Do I Need A Warehouse To Do Wholesale?

Seller Essentials is pleased to have this great guest post from Dan Meadors & Eric Lambert of The Wholesale Formula.


In 2011 Dan Meadors & Eric Lambert started their Amazon business with an original investment of only $600. Today that business generates over $7,000,000 in sales per year.

They now accept students a couple times a year to teach them The Wholesale Formula, a blueprint of the exact steps they used to build their multi-million dollar Amazon business.

Who says time can’t be bought?

Wrapping up 2016 is an exciting time for us. We are going to land around $7,000,000 in sales, currently have 10 full-time employees, operating a 10,000 sq. ft. warehouse, and are sending and receiving inventory on the FTL (full truck load) level. Things couldn’t be going any better!!

“It’s unfortunate that, despite being an experienced Amazon seller, you won’t be able to reach our level of success because getting there requires infrastructure and, more importantly, a warehouse.”

Perhaps that’s what you expected me to say next but I won’t because I believe that statement couldn’t be more wrong.

Make no mistake — our success is largely attributed to our ability to process thousands of items each week and our warehouse is what allows that to happen. After all, retail is a high volume business model which requires a high volume of products being sold to be successful.

BUT the emergence of prep centers over the last few years has completely changed the landscape. By outsourcing the prep of your products to one of these facilities you are able to fully scale your Amazon business without the prerequisite of a processing team or warehouse facility. Today you are able to buy and sell tens of thousands of products without ever having to handle, prep, or pack a single product so, in that regard, prep centers have done to the Amazon wholesale business model what Fulfillment by Amazon did for 3rd-party marketplace sellers.

There are plenty of times I’d wished I had known about prep centers when we began, because there is no doubt I would have utilized their services instead of having to manage employees and a warehouse. In fact, I’m rather envious of the opportunity available to sellers now. Being able to scale to (and even beyond) our level without ever having to lug boxes, adhere labels, manage employees, carry workman’s comp and business insurance, upkeep maintenance….I mean, I could go on ad nauseum about this! Not realizing the immense burden that comes along with operating a warehouse is often overlooked by sellers aspiring to get to our level.

Here’s a list of just some of the expenses, to help you understand some of the monetary cost of processing in-house:

Utilities (which are substantial, especially with “business” internet)
Building and equipment insurance
Workman’s comp and unemployment insurance
Forklift/pallet jacks
Electronic equipment (computers, printers, scanners)
Prep materials (bags, labels, boxes)
Employee payroll
Tables, chairs, standing mats

Consider, still, that all these don’t even take into consideration the time investment of handling employee issues and overseeing operations.

What’s more, what if you hit a downturn or have a period of time without products coming in? Unfortunately for you rent, utilities, and salaries all still have to be paid while you aren’t processing. With a prep center, you are only paying for products that are being processed and if it goes ten days or two weeks without products being processed, you won’t be paying anything.

With so many different expenses of operating a warehouse, it’s difficult to quantify the cost of processing per unit. With a prep center this is a known constant and takes a great deal of guesswork out of sourcing because you know exactly what it will cost you to have each unit processed and sent to Amazon.

We personally prefer to use Prime Zero Prep because we have used them in the past and found their prices to be fair, communication prompt, and to be up-to-date on the latest Amazon prep policies. With that said, there are plenty of options out there and for the most part I have heard nothing but good things about them, meaning you will be in capable hands regardless of which service(s) you use.

As you can tell, I am very pro-prep center and encourage anyone thinking of scaling their Amazon business to, at the very least, research the possibility before diving straight into opening a warehouse. Beyond prep centers, it is not uncommon to have your vendor ship your products directly to FBA centers for you. Many vendors are versed in doing this already, but even ones who aren’t are generally receptive to the idea and learning how to do it for you, creating huge savings on shipping to your facility or prep center and any prep cost.

Outsourcing is designed to provide a solution that you are unable to do or, in the case of prep centers, are too valuable to do. Prep centers grant you freedom and time to focus on the highest level tasks of your business, eliminating constraints normally reserved for operations and infrastructure of in-house processing, thus serving as a catalyst for growth.

Ultimately, deciding which manner of processing and prep is best for your business should be evaluated and determined by you. Be sure to consider alternate solutions and methods you otherwise may not have for scaling your business to our level without making the substantial invest of capital and time we have. While time may not truly be able to be bought, by outsourcing prep, time spent on your business can be and if you are driven toward success, the price paid will be miniscule compared to the return gained.