Tips for managing your FBA and SFP inventory

You can’t be a player in retail without at least considering Amazon as a revenue channel. Even that might not be enough. With more than 95 million Amazon Prime members in the United States alone, retailers that ignore this important channel risk missing out on a huge chunk of revenue.

Still, “doing retail” on Amazon is one thing—doing so successfully is a different thing altogether. For as many customers as Prime continues to attract, there must be ten times as many ambitious sellers looking to cash in.

What draws both customer and retailer to the platform is speed and convenience. To deliver on these expectations, though, retailers must manage their inventory with the precision of a Marine Corps sniper. Because it’s not sales volume, SEO, or brand awareness that sends so many retailers into complete disarray; it’s how should they fulfill Amazon orders?

Amazon is notorious for their strict fulfillment policies. If you get too many bad marks you can either lose your “Prime” seller status or, worse, be banned from selling on Amazon. At this point you may be asking yourself, So how should we fulfill our Amazon orders? Let’s take a deep dive into the common ways an Amazon order can be fulfilled: Amazon FBA or Seller Fulfilled Prime.

RELATED: Is SFP less expensive than FBA?

5 tips for managing FBA or SFP inventory

There are pros and cons for both FBA and SFP. To a large extent, the right choice for Amazon fulfillment will depend on the size, maturity, and nature of your retail business. Either way, there are some things that any retailer operating on Amazon should keep in mind (if they have any interest in staying in business, that is).

1. Prime orders ship the same day—act accordingly

This might seem self-evident, but delivering on this etched-in-stone Amazon promise is easier said than done. Prime members pay an annual fee that guarantees same-day shipping on their orders and they expect this expectation to be met each and every time. Just as important, Amazon won’t let you keep that coveted Prime badge long if you can’t keep up.

With FBA, it’s a little bit easier: an Amazon fulfillment center already has your inventory on-hand and will take care of shipping logistics on its own. With SFP, however, you need to make sure your warehouse and inventory management strategy is capable of efficient fulfillment of Prime orders. This includes staff, processes, software—everything. Your reputation and brand—at least as it relates to Amazon—depend on it.

2. Avoid unnecessary storage fees

If you use FBA, you need to account for all of the costs associated with this service, especially storage. Inventory kept on hand longer than six months, for example, incurs additional storage fees on top of the original storage fees. This alone accounts for most of the cost in FBA. If you have a product that quickly moves off the shelves, this may not be a huge issue.

If you have a product that has a longer shelf life, however, or you have a couple items left from a past season, you have some decisions to make. You either keep it in an FBA warehouse hoping it will sell, or you can do a flash sale to get rid of it—which is really what Prime Day is all about after all—or you can take that inventory out of an FBA warehouse and move it to another destination, which can also be costly.

Seasonal spikes and oversized or specialty items cost more, too. Think board shorts in July. Snowboards, bindings, and boots in the dead of winter. Maybe you specialize in synthetic Christmas trees. Whatever it is, you need to plan accordingly in terms of storage and shipping costs, especially if you’re leaving it to Amazon to fulfill your orders.

For retailers looking to scale, inflated or unnecessary inventory storage fees can be showstoppers. Avoiding these fees means having an informed strategy around pricing, consumer demand, and the ebbs and flows that crop up throughout the fiscal year.

3. Remember that price matters

Price is more than what customers see when shopping around. How you price your products on Amazon can be the difference between a sustainable best-seller and a flash-in-the-pan that ends up costing you money because you can’t meet demand. Selling on Amazon is highly price-sensitive, and price-setting is an art in and of itself.

But it’s not rocket science: take a look at page one of search results for where you’d like to compete. Dig into related items and see the prices of similar items that customers usually buy. Also, factor in all the fees—Amazon services, inventory management, shipping, and otherwise—that will cut into your margins. Many pricing guidelines for a given product are right there in front of you—they just require a little bit of digging.

4. Have a plan for returns

Okay, if you’re going the FBA route, this one takes care of itself, because Amazon handles return fulfillment for you. Phew! With SFP, though, you need to have the inventory infrastructure in place to quickly and efficiently handle returns on your own.

Because returns and exchanges happen. A lot (think about your last few orders on Amazon … yeah). And customers today tend to notice when things are even a second late, let alone days or weeks. Again, your reputation on Amazon depends in part on your ability to process returns.

For Amazon SFP inventory, it’s all on you.

5. Know that location matters

Fulfilling orders from coast to coast doesn’t happen magically—it requires strategically located warehouses replete with requisite staff, process, and software. When using FBA, this is less of a concern, as Amazon has fulfillment centers everywhere and then some.

If you’re using SFP, however, you need to handle all of this on your own, and large retailers need to have a plan in terms of where their warehouses are located. At the very least, you need to create special Amazon selling rules that only offer Prime shipping on an item if the shipping address is within the two-day shipping zone. Manage your Amazon FBA or SFP inventory the right way Finally, it’s important to make the right decision for your retail business. FBA provides certain advantages for small businesses that are only selling on Amazon, or just starting out and testing a concept. SFP tends to make more sense for multichannel retailers, like those that have a physical location or sell on other platforms such as Shopify, Ebay, and the like. SFP also makes sense for already-large retail operations with a fulfillment process in place.

For larger scale retailers that sell in more than just one channel, managing Amazon SFP inventory properly is a large undertaking. Our final tip (surprise, surprise) is to look for a scalable inventory management platform capable of handling all your retail channels in one place—whether your picking, selecting, and shipping inventory for Amazon Prime customers, your ecommerce website, or otherwise.

Manage your Amazon FBA or SFP inventory the right way

Finally, it’s important to make the right decision for your retail business. FBA provides certain advantages for small businesses that are only selling on Amazon, or just starting out and testing a concept. SFP tends to make more sense for multichannel retailers, like those that have a physical location or sell on other platforms such as Shopify, Ebay, and the like. SFP also makes sense for already-large retail operations with a fulfillment process in place.

For larger scale retailers that sell in more than just one channel, managing Amazon SFP inventory properly is a large undertaking. Our final tip (surprise, surprise) is to look for a scalable inventory management platform capable of handling all your retail channels in one place—whether your picking, selecting, and shipping inventory for Amazon Prime customers, your ecommerce website, or otherwise.