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Is Amazon or DTC fulfillment better for your ecommerce business?

Aug 3, 2022

3.8.2022

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12:00

PT

Whether you’re just launching your ecommerce business or looking to add a new sales channel, you’ve found yourself asking a common question: should I sell my product on Amazon or a similar ecommerce marketplace? Of all the considerations that will inform your eventual decision, the biggest revolves around how your product will get to your customer. You’ll need to weigh the pros and cons of fulfilled-by-Amazon (FBA) or standard DTC fulfillment. 

What are Amazon FBA and DTC fulfillment?

Amazon FBA is a service that includes storing sellers’ inventory, preparing orders, and shipping them. It’s a simple and convenient way for Amazon sellers to fulfill orders. 

Alternatively, ecommerce brands can opt to sell through their own website. These businesses most often outsource their fulfillment to a third- or fourth-party logistics provider (3PL or 4PL). 

Both are viable models, but they require very different approaches. Let’s explore the biggest differences between the two so you can make the most informed decision for your business. 

Pros and cons of Amazon FBA vs DTC fulfillment

Selling through Amazon and using FBA has its advantages, including the simplicity of keeping sales and fulfillment under one roof, the platform’s enormous global reach, and a low user fee. But it’s important to keep in mind that while you may spend less time and money on fulfillment overall, you’ll have to compromise in areas that are critical for business growth, including total revenue, the customer’s brand experience, and the data insights that will help you optimize your business. 

Outsourced DTC fulfillment through a 3PL or 4PL will probably cost you more and includes a few more moving parts; but in return, you’ll have full agency over the customer’s sales experience, how your products are stored and shipped, and every penny you earn will be invested back into your business. Plus, you’ll get the full picture of your customers’ habits and preferences, so you can scale with strategy and intention. 

There’s a lot to consider when comparing the key differences between FBA and DTC fulfillment, but here they are in brief:

Amazon pros and cons

Pros:

  • One-stop shop: Amazon keeps it simple by providing a sales platform, storage, and fulfillment—all under one roof.
  • Projects: Order preparation services are available, some at no charge (for now). If your manufacturer can’t bundle items for sale or you have a fragile product that needs to be bubble wrapped, Amazon will take care of it. 
  • Quick and easy launch: The world’s leading retailer is nothing if not efficient. Amazon will have you up and selling fast.
  • Wide reach: It’s estimated that 197 million people use Amazon every month. That’s a lot of potential customers. 
  • Low usage fee: To use its pre-built and managed website, Amazon charges just $39.99 per month.

Cons: 

  • Less agency: The ecommerce giant is efficient because it doesn’t make exceptions. There are strict limitations to what sellers can sell on the site and store in the warehouses.
  • Referral fees: Amazon takes a cut of every purchase, typically between 6% and 20%—a cut that has the potential to decimate once-healthy margins.
  • Packaging requirements: No customization allowed. If it’s sold through the marketplace, your product will arrive in Amazon-branded packaging.
  • Greater competition: Copycat products and Amazon’s algorithm pose threats to your niche market fit. 
  • No ownership of customer relationship: The buyers are Amazon’s customers—not yours. Without ownership over the platform, you’ll have less insight into customer behavior and less opportunity for targeted marketing.

DTC fulfillment pros and cons

Pros:

  • Total agency: Exercise full control over packaging, shipping speed, product, and storage. You can choose a fulfillment partner that fits your needs.
  • Better brand recognition: When you sell through a proprietary website and use branded packaging, your customers know who you are, which makes them more likely to come back.
  • More control: With modern fulfillment software, you can have real-time Insight into warehouse operations, inventory and order tracking.
  • Transparent pricing: A la carte pricing—antithetical to Amazon’s all-in-one model—empowers you to optimize fulfillment and project your costs accurately.
  • Projects: Vet fulfillment providers for their ability to kit, barcode, assemble, and make up for other manufacturer deficiencies at a price that won’t break the bank.

Cons:

  • More to manage: Total control comes with more responsibility. You’ll have to manage your sales channels, source branded packaging, and coordinate projects with your warehouses.
  • Higher website fees: You’ll have to pay more for better tracking tools, a lower transaction fee, and a unique domain name, but these will pay dividends as your business grows.
  • Need to cultivate reach: It’ll be on you to raise brand awareness and drive consumers to your site, but once they’re there, you’ll have a much higher chance of converting them into customers.

It’s likely that you want to know more. Like how we came to these conclusions. Read on for our deep dive comparison of the two fulfillment options. 

Deep dive comparison of Amazon FBA vs DTC fulfillment

Now that you have the basics, we can get into the nitty gritty. In the deep-dive, we’re comparing the main takeaways from the snapshot in detail. They all fall into three main categories:

  1. Requirements and restrictions
  2. Customer experience and data insights
  3. Pricing

Requirements and restrictions: Amazon FBA vs. DTC fulfillment

Amazon has very strict policies regarding what can and cannot be sold on its platform. For example, the ecommerce marketplace does not allow the sale of gift cards or alcohol (and even non-alcoholic beer). Meltable products like chocolate, gummies, and probiotics may only be sold from mid-October through the end of April. 

Amazon also has specific requirements pertaining to how items are titled on the website (200 character maximum, no promotional phrasing or special characters), barcoding, shipping labels, box contents, and more. Full details are available at Amazon, but we’ll focus on those that mark the primary differences between Amazon FBA and DTC fulfillment.

1. Packaging

The unboxing experience is critical for DTC brands because for most, it’s the only physical experience customers have with the brand. Since most sales occur online (though some DTC brands sell wholesale to brick-and-mortar retailers, too), the packaging itself has a big impact on how customers perceive the brand. Most DTC companies prefer customized packaging, whether that’s branded boxes, custom inserts, special fill, or another unique touch. 

Selling through Amazon means abandoning that element of the brand experience. Amazon FBA requires its customers to use Amazon-branded packaging and prohibits marketing inserts that haven’t been pre-approved. Amazon multi-channel fulfillment (MCF)—a separate service that fulfills orders sold outside of Amazon from Amazon-owned warehouses—does allow branded packaging. 

3PLs and 4PLs almost always allow their customers to use custom packaging; but while some do it for free, others charge a premium. Even those that don’t charge for custom packaging will still require you to provide the packaging, inserts, fill, and tape that you want to be included per package, so be sure to consider that cost when weighing your options. 

Branded packaging is pictured with custom marketing inserts.
Outsourcing DTC fulfillment to a 3PL or 4PL allows you the freedom to use branded packaging, unlike Amazon FBA.

2. Inventory storage limits

Professional seller accounts on Amazon are occasionally subject to storage limits. At minimum, these accounts are allotted 25 cubic feet of storage—a little under half of a typical pallet (61 cubic feet). Accounts that sell “extra-large” items are not subject to storage limits. 

To avoid storage limitations, sellers need to maintain a certain Inventory Performance Index—a score Amazon calculates based on sales volume (including seasonal fluctuations) and available capacity. Sellers who perform better—aka move more product faster—receive higher storage limits. 

3PLs and 4PLs tend to be a little more forgiving. While some have minimum monthly order requirements, you can often overcome this hurdle through a managed warehouse network. These networks also offer the opportunity for unfettered growth as your business takes off. 

Bottom line

While there is a benefit to the simplicity of having one provider as both your sales platform and fulfillment provider, Amazon runs a tight ship to enable its efficient deliveries—which means you have to follow their very strict rules. 

Working with a DTC fulfillment provider allows you the freedom to store and ship what you want, when you want, and how you want. In other words, you’ll have a lot more agency. 

Customer experience and data insights: Amazon FBA vs. DTC fulfillment

You’ll want to consider the customer experience when deciding whether or not to sell on Amazon. Buying through an ecommerce marketplace is much different than buying directly from the source, and depending on your goals, one may be preferable to the other, or you may want to use both methods. 

1. Copycat products

An issue that has long plagued DTC brands on Amazon, counterfeit products have driven many well-known names off the site for good. These fake seller accounts often use misleading names and proprietary photos from established DTC brands to sell knockoffs at a much lower price. It’s a problem Amazon is aware of but has not been able to eradicate from the marketplace. 

While not selling through Amazon won’t necessarily stop copycats from selling knockoffs of your product, customers will be less likely to come across these counterfeit products—and scammers less likely to try to sell them—if they aren’t looking for your brand on Amazon in the first place.

Three Keurig coffee makers on Amazon are displayed next to a similar product at a lower price.
Counterfeit or knockoff products are often displayed next to the branded items customers are looking for on Amazon, and are typically sold at a much lower price.

2. Exposure and Amazon’s algorithm

Amazon may seem like a great place to gain exposure for your product, but you’ll be competing with the site’s ambiguous algorithm, which ranks some products higher than others. Customers who do find your product through the site will be less likely to remember your brand, because they’ll probably search for a generic term like “candles” or “playing cards.” When they purchase the product on Amazon’s website and receive an Amazon-branded box or envelope, it’s the retail giant’s name they’ll remember—not yours. 

Selling through your own website and having the agency to control your fulfillment experience will go a long way toward building a brand, which is crucial for developing repeat—and eventually loyal—customers. 

3. Data and the customer relationship

Amazon sellers do have access to fairly robust tracking tools when it comes to measuring sales and tracking fulfillment; but to truly learn all you can about your customers, you’ll need your own proprietary website. 

Through a website you own, you can educate customers about your product, tell your brand story, and provide a more memorable experience. You can also track site visitors and conversion rates, and better pinpoint how to increase sales by identifying how visitors make their way to your site and why they leave before making a purchase. You’ll also own the customer relationship and all of the data that comes with it, like their email address and purchase history, which will make it easier to market to them and keep them coming back. 

Bottom line

With so many regular users, some brands feel that avoiding Amazon means leaving money on the table; but due to the many limitations of the site, it’s best used as a secondary sales channel while you focus on your own proprietary website.

Pricing: Amazon FBA vs. DTC fulfillment

The cost of fulfillment has an outsized impact on revenue because it reflects such a big portion of an ecommerce business’ margins. From storage to shipping, fulfillment gets pricey—so cost is one of the biggest considerations you’ll need to make. 

Making a direct price comparison between Amazon FBA and DTC fulfillment is difficult because there are so many factors involved, and whether or not it’s worthwhile from a price standpoint will depend on your product and goals. 

To make it simpler, we broke down the biggest factors that determine pricing. Below, you’ll find a snapshot of our findings, followed by a detailed description of each line item.

Amazon FBA fees

  • Website fees: $39.99 per month or $0.99 per item 
  • Referral fees: 6%-20% per item
  • Warehouse storage fees: $0.48-$2.40 per cubic foot (approx. $29-$146 per pallet)
  • Order preparation fees: $0.50-$2.30 per order
  • Fulfillment fees: $3.07-$170+

DTC fulfillment fees

  • Website fees: $29-$300 per month to run the website; fulfillment providers may or may not charge a user fee
  • Referral fees: $0
  • Warehouse storage fees: $25-$40 per pallet
  • Order preparation fees: $0
  • Fulfillment fees: Variable

1. Website fees

Let’s start with the fundamentals: the website itself. Amazon’s site is of course pre-built and very well-known. To jump aboard will cost you $39.99 per month or $0.99 per item if you’re just testing the waters. 

To build your own website with a retail site provider like Shopify or Squarespace can cost as little as $29 per month or as much as $300 per month, depending on what features you opt to use. While a basic plan will allow you to build a beautiful site and process credit card payments, advanced plans often provide reporting metrics that will help you optimize your site for better conversion rates. They also typically offer lower processing fees. 

2. Referral fees

For some brands, a major benefit of selling through an ecommerce marketplace is the exposure. With more than 197 million users each month, Amazon offers a great opportunity for DTC brands to expand their reach; but it comes at a cost. For every item sold on Amazon, there is a corresponding referral fee. These fees vary based on the product category and range from 6% to 20% with a minimum of $0.30. These referral fees—combined with the cost of fulfillment—add up quickly and can take a big bite out of your profits. 

On the other hand, if you’re selling on your own site, there are no referral fees.

3. Warehouse storage fees

A major expense associated with fulfillment is the cost of receiving and storing inventory. Amazon charges per cubic foot for storage, with variances depending on product size and time of year. From January through September, standard items cost $0.75 per cubic foot and oversized items cost $0.48. From October through December, these prices jump to $2.40 and $1.20, respectively. 

Meanwhile, most 3PLs and 4PLs charge by the pallet—or if you require cold storage, by blocks of space. A standard pallet measures about 61 cubic feet, meaning Amazon charges $45.75 per month to store a pallet of standard-sized items during most of the year, and $146.40 during the holiday rush. 

Standard 3PL and 4PL pricing is usually lower, ranging from $25 to $40 per pallet per month.  

4. Order preparation fees

Some items need to be wrapped or labeled before they are packed into their shipping container. 

The cost of FBA prep depends on the size of the item and the item specifics—whether it’s fragile, a liquid, sharp, and so on. Generally, the cost of prep for a standard item ranges from $0.50 to $1.10, while oversized items range from $1 to $2.30. This fee goes toward things like bubble wrap or bagging, and does not include the cost of pick and pack and shipping. 

While Amazon does not appear to charge for prep projects like kitting at this time, they have indicated that they will eventually charge for services like hanger removal and “set creation,” or bundling items that are sold together. 

Most 3PLs and 4PLs include the cost of order prep like bubble wrapping as a standard part of the order fulfillment process. Projects like kitting are charged either at an hourly personnel rate or by a per-project fee.

5. Fulfillment fees (pick,pack,ship)

Fulfillment providers often give “fulfillment” pricing estimates, which include the cost of picking, packing, and shipping. While these charges may be wrapped into one price, they are determined by two separate sets of fees: the cost of gathering items for an order and preparing them for the shipping carrier (pick/pack), and the cost of getting the order from warehouse to doorstep (shipping). 

Pick and pack is one of the most expensive aspects of fulfillment, while shipping is the most challenging fee to compare across fulfillment providers due to the number of factors that determine the cost of shipping each individual package.

When it comes to fulfillment partners—Amazon or otherwise—there are two common pricing models: all-in-one and a la carte. All-in-one models are deceptively attractive for their simplicity, but obscure details that are necessary to fully optimize pricing. Details like shipping carrier surcharges aren’t itemized, so your bill is always a surprise. A la carte pricing models list charges by line item, which can seem daunting at first, but ultimately provides the information necessary to keep fulfillment costs as low as possible. 

Through Amazon FBA, the all-in cost of fulfillment can be as low as $3.07 for small items that weigh less than 6 ounces or as high as $170+ for oversized items that weigh more than 150 pounds. Amazon’s pricing model falls under the all-in-one category: fulfillment prices are set based on product size and weight, and as of April 2022, include a 5% fuel and inflation surcharge that is subject to change. That means that if an item typically costs $5.60 to ship all-in, then suddenly jumps to $7.80, you won’t know why—and you’ll be stuck with the bill. 

Amazon is also unique in that it uses a combination of shipping carriers and its own delivery fleet. 3PLs and 4PLs rely on shipping carriers like the United States Postal Service or FedEx, but they’re able to negotiate their own unique rates with these carriers because they move such a high volume of shipments. The cost of shipping will vary significantly from order to order and provider to provider, but an a la carte model will give you greater transparency into what you’re paying for and how to forecast costs. 

To get a sense of what you can expect to pay with a 3PL or 4PL, ask for fulfillment rates (including pick/pack fees) and a shipping rate table, which will indicate the price of sending an order based on weight and distance traveled. The bigger the rate table, the better—most often, wherever the rate table is cut off coincides with a big jump in shipping costs, which can come as an unpleasant surprise down the road. 

Bottom line

The cost of fulfillment may be higher when outsourcing DTC fulfillment vs. Amazon FBA, but what you’re really buying is total control of your business: from the customer’s sales experience to the last-mile delivery. Outsourcing to a 3PL or 4PL should be seen as an investment in the continued growth of your business.  

Looking to launch DTC sales with a reliable logistics provider? Use our guide to choosing a fulfillment partner to find the best fit for your company. 

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