Selling on Amazon is advantageous for any online seller. After all, with more than three hundred million users, Amazon is the largest online retail marketplace in the world.
But, when it comes to securing those all-important sales on the marketplace, which is the right Amazon fulfillment option to support your eCommerce business?
In this article, we list out the advantages and disadvantages of both Amazon FBM and Amazon FBA and weigh up the best option for your online business. Find out which you should choose in this Amazon FBA vs. Amazon FBM battle of fulfillment methods.
What is Amazon FBA?
Put simply, Amazon FBA stands for Fulfilled by Amazon – “you sell it, we ship it” in Amazon’s terms. An FBA seller will store their products in Amazon’s fulfillment centers, where Amazon then picks, packs and ships all product orders on behalf of the seller.
What is Amazon FBM?
In comparison, Amazon FBM stands for Fulfilled by Merchant. Using FBM, Amazon sellers handle storage and all aspects of the order fulfillment process.
An FBM seller is responsible for creating listings, and then, after a sale is made, picking, packing and shipping the order directly to the customer themselves. Keep in mind that you’ll take full responsibility for any late or damaged arrivals and missing items.
Amazon FBA vs. Amazon FBM – Advantages
Amazon FBA Advantages
One advantage of using Amazon FBA is that all products meet the criteria to be eligible for Amazon Prime’s free two-day shipping and other Prime benefits, such as free shipping and increased chances of winning the Amazon Buy Box.
And, with an estimated one hundred million Amazon Prime users, this is a golden opportunity for any major online sellers. These members also shop more frequently and spend more than non-Prime members.
With more time free to focus on growing your eCommerce business, you don’t need to worry about mundane tasks such as fulfilling your daily orders.
What’s more, Amazon will also store your inventory inside of its own warehouses, so that you don’t need to deal with storing your inventory anywhere.
When a customer places an order, Amazon will take it from the existing inventory and send it directly to the customer’s postal address.
Everything to do with order fulfillment is conveniently handled by Amazon, so you don’t need to spend time packaging orders or standing in line at The Post Office.
With Amazon FBA, the marketplace takes on the full task of filling your customers’ orders, including customer service and handling returns. This is a big benefit for some Amazon sellers.
In short, Amazon FBA enables you to focus your time and resources on growing your Amazon business, so that you don’t have to worry about the logistics of storing, packing and shipping your inventory to your customers.
Higher likelihood of securing the Amazon Buy Box
In case you didn’t know, the Amazon Buy Box is the call-to-action that leads online shoppers to buy the product on a product listing.
When multiple sellers are selling the same item, one seller will “win” a purchase made on the Amazon Buy Box, while other sellers can be found beneath the buy box.
Given that when Amazon shoppers buy a product, they do so through the Amazon Buy Box a whopping 82% of the time, it’s crucial to win the box as much as possible.
Another important factor in determining who wins the Amazon Buy Box is the fulfillment method selected. Generally speaking, an FBA seller can set a slightly higher price than an FBM seller and still win the Amazon Buy Box.
Multi-channel fulfillment enables you to sell products outside of Amazon but still have Amazon handle the shipping and fulfillment part of the order.
In other words, you could sell products through your website (or other selling channel) and still have Amazon sort the shipping and fulfillment out for you.
This enables you to access a fast and trust shipping method for multiple sales.
Amazon will store your inventory in its own fulfillment centers and will pick, pack and ship orders to customers when products sell on your own website or other eCommerce websites
The marketplace handles the minor details such as shipping and fulfillment so that you can concentrate on building out your online empire; giving you more time to execute advanced marketing strategies, use additional eCommerce channels to sell your products and build a brand that isn’t as reliant on Amazon for sales – all while still benefiting from Amazon handling the logistics of the sale.
Lower shipping rates
Amazon is the largest online retailer in the world, and with that comes some drastic shipping discounts. With Amazon FBA, you simply ship you products to the Amazon warehouse and let Amazon handle the rest of the fulfillment process.
Dependent on the size and weight of your product, the fees associated with selling FBA will typically be smaller than the shipping costs you’d spend if you were fulfilling the orders yourself or through Amazon FBM.
When you choose Amazon FBA, you benefit from Amazon’s shipping discounts.
It’s likely that the fees Amazon charges to ship your products are lower than what you would get through your own shipping account. If that is the case, using FBA will lower costs and increase your profit margin.
When using Amazon FBA, you can essentially run your online business from anywhere in the world that you have internet access.
You can easily communicate with your suppliers using email, Skype or Alibaba. He suppliers can then ship the products to Amazon and all of your sales and order fulfilment is then handled by Amazon.
Amazon FBA Advantages
Some marketplace sellers see having more control over their inventory and stock as a great advantage. As you store, pick, pack and ship products, you can access your inventory whenever you may need it.
This enables you to have more ownership of the actual fulfillment process.
Indeed, there are many cases whereby a customer inevitably receives a faulty or incorrect product, leading the customer to leave a negative review.
When you ship via Amazon FBM, however, you are able to ensure the quality of each item at the time it is sent and despatched to the customer.
Find out how to increase sales on Amazon with 13 Amazon tips straight from real online sellers themselves.
Less commitment to a product
Another advantage to using Amazon FBM is that as you are in control of your inventory, if you happen to buy a product that doesn’t sell then you can still return it to the retailer.
Most stores have up to a 90-day returns window, which is great news for new Amazon sellers. If two months pass and no sale has been made, you can think about returning it to the original retailer.
List products immediately
Unlike FBA sellers, FBM sellers can list their items for sale as soon as a listing has been submitted. This is because you don’t need to worry about shipping until the products sell.
In comparison with FBA sellers, Amazon has strict requirements for accepting products into their warehouses and it can take a lot of time to ship all the products to them.
Fewer Amazon fees
As you handle the shipping, returns and customer service yourself as an FBM seller, you save on some costs.
Selling through Amazon FBM means that you avoid paying the fulfillment fees and storage fees that are associated with selling through Amazon FBA.
That said, there are still referral fees and closing fees to keep front of mind.
There’s still an opportunity to use Amazon Prime
Seller-Fulfilled Prime (SFP) enables all Amazon sellers to access FBA benefits without the increase FBA fees.
The criteria for approval to Seller Fulfilled Prime is pretty extensive and includes having a good standing with a Professional Account, existing premium shipping order volume and outstanding performance metrics.
Slightly higher margins
As FBM sellers pay fewer fees without having Amazon fulfill the orders, it’s likely that you’ll make slightly more on each sale (dependent on product).
However, it’s likely you will drive less sales, especially if you’re not an Amazon Prime seller.
Opportunity to build an independent brand is more feasible
As you are not as reliant on Amazon for shipping and order fulfillment as you would be with Amazon FBA, Amazon FBM sellers have a greater opportunity to build an independent brand.
Amazon FBA vs. Amazon FBM – Disadvantages
Amazon FBA Disadvantages
Using Amazon FBA requires the following fees:
- Fulfillment fees
- Monthly inventory storage fees
- Closing fees
- Order handling fees
As well as these fees, depending on the product’s category you may run into more fees, such as a high-volume listing fee.
You will also need to consider the cost to ship your products to Amazon’s fulfillment centers and you may additionally run into long-term storage fees and Q4 storage fees.
Work out your total Amazon seller fees and find out the cost of selling on Amazon.
Limited access to your inventory
As your inventory is stored in Amazon’s fulfillment centers, keep in mind that you’ll have limited access to your products.
You may also find that inventory can be harder to track, having no hand in the process. It’s easy to lose track of what products you have and what you have left over to meet customer demand.
What’s more, if any inventory issues do arise, you’ll be reliant on Amazon to resolve the problem(s) or have the inventory shipped back to you.
Something to bear in mind is that Amazon does not automatically collect sales tax for its sellers.
To enable tax collection on purchases, sellers must provide their state tax registration numbers for each state that they want Amazon to collect tax for.
Amazon sellers can enable sales tax collection within the tax settings in Seller Central. As an FBA seller, it’s crucial to understand your tax obligations.
Preparing products may be tedious
Labelling your products can be a tedious process, especially for new Amazon sellers.
Each unit must be labelled so that the correct item can be picked up from Amazon’s inventory and shipped to the customer.
There are two kinds of barcodes that you can use to identify your products:
- Manufacturer barcodes
- Amazon barcodes
Amazon does provide the option for eligible products to have Amazon apply the barcodes for you in exchange for a per-item fee, called FBA Label Service.
Multi-channel fulfillment can be costly
If you choose to use FBA multi-channel fulfillment, you’ll likely incur some additional hefty fees.
Amazon FBM Disadvantages
You must prepare the products
When you first send products to Amazon’s warehouses, you’ll need to prepare them to ensure that they are accepted. This involves labelling them correctly among other requirements.
If you do this incorrectly, Amazon can reject your products and you will have to re-label them and go through the entire process again.
Keep in mind that you may also need to use a third-party company to label your products and handle the delivery to Amazon’s warehouse which can add extra costs to your products.
When selling FBM, responsibility falls on you – packaging, shipping, managing inventory, and so on. This can be an advantage for some sellers but with high volume products, it can get pretty high-level. You’ve got to be on top form every day, including weekends and holidays.
You handle everything – when getting started this doesn’t seem like a big deal.
Your sales will be low so it’s not much of an issue to package and ship a few products, but how scalable is this if your product becomes popular? Do you have the time to package, label and post more than 100 products a day?
Not automatically eligible for Amazon Prime
While you can be a Prime seller using Seller-Fulfilled Prime, Amazon does make you work for it – you’ll have to constantly stay on top of your game to keep your seller metrics squeaky clean.
What’s more, Consumer Intelligence Research Partners estimates that there are more Amazon Prime customers than standard members.
Customers buying from non-prime FBM sellers will have to pay additional shipping charges and receive slower shipping.
If you’re an FBM seller than more than half of the customers on Amazon may overlook your product and buy from a competitor.
Contrary to what some sellers think, prime eligibility for products isn’t an exclusive benefit for FBA. Through SFP, or Amazon’s Seller-Fulfilled Prime program, sellers are allowed to display the Amazon Prime logo while fulfilling the orders themselves.
The Amazon Buy Box is harder to win
As the fulfilment method plays a major role in determining who gets the Amazon Buy Box, FBM sellers will have a harder time getting it and keeping it than FBA sellers. FBM sellers may have to set a lower price in order to win.
Not having the Amazon Buy Box will make it challenging to get sales for your products on Amazon.
If your product is unique and you are certain there are no other sellers, or you’re guaranteed the buy box, then it may still be worth using FBM.
If not, then the lower fees and higher margins FBM may offer could be erased as you need to offer a lower price to win the buy box, or compete on the multiple seller page to get any customers.
You may encounter overhead costs
While there are no fulfillment and storage fees through selling FBM, you’ll likely have more overhead costs, including your own storage, fulfillment and shipment expenses.
Miss out on Prime members
Because over half of all Amazon shoppers are Prime, 2-day free shipping with Prime is often purchase criteria. Without being Prime, you’re missing out on many customers who may have purchased your product if it were Prime.
Should I use Amazon FBA or Amazon FBM?
All in all, both Amazon FBA and Amazon FBM certainly have their advantages. The best Amazon fulfillment option for your business is always going to be centered on your objectives and the products that you sell.
Amazon FBA is a particularly good choice if you sell high volume, large margin products. This type of fulfillment is for those sellers who can drop the selling price to the lowest possible price if need be.
Amazon FBM is better for smaller scale, small margin products or one-offs. Amazon FBM enables sellers to take control of the fulfillment process without crushing small margins.
Amazon FBA is arguably more convenient as you ship your products to Amazon’s fulfillment centers and then Amazon takes care of everything else; however, there are additional costs with ongoing storage fees and other expenses to keep in mind.
The Amazon FBA calculator is a useful tool to help you decide whether to use FBA or pursue an alternative fulfillment method. With the method, you have the ability to compare both FBA and FBM or simply calculate the fees involved with FBA.
Looking to take your business to the next level? Download this complete list of online marketplaces and start building the business you imagined, or check out this comprehensive list of fulfillment services.