulfillment strategies to maximize efficiency and ensure ongoing success.
Storage Restrictions and How they’re Calculated
To better manage its fulfillment center storage, Amazon rolled out new storage limits based on a seller’s Inventory Performance Index (IPI).
Individual selling accounts have a set storage limit of 10 cubic feet, which doesn’t change since individual accounts aren’t subject to storage limit increases. If you want more storage via FBA, you’ll need to bump your account from individual to professional.
However, professional selling accounts may or may not have their own storage limits depending on strict criteria.
Sellers who maintain an IPI of the required threshold or above on either of two score checkpoints are not subject to storage volume limits for standard-sized, oversized, clothing or footwear items.
New sellers who’ve been active for less than six months or those without enough sales data to generate an IPI score during the two score check weeks will not receive storage limits.
In any case, professional accounts that DO have storage limits have a minimum of 25 cubic feet for their standard-sized, oversized, clothing or footwear inventory.
What is the Inventory Performance Index?
Wondering what the heck an Inventory Performance Index is? This is a metric Amazon uses to assess how well sellers manage their inventory. To calculate your IPI, Amazon looks at four buckets of inventory management:
- Sell-Through Rate, or the number of FBA items you sold in the last 90 days divided by the number of items you stored via FBA in a given time period. Simply put, it’s the speed at which you sell through FBA items.
- Excess Inventory, as in, are you carrying inventory that isn’t moving? This can include any Amazon Standard Identification Number, or ASIN, sitting over 90 days, any ASIN that has more than 90 days’ supply, or inventory that has better ROI opportunity. Excess inventory is calculated by dividing the number of excess FBA inventory units by your total inventory units.
- In-Stock Rate measures the percent of time your replenishable items have been in stock during the last 30 days. To calculate this number, you first multiply the percentage of the last 30 days your inventory item was in stock by your 60-day sales velocity, and then divide the product by your 60-day sales velocity.
- Stranded Inventory is a metric related to the number of FBA inventory units not available for purchase (due to pricing error, ASIN restriction, listing errors, etc.). To calculate this number, you divide the number of FBA units currently unavailable by the total number of FBA units.
Storage limits for professional account holders are calculated using a number of factors, including your sales volume, historical IPI scores, and available fulfillment center capacity.
Sellers with consistently higher IPI scores receive higher storage limits, adjusted based on sales volume and available capacity. When setting limits for the upcoming quarter, Amazon considers both your recent sales volume (last quarter) and your seasonal volume from the previous year.
Keep in mind, too, that storage limits are applicable for the following six storage types: standard size, oversize, apparel, footwear, flammable and aerosol.
You can learn what storage types your products fall under and how much space they occupy by visiting your FBA Inventory Age and your Inventory Age report. Also, limit adjustments for dangerous goods storage are handled separately from the other storage types, so if this applies to you, make sure you check out the FBA Dangerous Goods program.
How to Manage and Maximize these Restrictions
With restricted storage space at Amazon’s fulfillment centers, it’s critical that you maximize your FBA storage space. If you’re limited to 10–25 cubic feet, you need to be smart about how you use it.
Look at your best-sellers or highest-volume products and prioritize these for FBA. This way, you ensure your highest-volume products move quickly, which raises your IPI and reduces the number of items you have to pick, pack and ship yourself.
As your IPI improves, provided you’re a professional selling account holder, you’ll (hopefully) be able to increase your storage limit. The best way to protect your IPI is to reduce the number of slow-moving excess, stranded or less popular items from FBA inventory and instead maximize the number of high-volume ASINs with FBA.
If you’re a professional seller looking to increase your storage limits, your number-one goal should be to optimize your FBA inventory, so it includes only your fastest-moving and best-selling items.
Building a Fulfillment Strategy that Works for Your Business
Your fulfillment strategy should be as unique as your business. It’ll heavily depend on the types of items you sell and which sell best (and you might have to tweak it along the way as well).
What You Should and Shouldn’t Sell through FBA vs. FBM
A key element in your strategy is identifying what you will and won’t sell via FBA and FBM. You already know some products make more sense for FBA, so let’s start by weeding out the ones that don’t.
When limited to 10–25 cubic feet of storage space with FBA, you don’t want to waste it with bulky items that take up more space and offer fewer quantities. Instead, hold onto those oversized products and fulfill those orders yourself.
Similarly, excess inventory shouldn’t sit in FBA storage taking up valuable space and potentially impacting your IPI. Keep extras back and make sure you only send your best-selling products to FBA fulfillment centers, so your stock continues to move — and fast.
Identify High-volume/Fast-selling Items for FBA Assignment
Analyze your data to make sure you know exactly what your highest-performing, highest-volume items are and prioritize them for FBA assignment. This will not only free up your time and streamline the process of fulfilling orders, but will also improve your IPI.
Create Mirror Listings
Got your FBA-assigned items listed and live? Time to mirror those listings for FBM. It’s an important tactic to ensure you can keep selling even after your FBA inventory runs low or sells out. Mirror listings are also great to maintain multi-channel selling for this same reason.
Identify Products that Don’t Make Sense for FBA and Shift to FBM
Again, analyzing your sales reports and digging into your data is critical here. Identify products that don’t make sense to send to FBA — for example, those that are oversized or don’t sell as quickly — and incorporate them into your FBM strategy.
Partner with a 3PL for Support
A good 3PL provider is your secret weapon to support your total fulfillment strategy.
They can handle all your Amazon prep for FBA items, including appropriate labeling and packaging as required for Amazon’s fulfillment centers. This frees you from doing everything yourself so you can focus on other more important elements of your business.
A 3PL will also take care of your FBM strategy entirely or in part, depending on your preferences. They’ll pick, pack, and ship your items to customers as well as take care of all the pre-shipment tasks, including handling custom inserts and ensuring the packaging meets Amazon’s requirements.
At MyFBAPrep, we’re experts in managing joint FBA and FBM strategies on our clients’ behalf to deliver the best value and experience to their customers. If you’re in search of an experienced and trustworthy 3PL, consider MyFBAPrep for your fulfillment solution.
Wrapping up — Build a Hybrid FBA and FBM Fulfillment Strategy for Maximum Coverage
Supply chain concerns are still at the forefront of many sellers’ minds, along with the recent changes and unknown future of Amazon FBA restrictions. The best way to stay on top of these fluctuations is to establish and launch a strong fulfillment strategy that utilizes your own network plus the Amazon FBA network.
By carefully considering your products, partnering with a 3PL provider that has expertise in FBA and FBM strategies, and being clever about your FBA vs. FBM listings, you’ll be ready for anything. Your combined fulfillment strategy will be scalable and sustainable, as well as help you maximize the benefits of each method.
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