Should I Merchant Fulfil on Amazon or Sell FBA?
The eBay & Amazon Seller's News, January 2015 - Volume 16, Issue No. 1
Tips, Tools, News and Resources for eBay, Amazon and Online Sellers
Well the 2014 Holiday Selling Season is behind us. I don't know about you, but this was our best 4th quarter since 2007 before the financial meltdown in 2008. I know a lot of you will miss the big selling days, but don't despair - January is actually not a bad month. There are two factors - Lots of folks get Amazon gift cards for Christmas and a lot of folks return gifts for credits and then they go shopping for what they want.
If you look at the masthead of this newsletter is says Volume 15, Issue #1. That's correct, this starts my fifteenth year of publishing this newsletter. It has been a labor of love. For the first ten years I only published once a month, but in 2010 we went to twice monthly (except December).
When I started this business 15 years ago by writing my first book, The eBay Power Seller's Manual which I first sold only on eBay, it was just a few months later that I decided to start a newsletter. The newsletter has always been free. If you look above at this month's quote - " You can have everything you want in life if you help enough people get what they want in life." Well that is sort of my philosophy. I reasoned that if I gave away really good quality information for free, that people would not hesitate to pay for my paid information. And it worked. Over the years I have realized almost every dream I have had.
The lesson here is: Give some thought to that. Find ways to help others succeed and you will find success coming your way also. Believe me -it works!
In the last issue I told you that I will be raising the price of the Complete Amazon Marketing System soon. This is due to higher shipping costs and a large price increase from my print on demand printing company. So the price will go up on January 12th. If anyone wants one at the current price you may want to act now.
I have been participating in Jenni Hunt's Private Facebook Group for toy and Home and Garden sellers. She limits the group to only 100 people and each group runs for three months. Here is the link to learn more about the group.
eBay has introduced a new out-of-stock option for sellers to use on their multi-quantity Good 'Til Cancelled listings.
Free to use for all sellers, this new option helps safeguard your hard-earned reputation-and helps protect you from associated defects when your qualifying listings reach a quantity of zero. - See how it works at: http://announcements.ebay.com/2014/12/sellers-new-out-of-stock-option-helps-protect-your-hard-earned-seller-standing/#sthash.LPfyfDzx.dpuf
I don't know how many of your use Amazon FBA to ship to your eBay customers but it didn't work out too well for me this year. The problem is my products were selling out so fast on Amazon that I had to keep killing my eBay listings before something sold.
I had over 300 SKUs listed on eBay of items I am also selling on Amazon. By the time we got close to Christmas I only had about 40 of those SKUs still listed as all of them had sold out on Amazon despite ordering far larger quantities this year. Even though I ordered huge quantities this year it was not enough. I had over 200 products completely out of stock by December 10th. So the lesson here is to really ramp it up next year.
We still have seats available for our Wholesale Sourcing Seminar in Las Vegas in conjunction with the ASD trade show, but the event is selling out fast. I know that money is tight this time of year, so we have a 3-payment plan to help those of you who may be tight on cash.
The seminar is the Saturday and Sunday before the ASD Wholesale Trade show. So this is a chance to learn wholesale sourcing from four experts -and attend one of the largest wholesale trade shows in the world.
Read all about it at www.wholesalesourcingconference.com.
For any of you who use repricing software or systems I had an interesting blog post before Christmas that you should read if you missed it. The post was Amazon Repricing Software Glitch Bankrupts Many UK FBA Sellers . So if you use a re-pricer or are thinking about doing so I strongly suggest you read it.
Lets get started with this month’s articles:
For those of you who don't know the difference, just a quick review. There are two ways to sell on Amazon: Merchant Fulfilled (MF) or Fulfillment By Amazon (FBA). When you merchant fulfill, you list products on Amazon and when they sell you package and ship the goods to the customer. With FBA, you label your products, send them into Amazon and when they sell Amazon handles all the fulfillment and customer service.
There are pros and cons to each and making a decision what to do all depends on your products and business model. So lets look at both.
Merchant Fulfilled (MF) - Pros
The biggest "pro" is that you make larger margins because when you use FBA Amazon charges fees for storage, handling and of course the selling commission. With MF you only pay the selling commission. So you tend to make greater margins on each sale. Of course you still have the issue of product storage to contend with, but you can typically store items for less than Amazon charges you.
Another "pro" is inventory timing. With FBA you have to really stay on top of your inventory so when you are close to running out of items you have to order in time to get the product to you and then get it to Amazon. When you are merchant fulfilling once you have the product, there is no delay in selling it as there is with FBA. And since you don't have to order so early, your cash flow tends to be better.
Then there is the issue of large items. Amazon charges really high fees to handle and pick & pack oversize items. So if you are selling anything heavy or overly large, in general you will do much better if you store and fulfill yourself.
Merchant Fulfilled - Cons
The biggest "con" is the work. If you are really selling a lot of products then that is a lot of packages to wrap and ship every day. And don't forget the cost of boxes, fillers and shipping materials, and storage for those materials.
The Volume "Con" - If you are a low volume seller just selling a dozen or so items a week then you can do this yourself. But what if you find a few really hot selling products (something we all want to do), how are you going to pack and ship and handle the customer service emails for 100 or 200 items (or more) per week. At that point you need to hire some help? Yes -you make higher margins when you MF, but those additional expenses can eat into your profits.
Inventory record keeping is another "con." When your items are in Amazon's warehouse you can just go online and look at, or download, detailed inventory reports. But if you are merchant fulfilling you will have to create a record keeping system in Excel or buy a software package to stay on top of your inventory.
Then there is the issue of sales. I will cover this in FBA Pros, but the short answer is you sell more and turn your inventory over faster when you sell in FBA.
Fulfillment By Amazon Pros
OK, let's look at FBA. I will address the issue of sales volume first. Up until 2010 we were exclusively merchant fulfilling. When we moved into FBA in 2010, our sales went up by a factor of 6X within a few weeks. The more products we sent into FBA the faster it sold. When you MF an item, say you make a $20 gross profit after fees. If you FBA the same item, you may only make $12. But if you sell one per week MF your weekly profit on that item is $20, whereas if you are selling six per week in FBA, then your weekly profit is $72 on that one item.
That brings us to inventory turnover. If you sell more items faster in FBA that means you are turning your inventory over more often. There is a very basic rule of business - the more times you turn your inventory over the more money you make. I have written about this issue in previous newsletters so I am not going to go into the details and examples here, but if you have not seen those articles, please believe me that this is true.
Then there is the workload. If you are a small operator working out of your home and that is how you want to keep it, you can handle a much larger volume of products, orders and sales via FBA than you can merchant fulfilling. I currently have about 1000 SKUs selling on Amazon and we can grow that to about 1500 with just my wife and I doing the work. Since we sell approximately 30 items a day now, we would not be able to handle that volume of daily shipments, unless we hired an employee. Since our goal is to continue working from home and we don't want to deal with employees, FBA works perfectly for us and we still have some room to grow our business.
Fulfillment By Amazon Cons
The biggest FBA "con" is the biggest pro for merchant fulfilling. The fees are much higher. I used the FBA Calculator to come up with this example for one of my products. You can see that the difference is not very great ($0.89), and you will also note that I used values of zero for the various costs such as weight handling and pick and pack because you would do them yourself. But, if you were selling in high volume, and were paying employee(s), then you would have to add those costs in.
The other big issue we mentioned as a Pro under MF is dealing with oversize items in FBA. The item shown above is a standard sized product, but if it were oversized then my margin on the FBA item would be about $3.00 to $4.00 less.
Then there is the "con" of shipping to Amazon. Although Amazon gives you some really low rates when you ship to them, it is an added cost that is not shown on the revenue calculator and it takes time. The extra time spent in transit to Amazon ( 4 to 9 days) and the time it takes Amazon to received the shipments and make the items available for sale (1 to 2 days) can really add up. This is a big issue because that means you have product that is not available for sale for a period of between 5 and 12 days. We do about 300 shipments to Amazon per year so that factor adds up to a lot of potential missed sales and cash tied up in non-performing inventory during that time.
Then there is the split shipment "con." When you create a shipment to FBA, Amazon decides which warehouse it goes to. And most of the time they will split your shipments up between two or even as many as four warehouses. So that is several shipments you have to prepare. There is a way around this. Amazon offers what they call Inventory placement service whereby you pay 30¢ per item shipped and they will let you ship to just one warehouse. If that warehouse is close to you that means you will really save on shipping costs which can offset most or all of the extra 30¢ per item, but if the warehouse is across the country then its just an added cost, but a huge time saver.
Another "con" is the issue of Hazmat products and some other products such as liquids in glass bottles larger than 4 ounces that cannot be shipped to FBA. Hazmat is essentially any flammable, corrosive or pressurized item, which includes perfumes and colognes, many cleaning products and some food products. Even if you want to sell these items via FBA you cannot.
So there you have it. As I said at the beginning the decision really comes down to your personal goals and the business model you want to follow. If you are young and still have a lot of energy (and money) you can open a warehouse, hire employees and grow the business as large as you want. There are plenty of million dollar plus merchant and FBA sellers. But if you just want a small home business you may find that FBA will be much easier on you.
This is a press release from Amazon that contains some really interesting facts and information for Amazon sellers. It is not mentioned in the press release but Shmuli Goldberg of Feedvisor reported that:
He also added the following comments:
Mobile is now mainstream:With 60% of Amazon.com customers shopping on mobile devices, Mobile is now a mature, legitimate eCommerce platform in its own right, and is no longer a "niche" source of income for online sellers. This has and should change the way many online businesses treat the platform.
Prime is a strong direction for Amazon:This year brought record growth to Amazon's exclusive Prime program. More than 10M new members worldwide tried Prime for the first time, with almost a dozen new features and benefits added to Amazon Prime over 2015, including Prime Music, Photos, Pantry and Same-Day Delivery. Amazon clearly see Prime as a robust and diverse growth driver for the company, so expect a lot more added-value features in 2015.
There is a clear winner in the Amazon-eBay war: With 25% growth in Amazon sales compared to 2014 over Black Friday, Amazon completely eclipsed eBay's 3% growth in the same period. Knowing full well that the upcoming split between eBay and PayPal may cripple their smaller competitor, Amazon is getting ready to pick up the pieces and take as much of the opening market share as possible, hoping to strengthen its position as much as it can before Alibaba takes a strong punt at the US market.
Now here is the Amazon Press Release
- Amazon introduced the Amazon Seller App to help on-the-go sellers manage their businesses on Amazon direct from their mobile devices
- Sellers on Amazon from more than 100 different countries around the world fulfilled orders to customers in 185 countries using the Fulfillment by Amazon service
- More than 25 percent of Login and Pay with Amazon payments were made using a mobile device
Amazon today announced that sellers on Amazon sold a record-setting more than 2 billion items worldwide in 2014. The number of sellers on Amazon adopting the Fulfillment by Amazon (FBA) service to help scale their businesses and delight customers with Amazon's award-winning fulfillment and customer service also grew more than 65 percent year-over-year worldwide. There are currently more than 2 million sellers on Amazon worldwide that account for over 40 percent of the total units sold on Amazon.
2014 Amazon Services Growth
- In 2014, more than 2 billion units worldwide were ordered on Amazon from sellers with businesses of all sizes.
- In 2014, active sellers worldwide using the FBA service grew more than 65 percent year-over-year.
- FBA units shipped worldwide grew more than 50 percent year-over-year during the 2014 holiday season.
- Sellers on Amazon from more than 100 different countries around the world fulfilled orders to customers in 185 countries using the FBA service.
- China and Hong Kong-based sellers with international sales grew 80 percent year-over-year.
- Product selection available through FBA on the Amazon.in (India) marketplace more than tripled year-over-year.
- Holiday deals offered by sellers on Amazon worldwide grew more than 250 percent year-over-year during the 2014 holiday season.
- Units sold by sellers on Amazon worldwide offering holiday deals grew more than 400 percent year-over-year during the 2014 holiday season.
On Cyber Monday, more than 16 million units were ordered worldwide from sellers on Amazon.
- On Cyber Monday, orders processed by businesses using Amazon Payments grew by more than 60 percent year-over-year.
- More than 25 percent of Login and Pay with Amazon payments were made using a mobile device.
- Orders processed by businesses using Login and Pay with Amazon grew by more than 200 percent year-over-year during the 2014 holiday season.
- Amazon introduced the Amazon Seller App to help on-the-go sellers manage their businesses on Amazon direct from their mobile devices. The Amazon Seller App, available for Android, iOS and Fire phone, makes it easier than ever for sellers on Amazon to quickly manage inventory, source and list new items on Amazon, and quickly respond to customer inquiries.
- Amazon expanded Sunday delivery through the U.S. Postal Service to thousands of cities across the U.S., enabling FBA items from sellers to reach customers on Sundays.
- Many FBA offers from sellers are now available with same-day delivery in 12 metro areas across the U.S.
- Amazon improved the delivery experience for customers in Europe with the introduction of Borderless Fulfillment. Amazon.co.uk, Amazon.de and Amazon.fr Prime members now have access to free Two-Day Delivery for items from sellers using the FBA service stored in Amazon's European fulfillment centers located outside their respective countries.
- Amazon launched Multi-Country Inventory in the EU, an international fulfillment program that has enabled cross-border FBA sellers to place millions of high-demand items closer to customers. Products are stored in Amazon's fulfillment centers across Europe so they ship faster to local customers.
- FBA introduced Amazon Partnered Carrier services for sellers in Italy and Spain to access discounted rates with select carriers when shipping inventory to Amazon.
- Amazon unveiled the 'Make an Offer' experience (www.amazon.com/makeanoffer) that allows customers to negotiate prices on more than 150,000 items across Sports and Entertainment Collectibles, Collectible Coins, and Fine Art from sellers on Amazon. The new feature allows customers to offer to buy items at even lower prices, and if agreed upon, customers can then purchase the items at a savings from the listed price.
- Amazon expanded its Amazon Currency Converter for Sellers (ACCS) service to cover eight currencies. International sellers can be paid directly into their local bank accounts in local currencies including the Euro, British Pound, U.S. Dollar, Australian Dollar, Canadian Dollar, Hong Kong Dollar, Indian Rupee and New Zealand Dollar.
- Amazon launched North America Unified Accounts to simplify international selling in North America. Now, when a seller signs up to sell on either Amazon.com or Amazon.ca, they have access to both marketplaces and can more easily create and manage their offers in both the U.S. and Canada.
- Amazon launched the Build International Listings tool in North America, enabling sellers on Amazon.com and Amazon.ca to automatically create offers and manage prices in both marketplaces.
- Sponsored Products, an advertising program for sellers, introduced six new placements for sellers including product detail pages and mobile search pages to attract customers to their offers.
- Amazon launched the 3D Printed Products store (www.amazon.com/3dp) that now gives customers access to more than 6,000 unique print-on-demand products, many that can be customized by material, size, style, and color, and personalized with text. The store includes convenient search tools, interactive 3D preview functionality and a product personalization widget. Since launch, the number of items listed in the store has grown by 500 percent.
- Amazon opened the Collectible Coins store (www.amazon.com/collectiblecoins) that now gives customers direct access to more than 25,000 unique U.S. coins from over 160 industry-leading dealers showcasing a wide variety of professionally graded and authenticated coins. The new store is one of the largest online destinations to discover and purchase graded U.S. coins, featuring easy-to-use search tools. Historical collections are available including buried treasure coins recovered in the Saddle Ridge Hoard and 57th Street Hoard.
- Sellers on Amazon added thousands of "Certified Refurbished" offers (www.amazon.com/used) from leading electronics manufacturers by focusing on high quality used selection.
This is quite a lot of stuff from Amazon in just one year.
It's a New Year and if you are like most of us we all make New Year's Resolutions, which tend to be kept for a while, but are eventually forgotten. When it comes to your business, however, its not so much a resolution you want to make, but some concrete steps that can help you reduce your workload and grow your business more profitably. Making these steps early can help you grow just that much faster. Many of these are no more than simple housecleaning steps, but they are very necessary if you want to reduce your expenses and workload and increase your profits. These are the things that occupy my time in January.
So that is pretty much it. I am sure you can think of some things I forgot or things that are more important to your business model. Your factors may be different than mine and that is OK - none of us approach our business in exactly the same way. But make sure you do something. Use the month of January for research, planning and goal setting and it will pay dividends throughout the year.
It seems I write this same article every year about this time. Shortly most sellers will get notices from Amazon and PayPal that your 1099 forms are ready to download. For some reason I don't understand this actually frightens a lot of sellers (I know because they send me emails).
The IRS 1099 form is nothing more than a statement from Amazon and/or PayPal that tells the IRS how much money they sent you last year. The amount on the form is NOT the amount you own taxes on -and the IRS understands this too.
If you made more than $600 in 2014 then you will need to file this information with your federal tax return. Use your total sales as your starting point. Now deduct the cost of the products you sold (don't forget to include the cost of inbound shipping). Subtract the cost from your sales and you will have your gross margin.
Now subtract ALL eBay, PayPal and Amazon fees. (If you sell in FBA don't forget to subtract the cost to ship the goods into Amazon). Once you do this the number you are left with is your net margin. But you still are not finished subtracting.
Here is an example of what we have done so far:
The next things you want to look at are your ongoing business expenses. This is only a partial list - everyone's business is different. But look hard to find every penny you spend on your business.
- Home office expense
- Telephone, ISP, etc.
- Web services
- Third party services such as Auctiva, Vendio, AutoMCF and so on.
- Office supplies, postage, shipping supplies
- Any business related travel (trips to trade shows, mileage to the post office and so on).
- Legal, accounting and bookkeeping services (don't forget last year's tax preparation fees)
- Professional subscriptions
- Educational materials (these would include the cost of any books you bought from me or others about eBay and/or Amazon)
- Computer, printer, camera or any office equipment you bought during the year
- Any losses (did you write off any damaged product)
- Charitable contributions (this one usually goes under your personal taxes unless you have an LLC and the LLC made the contribution)
- Miscellaneous or anything else you can think of that I forgot to list here.
Now let us assume for example that these expenses came to a total of $12,900. Let's add that to our chart
So that is the number you will owe taxes on. If you are a sole proprietor you will fill out an IRS form Schedule C (Form 1040) Profit or Loss from Business and file that when you file your personal taxes.
If you are a corporation or LLC you will file these numbers as your profit and loss from business. If you are incorporated, make sure to file a subchapter S form so the corporation or LLC does not pay taxes on the business profit. Instead the income from the corporation flows through to your personal taxes, which will usually be a lower rate.
Lastly here is a hint from my CPA who is a former IRS executive. Always file an extension and do not file your taxes in April. Why? The IRS starts assigning agents to do audits in April. If you wait until the October 15th deadline to fine, all of the agents who do audits are already assigned and there are no more slots. Of course it has been over ten years since he worked at the IRS and they have hired a lot more people since then - so its possible this may no longer work. But it can't hurt. Just remember one thing. When you send in your extension, be sure and include an estimate of what your taxes will be, otherwise you will be charged interest and penalty on that amount.
Lastly - here is a link to a great article about end of year tax planning in eCommerceBytes.
Over the next few weeks surplus and liquidation companies will be getting a ton of new merchandise as stores unload their after Christmas excess merchandise and get ready to bring in Spring seasonal goods. So for that reason I have featured several liquidation companies.
One word of caution: The liquidation companies I feature here are honest but you always want to make sure you know what you are getting.
The best type of merchandise is what are called Shelf Pulls or manufacturer's overstocks. Make sure you are not buying a load of returns, as these will often contain defective or damaged goods.
Before you actually buy something don't be afraid to email the selling company and ask questions about the merchandise to make sure you understand exactly what you are getting.
GENCO Marketplace is a large and very well known liquidator used by lots of eBay and Amazon sellers.
Dollar Days is also a liquidator that has been around a long time and is used by many online sellers.
Via Trading is a very large liquidator and they give very good support if you communicate with them. I have personally bought from them and done quite well.
Direct Wholesale Products provides wholesale products to eBay Sellers, Flea Market Dealers and the individual wholesaler. They supply Novelties, Lighters, Household Items, Knives, As seen on TV, Electronics, Torches, Novelty Lighters and more.
Rhino Mart is a wholesale distributor in closeout merchandise, selling closeouts, Overstock, Customer return merchandise, surplus and liquidation merchandise, and more. (Remember, you don't want to buy customer returns unless you can repair items yourself).
OK - that is enough of liquidation. Lets look at some other products:
B & O Connections offers direct pricing on Super-Blue stuff, the leading As Seen On TV pain relief formula.
AEWholesale is family owned and operated. Hundreds and hundreds of products in stock in a wide range of categories! Candle lanterns, bird houses, tons of gifts, wind chimes, home decor, impulse items, and much more.
Niki-Nu-Lites - are made of translucent polycarbonate plastic, which is unbreakable and washable. Their Lanterns feature an Origami like design, which allows them to be custom, made and are available in 3 different styles, multiple sizes & color combinations. Each lantern includes a U.L. approved cord and utilizes a 13-watt CFL bulb.
American Linens is a family business based in New Jersey that has been operating for over 35 years. They carry a full line of household linens.
Freeze Dry Guy offers a wide selection of ready-to-eat Freeze Dried food individually packaged Freeze Dried entrees, meats, vegetables and fruits.
Creative Coolers are Made in the USA, PATENTED hard sided molded cooler that incorporates full graphic coverage in 360 degree high resolution digital print. Custom products available.
MJB Sports sells wholesale men's private label denim jeans in 5-pocket and carpenter styles. Work and casual wear. Small orders welcome. Bulk discounts. 1000's available. http://www.mjibsports.com/
Vertex Airsoft offers an extensive line of wholesale Airsoft guns and accessories.
Safety Technology sells Stun Guns - Pepper Sprays - hidden cameras, spy equipment and surveillance systems. They will a Drop ship or you can order for shipment. Ask for better pricing if you order in case lots.
Hollon Safe is a manufacture of safes. They have a Drop ship program for all models of safes including depository safes, gun safes, home safes, and commercial safes.
Silver Depot offers silver jewelry wholesale and is a wholesaler, retailer, distributor of fine jewelries, rings, bracelets, earrings, pendants, chains, necklace, sets, nose stud, rosary and more.
SilverAmber.co.uk (United Kingdom) sells Sterling Silver & Baltic Amber Jewelry sold to trade only at wholesale prices. (Marsha - Please add this one to our UK sources in wholesale-resources.com)
Fun Express carries wholesale toys, wholesale novelties, wholesale party favors and wholesale decorations and is a leading wholesale supplier to party retail stores, family entertainment centers, amusement parks, restaurants and promotional agencies.
BSI Products, Inc has been manufacturing Premium Licensed Flag and Banner Products for the dedicated motorsports and collegiate fan since 1991.
Hot Belt Buckles sells Belt buckles, western belt buckles, Batman many other variety also plenty of skull merchandise and an exclusive wholesale belt buckles Section
That’s it for now – I hope all of my readers have a happy and prosperous New Year.
P.S. If you missed the last issue, click here to read it.
© 1999- Harry McGrath, Inc., DBA Skip McGrath, Auction Seller's Resource and Vision-One Marketing. All Rights Reserved.
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