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Working with Amazon Direct vs. Amazon FBA (fulfillment by amazon)?

Does anyone have experience with Amazon Direct (they act as a distributor for your products) vs. Amazon FBA? We are trying to gauge what Amazon's margins might be for Direct. So hypothetically, if we sell them something for $1, how much would it retail for on their site - on average? Its more complicated than a typical margin because its a number of deductions that add up to the margin and it may vary by category.

8 Replies

Tony Leonard
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Tony Leonard Entrepreneur
Founder @nurseVersity @ptVersity | #500Strong (b16)
I recall reading that they do not add a value as they deduct a % of sale per item, and then volume.
Mike MacDonald
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Mike MacDonald Entrepreneur
Co-Founder/CEO of Sesame
Poorvi,

I'm literally on a flight from NYC to SFO right now and was putting together an evaluation of this 15 minutes ago because I'm trying to weigh the benefits of using Amazon for fulfillment.

FBA seems to have a variety of charges as you'd mentioned and here's a breakdown of what I found:

Monthly Subscription: $39.99/month
Referral Fee: 8-15% (This depends on what type of product you're selling Consumer electronics are 8% for example and it's a minimum of $1.00/item)
Pick & Pack: This depends on size/weight
Weight charge: This depends on weight
Shipping: This depends on weight)
Storage: This is charges per cubic foot and fluctuates on the time of year
This also doesn't take into consideration the costs of getting your product to Amazon's warehouse in the first place in addition to manufacturing, etc.


Self Fulfillment has a referral fee (depends on category of product,) per item fee ($.99/item) and you still need to account for your own packing/shipping. You also need to consider the time it takes one of your employees to support this.


Hope this helps,
Mike
Ben Sharir
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Ben Sharir Entrepreneur
Sr. eCommerce Consultant
Yes, we sold to Amazon before via (Vendor Central, not sure about Direct). Why selling directly to them anyway and not via the marketplace? Are you also selling on other marketplaces? If not - why? -Ben Sharir Sent from my iPhone
Gail Sanders-Luckman
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Gail Sanders-Luckman Entrepreneur
Owner, Kumfy Tailz
We deal with Amazon directly. In order to protect our other retail distributors, we sell to Amazon at a higher than wholesale as their markup is less than a brick and mortar. You can change your prices to them every 6 months. Hope this helps.
Eoin Matthews
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Eoin Matthews Entrepreneur
Cofounder at Point
Hi Poorvi -- which service do you mean when you refer to "Amazon Direct"?
Alan Schunemann
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Alan Schunemann Entrepreneur
CTO and Co-founder of eTelemetry
I'm not familiar with "Amazon Direct", so I second Eoin's question regarding the service. I use FBA, as well as vendor (me) fulfilled orders. The two big factors, from my experience, to consider when evaluating FBA vs self-fulfilled are 1.) shipping cost to FBA, and 2.) reduced shipping costs to buyer when fulfilled using FBA. In my experience, Amazon charges less then actual shipping to the buyer when fulfillment is by the vendor. This adds up to a significant portion of margins, if you're dealing with real-world net margins. Based on my limited experience, the discounted shipping through FBA amount is greater than the delta between self-fulfilled actual shipping costs and the shipping charges Amazon collects from the buyer. Also note that Amazon includes the shipping fee when calculating their referral fee.
Ben Sharir
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Ben Sharir Entrepreneur
Sr. eCommerce Consultant
Also keep in mind: - Amazon charges extra when not shipped to Amazon buyers so if you have a website, selling on eBay, drop-shipping for partners, etc'. you will pay more. - Amazon shipping rates are cheaper compared to USPS/ UPS/FedEx advertised retail prices but there are ways to avoid paying retail prices. -Ben
Ramona MacLeod
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Ramona MacLeod Entrepreneur
President & CEO at Big Mama Student Services Ltd.
Hi Poorvi,

If I understand your question correctly, you are asking if there is a benefit to supplying your products to Amazon at the wholesale level vs supplying their retail customers using FBA. Only you can answer that question since you know what your costs and margins are.

When making your decision, please factor in the following:

Amazon looks to its suppliers to provide the lowest pricing possible for its customers. I would suggest that you consider Amazon's history with it's suppliers such as Hachette, Disney and Warners to inform yourself as to the approach Amazon takes when it determines that it wants changes in a particular category.

You can learn a lot about the pros and cons of using FBA by reading the seller forums. https://sellercentral.amazon.ca/forums/category.jspa?categoryID=3

Bear in mind that since you are selling a food product, you will need approval to sell on Amazon, even when using FBA. It would seem that the approval process should be relatively straight- forward since one of your wholesale customers is already using FBA to distribute your products.

One final item to consider: Amazon has been known to ban sellers that do not meet their very stringent standards. If you decide to use Amazon, will you be able to maintain those standards on a consistent basis?

All of the above is intended to provoke careful thought, resulting in an informed decision.
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