How a Prep Company Can Save you Money and Time

Who loves packing up shipments?  Certainly, not me! I much prefer being out sourcing then putting together shipments.  What if I could tell you, you could pay someone to pack up and ship all your stuff and it would actually cost you LESS money than it does to do your own shipments?  Would you be interested?  I certainly was.

When I first started, I was overwhelmed with trying to keep up with my full time job, my toddler and packing up everything that kept showing up at my house.  Add in the fact I had another little one on the way and I knew I had to outsource some of my work.  Enter third-party Prep and Ship Companies.  A third-party Prep and Ship company will receive your items, unpack them, validate the condition, remove any labels, label the items and then ship them.  Sounds great doesn’t it?

Well what made it for a gamer change for me was the more I researched it the more I saw I could actually SAVE money using a prep company.  Specifically, if you are doing online arbitrage (OA) and paying taxes on your buys you might be able to save money.  If you are doing wholesale, already live in a tax free state or always apply to get your tax reimbursed then its not going to save you money.  Certainly still worth considering in my opinion based on the time savings that can allow you to grow your business

Yes its true, many places you can avoid paying tax on your OA buys.  However, then you need to identify yourself as a reseller to the retailer.  And while some places like Wal-mart that isn’t an issue, others it’s a clear way to get you shut down or even if they don’t shut you down they may disqualify you for any rewards programs.  Therefore, I’ve made the decision to not draw any extra attention to myself and not identify myself as a reseller.  Therefore, buying items and having them sent to one of the NOMAD states (New Hampshire, Oregon, Montana, Alaska or Delaware) that don’t collect sales tax can get you a significant tax savings.

 

Also while I always advocate for Prep Centers in a tax-free state there are many good prep centers that exist in states that do collect tax.  These still make sense to look into for various reason.  Maybe you don’t pay tax on your buys so there is no additional advantage of using a tax free state. Maybe they are strategically located near AZ Warehouses and will save you significant costs in shipping. Maybe they can provide you better service or discounted fees.

Prep centers have various cost structures.  Some will charge you a flat fee for a unit, say $1.00 to $1.50 a unit and will NOT charge extra for poly bagging, boxes, multi-packing, etc.  While others will charge you a per unit fee and also charge you for the other costs incurred.  Some have application fees and others have monthly subscription fees.  Some will have volume discounts.  At the end of the day, you should be able to keep your costs below $1.50 a unit all-in (excluding listing services), but you should evaluate all potential costs to best guesstimate your per unit price to evaluate whether using a prep center makes sense to you and if it does, the impact to your margins.

Of course cost is important, but there are many other things you’ll want to understand before signing up for a prep center.  I’ll gladly (ok maybe not gladly) pay more for quality service as you don’t want people making mistakes with your inventory. Here are some other questions to consider asking when look into a prep center:

• What is your process for checking in, prepping and shipping items?
  • Will you need access to my AZ seller Account and/or Inventory Labs?
  • Do you create shipments? How much extra does that cost?
  • How do you ensure item is exactly the same as the listing?
• How do you handle damaged items I need to send back to supplier? Am I charged to ship damaged items back to supplier?
• What is your typical turnaround from when an item is delivered at your warehouse to when it’s checked in?
• What is your typical turnaround time for getting a shipment out once a shipping plan is created?
• Are turnaround times guarantee?
• Do you have quantity minimums for creating a shipment or to use your service?
• How are your turnaround times impacted by Q4?
• Do you or your workers sell on Amazon?
• How are employees trained before put in charge of handling shipments?
• Will I have a dedicated contact person/what is process for contacting when questions or concerns come up?
• What stores are you banned from? Do you have any workarounds for stores that are typically difficult for resellers?
• How do I pay you for your services?
• Do you receive and review mail sent to your address and how do you handle it if/when company sends refunded gift cards to your address? This seems like a silly question, but for some reason companies cancel orders and generate physical gift cards that they mail to my billing address.  My first two prep companies “never” received these gift cards and I was constantly battling with stores to get my refunds.  Now my new prep company is constantly proactively reaching out to me to let me know they have received my gift cards.

 

Those are just some questions to consider.  You should always do your own research and due diligence.  Here are some Pros and Cons to consider when making a decision to outsource to a Prep Center.

 

Pros

• Frees up time that can be used to do other things (e.g., source more product, prep RA items, time with family)
• Can actually save you money by avoiding tax when purchasing items for OA
• Experts at creating shipments that could lead to lower shipping costs

Cons

• Will cost you more money for Wholesale and OA buys that you get tax free. May still cost you money if you are doing all OA buys depending on your average buy price and total prep fees.
• Can take longer to get to Amazon. If you have ability to turn around your OA/WS deliveries same day and your Prep center takes 24-48 hours you are losing time to the warehouse.  I’ve had a prep center take weeks to get items checked in and shipped during Q4 which cost me some serious cash!
• Certain retailers (Kohls, Target, ThinkGeek) are less likely to send items to prep centers and if you do it could be a quick way to get identified as a reseller and get your account banned or at least orders cancelled. In most cases there are workarounds, but I do feel sending items to an address different than your billing address is more likely to get orders cancelled and account eventually banned.
• You do not get to see/touch your merchandise. If you get a negative review, ASIN suspension or even a full suspension based on complaints about an item you have less knowledge of the situation.

In my experience, the pros greatly outweigh the cons and thus the reason I’ve been using a prep center or two since my first full month selling on Amazon.  It has enabled me to quickly scale my business in a way that would have never been possible packing and shipping myself.     Next week we will have a special guest post from an owner of a prep center that will walk you through the actual process utilized by their prep center to receive, inspect and prep products.   Stay tuned!