If you’re looking to sell products online, Amazon will be a great platform for your business. It’s a top player in the world of e-commerce. However, when it comes to fulfilling orders, you need to decide between using Amazon FBA or FBM.
What exactly is the difference between the two, and which one is right for your business? This article aims to compare FBA and FBM methods, pointing out their pros and cons, and providing suitable scenarios to help you make an informed decision on what’s best for your business.
Amazon fulfillment models: FBA vs FBM
When starting an Amazon business, it’s important to consider how you’ll provide customer service.
The type of product you sell will impact your customer service needs. For physical products, the two main options are Fulfillment By Amazon (FBA) and Fulfillment By Merchant (FBM).
Statista reports that in 2022, about 64% of third-party sellers on Amazon utilized Fulfilment by Amazon, while only 15% opted for Fulfillment by Merchant. Meanwhile, 22% of sellers used both methods.
It’s important to consider the advantages and disadvantages of each method before deciding which one is best for your business. Let’s explore the pros and cons of Amazon FBA versus FBM to help you make an informed decision.
What is FBA? Pros & cons of Amazon FBA
FBA is an Amazon program that allows third-party merchants to store their products in Amazon’s fulfillment centers and ship products to customers directly from Amazon.
This means that Amazon handles the entire fulfillment process, including customer service as order packing, shipping, and shipping services. The main benefit of using FBA is that it allows you to take advantage of Amazon’s reputation for fast, reliable shipping and customer service, but it doesn`t stop there.
Pros of FBA
Prime shipping: As an FBA seller, your products are eligible for Amazon Prime shipping. Prime customers expect two-day shipping and free returns, so they’re more likely to buy from you if you offer it.
Buy Box access: Amazon FBA sellers have a better chance of getting in the Buy Box, which is the preferred listing on Amazon.
SEO advantages: FBA can help you boost your product ranking on Amazon due to Amazon’s superior search engine optimization.
Focus on selling, not fulfilling: With FBA, you don’t have to worry about the day-to-day operations of fulfilling orders and shipping products.
Higher conversions: Customers who shop on Amazon Marketplace know that when they order from an FBA seller, they can trust that their orders will be shipped quickly and accurately.
Cons of FBA
High fees: FBA fees can be expensive and take a big chunk of your profits. You have to pay for order fulfillment, storage in Amazon fulfillment centers, and other services related to FBA.
Strict requirements: To be eligible for the FBA program, you must meet certain criteria and follow specific rules.
Lack of control: When you use FBA, you don’t have as much control over customer service and fulfillment processes. All the work is handled by Amazon, not you or your staff.
What is FBM? Pros & cons of Amazon FBM
If you choose to use Fulfillment by Merchant (FBM) or Merchant Fulfilled Network, you will be responsible for fulfilling orders yourself.
This means that you’ll need to store your products in your own warehouse or with a third-party logistics provider, pack your orders, and ship them out. Additionally, you will be in charge of handling all customer service and inquiries.
Pros of FBM
Full business control: As an FBM seller, you have complete control over the selling process. This includes selecting your preferred warehouse and logistics providers, setting your prices, and determining your customer service policies.
Lower fees, but no always: FBM sellers don’t have any fulfillment or storage fees similar to Amazon’s FBA program. In addition, you will be able to reduce the cost of packaging materials because you will not have to comply with Amazon’s packaging guidelines.
Freedom of decision making: Because you control the entire process, you can make decisions quickly without having to wait for Amazon’s approval.
Greater margins: You can set your prices and therefore have greater margins than those that are sold through Amazon FBA program.
Inventory control: With FBM, you always have complete control over your inventory. You can manage how much stock you need to keep to fulfill orders promptly and efficiently.
Cons of FBM
Less Buy Box power: With FBM, you’re less likely to win the Buy Box since Amazon requires sellers to provide faster turnaround times and better customer service for you to be eligible.
No SEO perks: Since you’re not fulfilling through Amazon, you won’t be able to get the SEO benefits that come with selling on the platform.
Overhead costs: As an Amazon FBM seller, you’ll have to pay for additional costs associated with running your own warehouse and handling customer service. These costs can add up quickly and eat away at your profits.
Customer service and returns: As an FBM seller, you’re responsible for managing all customer service inquiries and returns. This can be time-consuming and costly if you don’t have the right systems in place.
Prime benefits without FBA – Amazon seller fulfilled prime
The Amazon Seller Fulfilled Prime (SFP) is a fulfillment option that allows sellers to provide Prime benefits to their customers without relying on Amazon’s fulfillment services. This means that you can store your products in your own warehouse, handle the packing of orders, and ship them directly to your customers with a two-day shipping option. However, it is your responsibility to cover the cost of shipping and address any customer service-related inquiries. Additionally, you must meet the following requirements:
Deliver over 99% of orders on time.
Low cancel rate – less than 0.5%;
Provide two-day fulfillment for orders placed before the order deadline;
More than 99 percent of orders are fulfilled through Amazon Buy Shipping Services;
Agree to Amazon’s return policy
Fulfilled by Amazon vs Merchant Fulfilled: factors to consider
At first glance, the differences between Amazon and merchant fulfillment methods relate to storage, shipping of products, and available perks for Amazon customers. However, there may be more differences beyond these surface-level factors.
Product size and weight
How big and heavy your items are should be one of the most important things to consider when making a decision. If you use FBM, you will have to pay for shipping, handling, and packaging but if you opt for FBA, these expenses will be covered.
Keep in mind that fees such as the FBA Fulfillment Fee and Inventory Storage Fees are determined by the size and weight of your items. This makes Amazon fulfilled an excellent option for smaller products like books, but if you’re selling larger and heavier items like fridges, FBM may be more profitable for you.
Customer experience management and control
Perfect customer service is a critical factor for any business, especially in e-commerce. FBM allows sellers to interact directly with customers, granting them more control over the process.
On the other hand, FBA involves Amazon fulfillment centers handling all tasks on behalf of the seller. Depending on your preferences and priorities, both options present unique benefits.
Product turnover rate
Another factor to consider is your product’s turnover rate. If you sell products that move quickly, FBA may be the ideal choice. But if you sell something with a slower turnaround time, then FBM may be the better option to avoid those extra storage fees.
When Amazon customers search for products, they take seller feedback and ratings into account. As an FBM seller, you manage customer service and inquiries.
This means you have more control over how customers perceive your business. But for FBA sellers, Amazon handles the customer service and feedback process. This can give you less room to make mistakes.
One of the key differences between FBA and FBM is the number of fees. With Amazon FBA, you pay for fulfillment costs and storage fees. But with FBM, you don’t have to pay FBA fees. Only standard Amazon fees for:
Individual or professional seller account,
Referral fee (Amazon commission),
Refund administration fee.
However, you still need to cover the cost of shipping, handling, and packaging.
When you compare Amazon FBA vs. FBM fees, it’s important to consider the long-term cost of each option and unexpected costs. While FBA may require a higher initial investment, the potential for increased sales and improved customer satisfaction may make it a worthwhile choice in the long run.
A detailed breakdown of all of Amazon’s FBA and FBM fees is in the article Amazon FBA Fees Explained: What You Should Know In 2023
Amazon FBA takes the hassle out of shipping and handling. All you have to do is send your items to an Amazon fulfillment center, and they’ll take care of everything else.
With FBM, you have to handle all logistics tasks yourself. Which includes finding a suitable warehouse to store inventory, setting up your fulfillment process, and managing inventory.
Multi-channel fulfillment service
Amazon sellers can use Multi-channel fulfillment (MCF) to have their orders fulfilled by Amazon, even if they originate from other sales channels, including their website. But it’s worth noting that some marketplaces have shipping restrictions that prevent Amazon fulfillment services. So, if you plan to sell on multiple marketplaces, you may be better off using FBM.
Time and resources
When choosing between FBA and FBM, you should also consider the time required to manage each option.
FBM sellers are responsible for managing all aspects of order fulfillment, which requires more time and resources. While, FBA sellers can outsource most of these tasks to Amazon and save time and money.
Amazon Revenue calculator – FBA vs FBM
The Amazon Revenue Calculator is an invaluable tool for sellers, providing insights into potential earnings based on their choice between FBA or FBM. With this tool, sellers can accurately assess and compare the financial prospects associated with each option, empowering them to make informed decisions that align with their business goals.
The Revenue Calculator provides a comprehensive breakdown of fees, including referral fees, FBA fulfillment fees for items sold on Amazon, monthly storage fees, long-term storage fees, and variable closing fees.
How to use Amazon Revenue Calculator
Link to the Amazon revenue calculator: https://sellercentral.amazon.com/hz/fba/profitabilitycalculator
Find existing product or enter product information
To find something on Amazon, type in the name or ASIN number. If the product doesn’t exist yet, choose “Define product” and give the size and type of product.
Select the country
It helps you to see relevant products and fees in your country.
Enter price and shipping charge details
If you select the product that already exists, the price and shipping will be automatically displayed. If the product is not yet listed, you change the price and how much it costs to ship at any time.
Enter cost estimates
To accurately estimate profit per unit, enter the cost of goods sold and shipping, including any extra fees, such as FBA bagging or labeling services.
Compare fees and profitability
Discover all expenses: estimated unit cost, net profit per unit, and net margin. You will see the total net profit after the sales estimate is completed.
Please note that the Revenue Calculator doesn`t include such fees:
Removal order fees
Refund administration fees
Return processing fees
Monthly subscription fees
Unplanned service fees
FBA inventory storage overage fees
Rental book service fees
High-volume listing fees
So, the results of the Revenue Calculator can give you a good idea of your potential profits, but it doesn’t tell you the whole story. Make sure to read over all of Amazon’s fees before making your final decision on which option is best for you.
FBA vs. Amazon FBM – Which option is best for you?
Now that we’ve covered all the specifics, benefits, and drawbacks of both fulfillment methods on Amazon, it’s time to figure out the answer to the first question: Which one is best for your business?
Use FBM if…
You want more control over customer orders.
You already have experience in excellent customer service on Amazon.
The products being sold are oversized or heavy.
You already have effective logistics arrangements, so you don`t need to use the fulfillment Amazon service.
If the product is large and sales are low enough.
Use FBA if…
You do not want to get involved with fulfilling the orders or customer support.
You want Amazon to handle customer service.
Your product is in demand, and all inventory is sold within 3 months or less.
You don`t have a warehouse to fulfill orders.
Expenses would be higher if you fulfill customer orders.
FBA is suitable if you want to focus on growing your product sales and brand without the headache of customer support and fulfillment.
Whether you choose to use fulfillment by Amazon or handle everything on your own, you should track your inventory management, fulfillment and advertising costs to get a complete picture of your business performance and profitability.
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Can sellers use both FBA and FBM?
Yes, you can use both FBA and FBM to fulfill orders. Using both methods allows you to leverage the benefits of each, such as Amazon Prime shipping eligibility with FBA and more control over the fulfillment orders and customer service with FBM. Additionally, using both services gives you greater flexibility when it comes to their inventory management strategy. You can sell different units of the same product by adding FBM to your FBA listing.
What are the top product categories for FBA and FBM?
Your success in different product categories can be influenced by the decision you make FBA vs. FBM. Some Amazon categories have more items sold under FBA or FBM due to their specificity and size. The research shows differences in the most popular categories between FBM and FBA business models. (resource: JungleScout)
FBA top product categories:
Home & Kitchen (44%)
Toys & Games (26%)
Sports & Outdoors (24%)
Health, Household & Baby Care (22%)
Beauty & Personal Care (21%)
Kitchen & Dining (19%)
Office Products (19%)
Tools & Home Improvement (17%)
Grocery & Gourmet Food (16%)
Garden & Outdoor (16%)
FBM top product categories:
Home & Kitchen (50%)
Health, Household & Baby Care (29%)
Toys & Games (29%)
Sports & Outdoors (28%)
Beauty & Personal Care (27%)
Tools & Home Improvement (25%)
Office Products (22%)
Garden & Outdoor (21%)
Kitchen & Dining (20%)
Who is starting to sell faster: Amazon FBA sellers vs. FBM sellers?
If we compare Amazon FBA vs. FBM, the answer to this question is quite simple – Amazon FBA sellers can get up and running faster than merchant-fulfilled network sellers. This is because, with FBA, most logistics tasks are handled by Amazon, freeing up time for you to focus on other areas of your business. Plus, as an FBA seller, you can take advantage of the “Fulfilled by Amazon” label, which is a big selling point for customers.
Which model is more suitable for wholesalers?
FBM sellers are more likely to sell in bulk, while FBA sellers are more likely to focus on private label sales.
Some statistics: 67% of sellers who use FBA follow the private label business model, while only 65% of sellers who use FBM follow the same model. Of all FBM sellers, 41% use the wholesale business model, compared to only 31% of FBA sellers. (resource: JungleScout)