Tuesday, May 1, 2018

Amazon FBA Prep Centers

Hopefully, at some point you will reach a point in your business where you don't want to receive all your packages and send them out yourself.  That happened for me a few months in when I received mail from my landlord saying that I can't conduct business from my apartment and he will report me to the authorities if I don't stop.  Ok then, it was time to find somewhere else.  Pretty sure he didn't like me overflowing the garbage every week.

Once you have made that decision, you can go in one of two directions.

1) Rent a facility and hire someone part/full time.

Having a facility to yourself is great but most people in this business need to have a facility that's always open for deliveries.  It can be very expensive to have someone there full time just to keep the place open if there isn't enough work to justify a full time employee.  Often, people will rent a place in a facility that already has someone there full time for a different business who can accept your packages and direct carriers to what needs to be picked up.

This also comes with managerial responsibilities of your new employee, hiring and firing and possible implications for retirement accounts like SEP IRA, 401(k)s and benefits.

As your business grows, this will become the financially sound option, but it may not be necessary at first and you may never want to do it because of the extra headaches.  I live overseas, having an employee to manage from Israel is just not something I want to do right now.

2) Outsource

There are businesses dedicated to receiving inventory and shipping them out.  They are called 3PLs (3rd Party Logistics).  These existed before Amazon and there are tons of them that perform services for businesses small and large.  For non Amazon businesses they might be individually fulfilling orders or shipping wholesale for you.  You can use a 3PL for this as well or you can hire an FBA Prep Center whose business model is to handle Amazon packages.  They know the Amazon requirements and there is less, or no, training required from you.

What to look for in a Prep Center

I've used a few different prep centers over the last couple of years so I have an idea of what I am looking for.  Here is an incomplete list of many Prep Centers.

1) Cost

This is obviously the most crucial.  The amount that you pay per unit (or per box - however it is calculated) directly effects how much money you will make and what prices you can set.

There are other important factors to the price as well.  Does it include labeling and entering in box level content or do you have to pay Amazon or the prep center to do this?  It will add another $0.30 per unit to have Amazon manually apply these.  That adds up fast.

Do they make you pay for boxes and polybags?  Is it extra for bundling?

Is there a discount when your volume increases?

Is there a one time account set-up fee?

2) Shipping Cost 

How close is it to an Amazon Fulfillment Center?  That will have a direct affect on the price you will pay for shipping and the speed in which your inventory is checked in and ready for sale.

Also, can they support pallet shipping?  Pallets tend to be a much more cost effective way to ship, especially if you are shipping multiple at a time but not everywhere is set up for them and some charge more.

3) Sales Tax Free State?

There are a few states which have no sales tax and they are referred to as the NOMAD states and they are New Hampshire, Oregon, Montana, Alaska and Delaware.  If you are still paying sales tax on all or some of your purchases, a prep center in a state without sales tax can pay for itself with sales tax savings if the price of the item is high enough.

3) Your involvement

Amazon allows you to give user permissions to 3rd parties to have limited access to your account to make shipments.  Ideally, once you create the shipment in Amazon, the prep center should be able to go into your account and see the shipment you have made and then enter all the information necessary to process the shipment including agreeing to pay the shipping fees.  You shouldn't have to do anything.  That is not always the case

4) Speed/Efficiency

How long does it take for them to add the item to your inventory and how long does it take for them to ship the item out after you have made a plan?

5) Inventory tracking

How does the prep center track inventory?  I've seen proprietary software, shared google spreadsheets to not tracking (meaning you have to track it yourself).  Lost inventory is a problem that can't be ignored so this important in your decision.

Also, if they have software to track, do they notify you when new inventory has come or do you need to constantly check?  This might not really be an issue for vendors that ship items quickly but some manufacturers take their sweet time.  It might be weeks after you order that it arrives, it's nice to know when that happens.

6) Customer Service

How responsive are they to issues and how quickly do they get back to you?  Do you receive a notification when there is a response to your query?

7) Retailer bans?

Many retailers like Target and Kohl's will ban the address of a prep center since so many people are shipping to the same place.  This can be a big bummer and you might not know about it ahead of time.

8) Storage Fees

Are there storage fees for items that stay there for a month or longer?  Are they reasonable?  I've seen places that say they charge storage but don't and I've seen places that actually charge.

9)  Quarter 4

Do they fall behind during Q4 when there is increased volume?

I've seen places go from about 5 business days to 10 for Q4.  That's a big problem when every minute counts.

10)  Returns

Do they handle your returns and grade the item?  How much does that cost?

11)  Monthly fees

Are there monthly fees?
Important if you want to have backups for when things get a little crazy at your main location

12) FBM?

Do they do FBM?  How fast?  What price?

What I've used and What I'm using now

When I moved the business out of my apartment I was exclusively using a local shipping facility near where I lived.  I know the people there, trust them, things got out the same day they came in if I made the plan fast enough and I could drop by check up on it.  It was always a bit more expensive than a regular prep center but it was worth it.

As time went on and my volume increased, the speed of the facility slowed and the prices started increasing so I started to look for other facilities to at least share the load on items that aren't as time sensitive.

Prime Zero Prep (PZP)

I started at Prime Zero Prep a few years ago.  Their pricing model has changed multiple times since then and it's hard to figure out exactly how much you will be paying in 2 months time.  According to their website now it seems like it is $1.20 per unit but their last update had made a difference in price based off the speed in which they work on your shipment.

I found them to be a bit expensive and slow.  During Quarter 4 I really had no idea how long everything would take.  Often it was 3 business days to update inventory and then 5-10 business days to ship it out.  Overall things were fine but I was still looking for somewhere a little more reliable and cheaper.  In one of their price iterations they were charging $1.90 or $1.90 per unit, then they offered $1.60 per unit lifetime and now I think it is based off speed.  Hard to follow them.  I don't use them much but now I'm on the $1.60 lifetime plan.  It's too expensive currently but in 10 years it might be useful and it cost me $3 once to sign up so little risk if they deny it.  I don't think it's available anymore.

Sell Tech Prep (STP)

A few months ago, I started at a place called Sell Tech Prep and I'm reasonably happy there.

The main advantage is the price.  Their prices are subject to your volume within a given 2 week period. If you send 1000 items during that 2 week period you will pay $.85 per unit. If you are over 5000 units in 2 weeks the price goes down again to $.70 a unit.  They frequently run prepayment bonuses of 15-17%.  For example, if you pay $1,000 you will get $1,150 of credit which brings down your price even lower.

They are very responsive to any issues as well, their software is good and they automatically update you when new inventory comes in.  They handle FBM (too expensive for me to consider) and returns.  There are however some serious drawbacks.

1) Location

They are located in Montana.  That's good for sales tax but it's very far from the Amazon fulfillment center in Chicago which is where most things are shipped to. That means that shipping is quite expensive.

To get around that, STP provides full truckloads (FTLs - 26 pallets) that arrive in Chicago in 2-3 days time.  The price is very good to ship that distance but it's still objectively expensive.  It comes out to around the same price as shipping non pallets from New Jersey where I was.  If you are used to shipping pallets for $80 or cheaper a pallet, there will be some sticker shock.  To ship with Amazon provided shipments it will cost about $180+ to start, their price is $165 per pallet but with no discounts for more pallets.  However, you prepayment bonuses will work on outbound shipments which is nice.  The other good thing about this is that you pay STP directly via credit card you get the points instead of Amazon debiting your seller payout.  It's not huge but something.

2)  Speed

They need to have a full truck to make it worthwhile so currently FTLs are only scheduled once a month.  That can be a major problem as you have to estimate how much inventory to send in and speed of sales varies tremendously based off current competition and the way Amazon's search algorithm is going that wee..  Hopefully with more business they will be able to provide more frequent service but right now it is once a month.

I send everything I can to STP, then if I run out mid month I use my old center or I'll send to the old center if I just want something in faster.  I also try to concentrate my orders to the two weeks before shipments to get the best pricing.  So far, this has been working for me and my fees have gone down significantly.

Special Referral Rate

I spoke to STP about a reduced fee for readers if someone signs up for a referral.  They have agreed to waive the account sign up fee (I believe that's $300 - I had to pay that when I signed up) and to provide a reduced rate for the first year.  It breaks down as follows:

Your first month, you will receive a 10% credit of your first month's invoice applied to your account.  For example, if you spend $1,000, they will add $100 credit to your account for future payments.

From month 2 until month 12, you will receive a 5% credit of each month's total invoicing, if the total amount meets or exceeds $1,000, for a period of 1 year from the sign up date.  Months with a total invoice balance of less than $1,000 will be ineligible for a percentage bonus.

If you are interested you can email referrals@selltecprep.com with the subject line "Referred by OMS" and they will get you started.

My disclaimer is that I will be receiving a credit to my account if anyone signs up and uses it.  I asked for the credit to be for readers instead (originally there was only a credit for me) and instead of taking away my bonus, they added a bonus for readers as well so I don't feel too bad about it.

Even though I will be receiving a bonus, my main goal is and was to have shipments every 2 weeks to make it even more useful of a service and to share a good price with readers as well.

There are lots of other places as well and many which I've never researched so do your own research to find the place that works best for you.

If there are other fulfillment centers that you prefer, I would love to hear about them in the comments.