Alex Knight looks at FBA prep: why it’s important, why sellers decide to outsource, and how to choose the right FBA prep service
Preparing your inventory for FBA can prove frustrating. You’re running low on stock at the Fulfillment Center, orders are pouring in but you’ve hit a bottleneck – you can’t prepare your inventory quick enough to meet demand.
At this point, you decide it’s time to outsource your FBA prep to a third party but there’s so many factors to consider that you’re a little lost. You’re essentially handing responsibility for part of your business over to a third party, so you want to be absolutely sure you’ve considered everything and made the right decision.
To help you decide, we’ve explained what FBA prep is, identified why many sellers choose to outsource it and explored some of the most important factors to consider when choosing an FBA prep service.
What is FBA prep?
When sellers send their inventory to FBA, it is not simply a case of throwing everything into a box and handing it over to a courier. There are in fact a number of strict rules that your stock must meet in order to be accepted at the Fulfillment Center. Some of these rules apply to all inventory and others are category specific.
FBA prep is the process of getting your inventory ready to send into Amazon. It mainly focuses on the packaging and labeling of items but some sellers, especially those importing goods, also include an inspection of their inventory.
Getting your FBA prep right is hugely important. If you get it wrong, Amazon won’t accept your stock and you’ll have to pay to have it all returned. Worse still, if you send damaged stock into Amazon and it gets mistakenly sent to a customer, they are likely to complain and return the item. If these complaints start to stack up, it’s going to affect your metrics and see your listing suppressed, or even your account suspended.
Why outsource FBA prep?
When it comes to FBA prep you have three choices: do it yourself, pay Amazon to do it, or outsource it to a third party.
FBA prep is specialized, full of intricate rules and easy to get wrong. By outsourcing it, in theory, you are handing it over to the experts. Your FBA prep service should know the process and make sure that any stock you send into FBA complies with Amazon’s rules, lowering the risk of your stock being rejected. This is especially important if it is your first time sending inventory into FBA, as you never really know how difficult a process is until you’ve done it and learned from your own mistakes.
Amazon’s many rules mean that preparing inventory for FBA can be a big drain on your time. You’ll find yourself inspecting stock, making up boxes and printing labels, when your time might be better spent sourcing new products.
Amazon seller and Seller Sessions‘ host Danny McMillan has been outsourcing FBA prep for a while, as it allows him to focus on other aspects of his business:
When you’re growing your business, you’re trying to do everything yourself because you want to keep the overheads low. But as you scale the business you don’t want to be touching anything, as your time is at a premium. I’d rather be sourcing a new product than sitting there sticking 1,000 labels on something.
Not only is it time consuming but doing the prep yourself relies on you having space to store your inventory. This is fine if you have a small order but trying to prep 1,000 units from your kitchen is not ideal. Instead, you’re likely to have to rent a warehouse and temporary workers to share the workload. When you calculate the cost of this, it may well work out cheaper to use a prep service, so you can save both time and money by outsourcing it.
How to choose a third party prep service?
There are a number of factors that you need to consider when choosing an FBA prep service, from where they are based to how quickly they can process your inventory. Each factor has a different weighting depending on your business model and sales velocity.
The primary concern for most sellers when choosing an FBA prep service is going to be price. Whilst it should not necessarily be the only factor you consider, it is natural that you want to get the best deal.
The first question you need to ask is whether the prep service charges you monthly or per item. A monthly charge is likely to suit sellers with large volumes of inventory whereas the per-item charge appeals more to low volume sellers, who will be sending stock in more sporadically.
You will then want to know what is included in the packaging process, as some prep services will charge extra for packaging such as bubble wrap and poly bags. It can also be useful to know the storage fees and whether there is a minimum number of units you have to send into the prep center at any one time.
When choosing an FBA prep service, price is not necessarily the most important factor. You don’t want a budget service that cuts corners but, equally, you want your prep costs to be manageable. Remember, just because your costs start high, it doesn’t mean they have to stay high. As you get more familiar with the preparation process it is possible to reduce your costs, for instance by splitting some tasks between your manufacturer and your prep service.
When considering the location of your prep center, you need to think strategically. If the bulk of your business is private label, you’re likely to ship in large amounts of inventory from China. So, finding out which ports your shipments arrive at and choosing a prep center nearby is a good strategy.
In Danny McMillan’s experience, using prep centers near your shipping ports can be useful, not only to save time and trucking costs, but for the smooth running of your business. It means on the rare occasion that things go wrong, your prep center could potentially send someone to the port to help sort things out. This wouldn’t be possible if the distance between your prep center and the port was 300 miles.
Another consideration for retail arbitrage sellers is having a prep center close to home, so when they source stock, they can either take it in themselves or incur very low trucking costs.
Be careful about choosing a prep center based on proximity to an Amazon Fulfillment Center though, as the Amazon warehouse you ship to can be different each time. Remember, this is even the case if you sign up to Amazon’s Inventory Placement Service. Under that program, you send all your stock of one specific product to the same Fulfillment Center, but Amazon can, and will, change the location from shipment to shipment.
If you source your goods from online retailers in the U.S. (i.e. online arbitrage) you may have to pay sales tax. But by using a prep center in a state with either no sales tax or a low rate, you could save money.
How? By shipping your stock straight to the prep center. If it’s located in one of the five states with no sales tax, any storage fees incurred while they wait for more inventory to arrive are likely to be lower than the tax you’d pay in your home state.
Remember, sales tax in the U.S. ranges from zero to just over seven percent. So, even choosing a prep center in a state with a sales tax that’s two or three percent lower can make a difference to your costs.
Whilst the primary job of an FBA prep service is to get your inventory ready to be sent into FBA, more and more sellers are using prep centers to store their inventory.
There are two main reasons why sellers are doing this. The first is that it can be cheaper than storing all your inventory at a Fulfillment Center. So, sellers store store their inventory with their prep service and send stock into FBA based on their sales velocity. To break this down, if a seller sends 10,000 units into their prep center and is selling around 1,000 units a month, they’ll only send 1,000 units into FBA each month. The remaining stock will be stored at the prep center.
Amazon’s suspension culture is the second reason. If you get suspended your stock essentially becomes stuck in the Fulfillment Center. You’re going to have to pay per item to have it returned and it may not arrive for a couple of weeks. As part of your Plan of Action, you (or your prep center) will have to inspect the inventory you had in FBA. When you get reinstated, you’ll then have to get your stock repackaged and labeled in order to send it back in. Altogether this is a costly process which sellers are trying to minimize by keeping their stock at a the Prep Center and sending in stock in smaller quantities.
If you’re going take this approach, make sure your prep service can turn around inventory quickly and at short notice. You also need to inquire about their insurance – you’ll want your stock to be protected against fire or theft while they are holding it!
A key factor in deciding on an FBA prep service is how quickly they can prepare your inventory. Your need for speed can depend on several factors. For instance, if you’re holding stock at the prep center and sending it in based on sales velocity (see above) you’ll probably want them to turn around units in no more than 48 hours.
Most prep services are upfront with their processing times and may even offer a 24 or 48 hour guarantee. If you can’t see this information, make sure you ask, as you don’t want your late shipment rate to suffer because your prep service are taking their sweet time getting your inventory into FBA.
Alongside labeling and packaging, it is worth inquiring whether your FBA prep service carries out inspections. It is important to note that this doesn’t replace pre-shipment inspections that your manufacturer should do, but it can be used to supplement them.
Imagine that your manufacturer does a pre-shipment inspection. You have 10,000 units and they check 20% of the goods. There is a good chance that when your FBA prep service goes through the stock, they’re going to pick up other problems that your manufacturer missed.
Danny McMillan believes that manufacturers often don’t check shipments too closely because they know that if stock is rejected, it’s going to cost them more and eat away at their margin. This makes the inspection carried out by your prep service even more important.
If you sell perishable goods, such as food, the first question you need to ask any prep service is whether their receiving and storage facilities are climate controlled. You do not want your goods ruined simply because they weren’t kept in the right conditions.
This doesn’t only apply to perishable goods. If you are sending stock to a particularly hot state or a state that has very changeable weather, climate control is just as important. If the conditions aren’t managed correctly your items could spoil or be affected by damp.
Outsourcing your FBA prep can make your business run more smoothly but choosing the wrong service can slow you down even more.
The main thing to remember is that you shouldn’t be afraid to ask questions – no matter how minor they may seem. You’ll need to build a relationship with your prep service, so if they are dismissive when you ask questions, this is an early indication that they may not be the right choice.
Talking to other sellers can also be useful. You can find out which prep services they are using and, more importantly, if there are any to avoid. After all, when you’re sending your precious inventory to someone else, you’ll want to make sure it’s going to be safe.
You can find a selection of FBA prep services in the Web Retailer directory.