When it comes to running your Amazon store, there are many different ways to impact your business positively.
There are approaching 2 million active sellers on Amazon, and many of them have successfully implemented a solid product fulfillment plan.
As an Amazon seller, you have a couple of product fulfillment options. Fulfilled by Amazon (FBA) or Fulfilled by Merchant (FBM).
But, can your fulfillment really impact your business that much?
The answer is yes!
The proper fulfillment plan can be a critical component in the success of your Amazon business.
Almost 92% of Amazon sellers use the FBA method. Of that, 34% use a combination of both FBA and FBM, while only 9% of Amazon sellers use FBM alone.
You may be wondering how to make Amazon FBA and FBM work for your business?
In the coming sections, we will explain how to use Amazon FBA and FBM to your advantage in the coming sections.
We will talk about the differences, pros, and cons, and finally, we will break down how to choose between the two!
What are Amazon FBA and FBM?
Amazon FBA and FBM are the product fulfillment options for Amazon sellers. FBA (Fulfilment by Amazon) and FBM ( Fulfillment by Merchant) are vital pieces of information to consider for new and experienced sellers alike. The method or methods you choose can significantly impact your bottom line as a seller. So which one do you prefer?
What is the Difference?
The difference is that FBA (Fulfillment by Amazon) is when the seller, or the seller’s supplier, sends their inventory directly to the Amazon warehouse.
There, Amazon will take responsibility for storing and shipping the order directly to the customer, handling customer service, and processing returns.
FBM (Fulfillment by Merchant), on the other hand, is when the seller is allowed to sell their products on Amazon but oversees the storing, shipping of products, order fulfillment, as well as customer support themselves.
Deciding Which One Do You Use
Choosing the proper product fulfillment method is integral to your profit margins.
Many successful sellers benefit from both FBA and FBM. How do you know which way is best for your business?
There are many different elements to consider, starting with your sales strategy.
- Private Label (are you selling something you create through your own brand/ label?)
- Wholesale (are you buying products from a distributor that can support Amazon sales?)
- Online Arbitrage (are you buying products online that you sell on Amazon?)
- Retail Arbitrage (are you purchasing from a retailer to sell on Amazon?)
- Dropshipping (are your products being shipped by the manufacturer directly to the customer?)
- Handmade (are you creating, storing, and shipping products all yourself?)
It is essential to identify a business strategy because it will impact the overall cost to fulfill the order.
That can range from having to pay for materials to make the products, to having to pay a manufacturer to make the product, to paying for storage fees at another warehouse.
Next, you will want to consider these key elements when deciding between Amazon FBA vs. FBM:
1. The size and weight of the products you will be shipping
When selling a product that is small, lightweight, and sells through quickly, using the FBA method would stand to benefit the seller. Especially when considering Amazon's fees and logistical structure. Adversely, the FBA method stands to work against sellers of large, oversized products.
For instance, let’s say you sell kitchen tongs in your Amazon store for $7.99. The Amazon fee for selling is $1.20, and the cost of the product is $1.50. Using the FBM method, your cost to fulfill would be $6.20, resulting in a loss of $0.91. Using FBA, the price to fulfill goes down to $3.64, resulting in a profit of $1.65.
The choice between FBA and FBM can be the difference between turning a profit or operating at a loss. This is where sellers who carry both large and small products can benefit from using both FB and FBM fulfillment methods. You can be versatile in your product assortment while still protecting your bottom line.
2. Whether you want control over customer service or not.
Sellers who use FBA have little to no control over customer service practices and rarely if ever, have contact with their customers. They use Amazon to store, pack, and ship their products, as well as handle customer service.
FBM sellers manage storage, fulfillment, shipment, and customer service themselves. They only use Amazon to sell their product. For sellers who want complete control over their customer relations, FBM is a better option.
3. Seller Feedback
Amazon has a seller rating system that allows customers to give a star rating and feedback on their experience with third-party sellers. Sellers who use the FBA method have less to worry about as Amazon assumes the responsibility of taking care of customer service. If a customer were to give a negative review to an FBA seller, the seller could request that the review be removed.
Alternately, FBM sellers are a little more vulnerable to negative customer feedback. This means that FBM sellers need to take more care in their shipping and customer service practices. Negative customer feedback can significantly impact your business, so it becomes vital that an FBM seller have stellar customer service standards in place.
4. What is your inventory turnover rate?
When using the FBA method of fulfillment, Amazon charges storage fees that increase the longer a product is in the warehouse. After a year, Amazon will charge the seller long-term storage fees. This is why the many products that you choose to sell by FBA should have a high sell-through and replenishment rate. The longer your product sits on the shelves at the Amazon warehouse, the more money you stand to lose.
5. Logistics
For sellers who are just starting and may not have a logistics system in place, FBA is the suggested form of fulfillment. Picking, packing, and shipping one's own merchandise can be time-consuming and difficult without proper logistical practices. Leaving the logistics up to Amazon to oversee allows for more time to be spent building up a successful business.
6. Cost
The final key factor to consider is the cost. When you choose FBA fulfillment, you are paying a fee to cover the cost of storage, packing, and shipping. While those fees are eliminated with FBM fulfillment, you still need to consider the cost to store, pick, pack and ship the products yourself. If your FBM fees exceed what you would pay with FBA fulfillment, then the obvious choice for your business would be FBA.
As you can see, there are various essential pieces of information to consider when you choose whether to use Amazon FBA or FBM. If you feel confused or overwhelmed by all of this information, let’s simplify it even further with a definitive list of pros and cons.
Pros and Cons of Amazon FBA vs FBM
Here are some of the most significant pros and cons to Amazon FBA vs. FBM.
Pros of FBA
Prime Exposure
When you use Amazon FBA, you get valuable exposure to over 80 million Amazon Prime subscribers. These subscribers spend more money, buy more products, and are comprised of over half of all Amazon users. This is the kind of exposure that is hard to come by.
Buy Box
Sellers who use FBA fulfillment are more eligible to win the buy box than those who use FBM.
Amazon Fulfillment
One of the perks of FBA fulfillment is that Amazon takes the responsibility of fulfilling any orders off your shoulders, allowing you to focus on more essential parts of the business.
Customer Service
In addition to fulfilling your orders, FBA fulfillment also puts all customer service elements, including the processing of returns and exchanges, on Amazon’s plate. This frees up time for you to build other areas of your business.
Better Search Results
FBA sellers will be displayed in a higher ranking position amongst search results. This is because fulfillment by Amazon plays a vital role in Amazon SEO.
Cons of FBA
Higher Costs
When it comes to using the FBA method, the high costs associated with product storage, fulfillment, and shipment constitute a significant disadvantage. Selling small, lightweight items that turn over quickly might justify the cost versus taking those tasks on yourself. However, this is a high cost that needs to be figured into your cost of doing business on Amazon.
Merging of Products
While having a state-of-the-art logistics system like Amazon’s at your fingertips can be a tremendous advantage, there is also a more substantial possibility for products to get misplaced or mislabeled. This can lead to fulfillment errors and potentially negative customer feedback if care is not taken to ensure proper labelling practices are adhered to.
Stringent Packaging Requirments
Amazon has stringent standards in regards to packing requirements. Anything that does not meet Amazon’s requirements could end up not being shipped out, resulting in customer service and fulfillment issues.
Taxes
Tax laws pertaining to Amazon sellers vary from state to state, so it is the responsibility of the seller to understand and adhere to local tax laws.
Pros of FBM
Packaging Control
FBM sellers have more control over their packaging options. This allows you to pack your products for shipping in any way that suits you and your customers, even opting for customized packing options. This can give you a leg up on your competition on Amazon.
Simplified Inventory Tracking
When you are keeping your inventory in the same place, it becomes easier to track and monitor the movement of inventory.
Better Profit Margins
FBM sellers incur fewer costs associated with storage, shipping, and fulfillment. This allows you to source the best shipping and storage prices so you can better estimate your profits.
Win Buy Box
When a seller qualifies for Seller Fulfilled Prime, they can then compete for Buy Box, earn a Prime badge on their listing, and gain more exposure within search results.
Cons of FBM
Hard to Compete
A lot of customers prefer to buy from FBA sellers. They feel more confident in purchasing goods that are fulfilled by Amazon. This can be overcome with excellent customer reviews, competitive pricing, and a great marketing campaign.
Overhead
When you sell Amazon FBM, there are certain overhead expenses that you take on. Expenses like storage facilities and staffing costs.
More Responsibilities
As an Amazon FBM seller, there are many more responsibilities that fall onto your plate that FBA sellers don’t have to deal with. This allows FBA sellers more time to focus on other crucial aspects of their business.
Conclusion
We have discovered how Amazon fulfillment strategies can impact your business and make an informed decision between FBA and FBM. We understand how a fulfillment strategy can impact the bottom line and differentiate between a profitable and not-profitable business. We’ve learned to understand the needs of the business based on several factors and make an informed decision. What it comes down to is this:
Use FBM If…
- You want more access to your customers
- You sell a heavy or oversized product
- Your product has slow turnover
- You have implemented solid logistics practices
- You have implemented superior customer service practices
- You can financially support fulfilling your own orders
Use FBA If…
- You are ok with minimal access to and interaction with your customers
- You sell small, lightweight products
- Your product has a quick turnover time
- You have no logistics systems in place
- You would face higher costs by fulfilling your own orders.
Additionally, you can take advantage of both if you think your business would benefit from using both FBA and FBM. If you sell a large number of products in your Amazon store and have both large and small products, you might be able to increase profit margins by using both FBA and FBM fulfillment methods.
At the end of the day, by taking the time and consideration to evaluate your business correctly, you could be lowering your cost of doing business and increasing your profit margins by making the right fulfillment choices.
