Do I Need A Warehouse To Do Wholesale?

Do I Need A Warehouse To Do Wholesale?


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 truckload) 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 that 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 to labels, manage employees, carry workman’s comp and business insurance, upkeep maintenance….I mean, I could go on at 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:

  • Rent
  • 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.

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.

Since we don’t actively use a prep center, I reached out to someone that does to share their experience. Check out this take from The Wholesale Formula Alumni, Suzanne McDuffee:

“When I was learning the mechanics of FBA I did my own prep to learn. But as soon as I had experience packing and prepping in a variety of product categories, bundling and multi packing, etc., I outsourced 95% of my prep work to prep services. I’ve never looked back. I have used five different services to date, and I would say that pretty much all of them have been great to work with – some more than others. I would encourage anyone considering investing in running their own warehouse to try prep services before making that commitment. Not only do I value the freedom and flexibility it gives me, but they actually do a better job, and it is more cost-effective for my business.

Thanks to my prep service partners, my VA, Google Apps, and some other tools, I am 100 percent location independent. I can run my business from anywhere in the world as long as I have an internet connection. At first, I would travel domestically in the United States to make sure everything went smoothly. But I just put my business to the test internationally by traveling to Spain for 3 months. It went great with no major issues, and I plan on making more trips abroad regularly, which has always been a dream of mine. I’m pretty sure I would not have been able to pull this off if I had a warehouse to run. Next up I plan on visiting Cuba, Argentina, Singapore, and who knows where else. It has been by far the most fun, challenging and satisfying year for me in a very long time. It’s a really exciting time to be in business – even just 5 years ago prep services were not so widely available to small businesses like mine. I still can hardly believe I can live this way – I love it!”

– Suzanne McDuffee

Suzanne McDuffee enjoying a trip through Europe while her Amazon business operates back in the states thanks to a prep center.

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 investment 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 minuscule compared to the return gained.