Most entrepreneurs don’t start their businesses to be full-time warehouse managers.
They start their business because they want to make an impact, monetize their passion, or be their own boss.
But it can be hard to relinquish control of any aspect of your business — especially when it feels like only you can handle all the day-to-day operations to your liking.
The hard truth is that if entrepreneurs want to scale their impact, their revenue, and their team, they must learn the skill of delegation.
One of the simplest and most pragmatic things to outsource is your inventory control and logistics. We’ve written extensively on why you should outsource your order fulfillment and the most popular third-party logistics (3PL) providers.
In summary, the key benefits of outsourced order fulfillment are:
- More time to focus on high-level tasks
- Money saved on renting, managing, and staffing your own warehouse
- Extended reach and scalability
Now, we’ll dive into the specific pros and cons of each so you can understand which is right for your business.
Pros of Amazon FBA
All the benefits of Amazon Prime
One undeniable point of leverage Amazon has over other 3PLs is ownership of the most popular and profitable eCommerce marketplace in history.
Around 2.5 billion users visit Amazon each month. Clients who utilize Amazon FBA are the direct beneficiaries of this traffic.
Not to mention the fact that FBA clients are eligible for Prime shipping, Prime deals, and bundles, and have a higher likelihood to land the coveted Amazon Buy Box.
Streamlined customer support
Another perk of Amazon FBA is that Amazon handles all reverse logistics and customer service inquiries for FBA-fulfilled items.
If you’ve ever returned anything on Amazon, you know just how seamless the returns process is. Customers have multiple lines of communication with representatives including live chat, phone, and email. Plus, you as the business owner don’t need to worry about a thing when it comes to returns.
Transparent fee structure
While Amazon’s fees can get steep (more about that in the cons section) and a bit complicated, they are completely transparent. Nothing is hidden behind paywalls or fine print. Amazon is very open with its fee structure, even on a per-category basis.
Multiple channel fulfillment
One competitive advantage of FBA is the ability to fulfill orders from other channels using the inventory stored in Amazon’s fulfillment centers.
Yes, this means if you sell things on your own personal website, you can tap into your Amazon inventory to satisfy those orders. While you won’t get the same Prime benefits as you would selling on Amazon’s marketplace, it’s still a significant benefit for FBA clients.
Fast order fulfillment and shipping
Amazon is single-handedly responsible for conditioning the modern eCommerce customer to lightning-fast shipping.
Anything less than 2-day shipping feels like a glacial pace. Well, when you use Amazon FBA, you don’t need to worry about that. Amazon is the undeniable king of shipping efficiency. When you tap into the Prime network, you ride the coattails of that efficiency.
This benefit may even result in more sales and will almost certainly lead to higher customer satisfaction.
International fulfillment capabilities
Want to tap into international markets? Amazon can get you there. Thanks to Amazon’s distributed global infrastructure, reaching previously unreachable markets is now possible.
Eligibility for Prime promos
Amazon is constantly bundling Prime items for seasonal sales, Prime Day deals, and category-specific promos.
When you use FBA, you become eligible for featured Prime promos. While you can’t control which products Amazon features, you can increase your likelihood for more eyeballs on your products.
Reasonable return rates
When a customer returns a product to Amazon’s warehouses, you incur a cost to cover restocking and processing. While return rates in certain categories can get a bit expensive (consumer electronics is a 40% fee, yikes!), most categories sit between a reasonable 5% to 15% return rate.
Cons of Amazon FBA
Amazon knows they’re the dominant player in the eCommerce and 3PL space; thus they can afford to unabashedly charge higher prices.
As you shop around 3PLs, you’ll quickly realize that Amazon is one of the most expensive outsourcing solutions. All those Prime benefits come at a cost, after all.
Their fees usually increase around the holiday season as well.
No order customization
We all know what an Amazon package looks like. That iconic brown box with the blue stripe and Prime branding. It’s become a staple of almost every front porch in America.
However, if you’re a brand that prides itself in a unique, custom unboxing experience, that’s simply out of the question with Amazon FBA. Amazon offers no custom branding, no special inserts, and no special packaging material.
From the customers’ perspectives, they’re buying straight from Amazon, not you.
Amazon may be your direct competitor
Another neglected downside to selling on Amazon is that, depending on your products, you may be going up against the eCommerce behemoth itself.
Amazon isn’t just a fulfillment provider — it’s an eCommerce empire. Don’t forget about their proprietary products, such as their AmazonBasics line of office and home supplies and their consumer electronics.
Think about it: if you’re competing in any of these categories, do you think Amazon would promote your wares over their own? Not a chance. If you sell anything that approximates any of Amazon’s proprietary products, it’s probably best to skip Amazon FBA.
Limited access to Amazon’s team
Due to Amazon’s size, they simply can’t afford to pay individual attention to each of their FBA clients. For folks new to 3PL who need a lot of hand-holding, this will be a serious problem.
There’s a single hotline account and no dedicated account managers to guide you along or help you develop a strategy.
If you value the ability to get in touch with an actual person at a moment’s notice, Amazon FBA may not be for you.
Brand-building is very difficult
Most 3PLs will likely work with you and your existing website. However, when you’re selling on Amazon FBA, you’re in their world — and you don’t really get a choice in the matter.
That means you need to build your brand within Amazon’s sandbox. You have very little control over your web presence, your marketing materials, your SEO, and your overall user experience.
For some small businesses who care deeply about building a strong, recognizable online presence, this may be a dealbreaker.
No customer interaction
The fact that Amazon FBA deals with the customers is both a blessing and a curse.
For one, you’re not burdened with handling reverse logistics, customer complaints, or resolving shipping issues.
The flipside of that coin is that you don’t really interact with your customers at all in the transaction lifecycle. If building one-on-one relationships with your customers is important, Amazon FBA may not be for you.
Many smaller 3PLs give you more control and oversight into your customer base. While you can still access your customers in other ways (such as your email list, social media following, and other channels), building your entire foundation on Amazon means you’ll likely have much less interaction with your end-users.
Pros of Working with a 3PL
More control over warehousing and fulfillment strategy
Rather than shipping Amazon your products and letting them take care of the rest, many smaller 3PLs will actually strategize with you on your warehousing and fulfillment strategy.
This may mean helping you allocate your products in certain geographical areas or attack new markets.
More personal attention to your business
Smaller 3PLs know they can’t compete with Amazon’s infrastructure. However, what they lack in size, they make up for in personal attention and bespoke solutions.
Many 3PLs will assign you your own account manager to help you develop your strategy, manage your growth, and resolve any logistical issues.
Deeper levels of customization
I recently bought a product from a local business here in Central Florida. When I received the box, I opened it up and found festive packaging material, a custom insert with a thank you letter from the CEO, and even some candy.
Now, are these perks alone enough for me to become a lifetime customer? Probably not. The product still has to be good, after all.
But the point is: don’t underestimate the power of a strong unboxing experience. These little things that bring a smile to your customers’ faces are what they’ll remember every time they buy from you.
And packaging is not the only customization feature most 3PLs offer. Since you’re not using their proprietary marketplace, they can adapt to fulfill most or all of your sales channels.
Multiple shipping options
While Amazon’s approach to fulfillment is taking the whole process out of your hands, most 3PLs will let you choose between multiple shipping carriers and options.
And due to their unique relationships with shipping carriers, they can help you negotiate the best rates to get your products to your customers in the most timely and cost-effective way.
For entrepreneurs who really want to build a brand more than just a product, this is probably the biggest benefit of going with a 3PL and not Amazon FBA.
While it certainly requires more work on your part (more on that in the cons section), you aren’t shackled by the limitations of Amazon’s closed system. You can build your own website, do your own marketing, deeply monitor and communicate with your audience, and more.
Cons of Working with a 3PL
While Amazon can afford to take your fees on the back-end (thus offering a lower barrier to entry), most 3PLs can’t. That means in order to make the deal worth it for them, they’ll need to charge some upfront costs.
This may be in the form of a monthly retainer, a one-time startup fee, or other forms of compensation that vary from provider to provider. If you don’t have the capital, it may make 3PLs inaccessible to you at this point in your business.
Less flexible with sales fluctuations
You really can’t throw Amazon a curveball. Their fulfillment technology, strategy, and staff are so cutting-edge that they can handle any level of sales fluctuations in your products with ease.
Smaller 3PLs are limited — in storage space, personnel, and technology. If you have a massive holiday spike, it’s possible they won’t have the means to support you.
(At any rate, it’s important to discuss this with any prospective 3PL providers before signing up.)
Potentially slower shipping speeds
Amazon’s infrastructure affords them incredible efficiency in shipping speed. 3PLs, especially those limited in their fulfillment locations, may not be able to match this.
This lack of fast shipping may likewise hurt your ability to convert or retain customers.
No premier marketplace access
There’s no way around it — people trust Amazon. Simply being on the Amazon marketplace is the only vetting most consumers need to buy without a second thought.
When you aren’t on Amazon, you not only forfeit all the aforementioned Prime benefits, but you must earn the trust of your buyers through your own digital efforts.
Namely, a safe and secure checkout process, social proof (reviews), a return policy, and more. 3PLs can’t help you with this — it’s all on you.
Whichever you choose, you need an inventory management system
Whether you choose a 3PL, Amazon FBA, or any other fulfillment strategy, the critical first step has inventory management software at the center of your business.
An IMS helps you manage multiple channels — including 3PL, brick-and-mortar, and your own site — from one place.
But a robust IMS like SkuVault will also offer insights into your sales data and forecasts for the future.
Quality assurance checks, purchase order reminders, and at-a-glance sales and inventory numbers all live in one convenient, cloud-based repository.
We want to help you automate your inventory management, fulfill orders more efficiently, and keep your customers happy. To learn more about how SkuVault can help, click the link on this page to get a live demo today.