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Is Amazon’s Buy With Prime Right for your Ecommerce Brand?
For the past decade, Amazon has offered Fulfillment by Amazon (FBA) to brands. This service made it easy for brands to ship their products to Amazon warehouses, have Amazon customers buy the products on Amazon, and have Amazon ship it to the customer using Amazon Prime. The products are considered Prime eligible, and sellers can offer their customers one- or two-day shipping. Shipping costs are typically much less than seller fulfillment via other providers, and Amazon takes responsibility for customer service and return processing.
However, FBA does come with its own set of challenges. First, it doesn’t really help brands selling products on their own .com websites. Secondly, the brand must ship products into Amazon warehouses, thus creating a separate “warehouse” just for Amazon products. This means the products must comply with all of Amazon’s requirements, including labels, temperature, and expiration dates. Then, once the product is at Amazon, it’s challenging to change, inspect or fix problems. Worst of all, Amazon controls the amount of inventory allocated to each product, frequently resulting in stock-outs during busy seasons.
In late 2022, Amazon stated its goal was to move into the warehouse space to help solve some of these problems for brands. Their first major announcement was the launch of Buy with Prime.
Buy with Prime 101
Buy with Prime is a checkout button that brands put on their website, similar to the Paypal option many shoppers already see throughout ecommerce. The offering integrates directly with the Amazon FBA warehouse system. In other words, a customer comes to a brand’s website, finds something they want to purchase, clicks the Buy with Prime button, pays through their Amazon account, and the product ships from an Amazon FBA warehouse using two-day shipping.
Buy with Prime offers some key benefits for both customers and the brands. For customers, they get an easy checkout experience that is combined with their Amazon Prime membership. By buying through their existing Amazon account, they won’t have to create new passwords for each website. Customers also get Prime two-day shipping instead of the extended shipping times many direct-to-consumer sites offer by default.
Brands offering Buy with Prime can rely on an integrated single warehouse system for sales on and off the Amazon marketplace. Instead of having a separate warehouse for their .com site and Amazon, they can run the entire business off a single warehouse using Amazon FBA. Also, the streamlined checkout process and Amazon Prime shipping will likely increase customer conversion rates.
Amazon is also promoting the digital marketing advantages of becoming a Buy with Prime merchant. A collaboration with Meta allows sellers to sync their Buy with Prime and Meta catalogs to streamline ad creation for Facebook and Instagram. Some invited sellers will also have exclusive access to a Sponsored Brands option for Buy with Prime. These brands can purchase advertising on Amazon that promotes Buy with Prime on their company website. The opportunity to send customers from Amazon to a different ecommerce site is unusual but highlights Amazon’s emphasis on the fulfillment side of their business.
This sounds great! But what are the downsides?
At first, using Buy with Prime seems like a no-brainer for many brands. But, in reality, two significant obstacles prevent it from being a viable option for many sellers.
The most important is cost, specifically concerning the free shipping requirement. Buy with Prime requires free shipping to the customers. Therefore, the cost of shipping must be paid for by the brand and, effectively, included in the sales price.
As you can see below, shipping a one-pound standard-size package using Buy with Prime will cost a brand over $10. With many products selling below $20, the economics don’t make sense. Our analysis shows that it will be difficult to capitalize on Buy with Prime for products sold below $50. Furthermore, the appeal of the new option only really materializes when the product price point hits $100.
The additional downside of Buy with Prime is that it results in putting all your eggs in the Amazon basket. If the goal is to simplify your warehouse needs by only using Amazon warehouses, then you should have confidence that Amazon will be able to deliver. However, anyone who has worked with Amazon in the recent past knows the difficulties of getting inventory into Amazon warehouses. The hurdles of low storage limits and significant delays can be hard to overcome. With all of your inventory in one location, you run the risk of having it get stuck on a receiving dock while you run out of stock to sell to buyers.
Buy with Prime Rate Card
Adding Buy with Prime to your online store
The addition of Buy with Prime is relatively simple for sellers who already have their products in an Amazon warehouse and use FBA. First, you’ll need to sign up for the service by creating a Buy with Prime account. Then you can then link the registration to your Seller Central or Amazon Supply Chain account. After this, the products you wish to sell using this new option can be imported into the Buy with Prime account, along with your Amazon Pay information. Remember to confirm all SKUs and pricing information. Finally, customize and install the Buy with Button to your direct-to-consumer site using the provided coding.
Maximize efficiency and minimize Buy with Prime costs
Whether through Buy with Prime or traditional FBA, retailers using Amazon for order fulfillment face expensive storage fees. Fortunately, there are ways to minimize those costs.
Manage Inventory Levels
One of the most obvious ways to avoid high storage costs when participating in the FBA program is to efficiently manage inventory health at the FBA warehouse. Since storage fees are based on the average daily units within the facility, finding a balance between the amount of product in stock at a given time and sales is critical.
While the shipping and transportation costs of delivering your products to Amazon’s warehouses may benefit from larger shipments of FBA inventory, you will likely lose those savings to higher storage costs that result from more cubic feet of space and having more items stored there. Instead, it can be more effective to plan monthly deliveries of inventory that will be nearly depleted before the next shipment. This approach will minimize both the space and number of units used to calculate FBA storage costs.
Skyrocketing Amazon storage fees are often the result of inventory not selling as quickly as expected. Not only can sellers struggle to deal with declining sales, but they also face an increased bill for their warehousing costs due to products taking up more space than planned and sometimes the inability to adjust incoming shipments of new products accordingly.
If your inventory is piling up at an Amazon fulfillment center, it can be helpful to consider a price adjustment that will increase sales and allow you to avoid a higher-than-usual FBA storage fee. While a lower price will also impact your bottom line, it will be offset, or possibly even less damaging, than the increased FBA costs. Sellers may also benefit from a comprehensive digital promotion, such as Amazon Sponsored Product ads or other tools that can strengthen the influence of a sale.
Remove Aging Inventory
Amazon’s aged inventory surcharge is designed to discourage sellers from allowing products to take up space for more than a year. However, in some circumstances, the extra charge could increase per-cubic-foot fees by more than 700 percent on some inventory. That is a substantial cost that virtually every retailer would want to avoid.
If managing inventory and pricing adjustments are not enough to keep your products cycling through amazon fulfillment at the right pace, there is one other option. Amazon FBA allows sellers to remove unsold inventory from their warehouses. Of course, there will still be a cost for this service. Pricing for a removal order starts at 52 cents per unit and increases with the item’s weight, up to $5.05 for products between 4 and 10 pounds. Products requiring special handling or that exceed 10 pounds can cost more to remove.
When placing a removal order, sellers will have the option to have the items returned or destroyed. Similarly, FBA offers a liquidation option to avoid continuing to pay storage fees. Liquidation requires sellers to pay both a per-item processing fee and a 15 percent referral fee on top of the liquidator’s contracted rate. Still, it may allow a company to recoup some of the inventory’s value.
Streamline your selling with Amify
The team at Amify can help you find the best ways to grow your ecommerce brand on Amazon. More than 60 experts in warehousing, logistics, optimization, content and more are waiting to help you focus your efforts where they matter most.
As you face a shifting landscape of options on Amazon and rising costs within your fulfillment strategy, you need a partner ready to respond with the right approach. Contact us today for a free consultation, or read more about the $400 million in sales we’ve already helped our clients generate on Amazon.
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