Amazon has proven to be one of the most complex and competitive marketplaces in the world. Sellers navigating the marketplace have to find ways to not only compete against millions of other retailers but also to find ways to manage their fulfillment processes. Amazon offers two different vessels for this: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM).
Fulfilled By Merchant is when a seller lists a product on Amazon and elects to ship products to each buyer by himself. A rather advantageous method for products with lower margins, the Amazon FBM is rather overlooked for the easy shipping and handling of Amazon FBA.
On setting up a seller account on Amazon, you can choose to deliver your products using the FBA services or do it yourself, aka Amazon FBM. On setting up a product listing, the merchant is responsible for shipping the orders to the customer's delivery address, from their warehouse location on receiving orders. The MFN ( Merchant Fulfilled Network ) seller is also responsible for handling the returns and provide customer service as well.
FBM is better for exclusive products, small volume products or products with lower profit margins.
FBM is better for:
° Exclusive products - products that have a lower frequency of sales
° A smaller volume of products - cuts down the shipping charges for a relatively low volume of product units.
° Products with lower profit margins - helps save on the warehousing and storage fees on FBA (if you have a cheaper alternative from the FBA warehouse)
Seller maintains a sense of control over the business. Managing all the numbers and inventory yourself gives you an upper hand in running the business for a longer run.
With an opportunity to scale, self-fulfillment of products gives a better control over the inventory levels. Expanding your Amazon business can be simple, and easy without having to worry about extra shipping and increased FBA fees.
Maintaining online as well as an offline retail selling activity with a single inventory is possible. Since you store your inventory in the warehouses chosen by you, you have a complete control of the inventory and can use the same inventory stocks to run an offline retail store too.
You get a better cut from the profit margins. You can save on fulfillment fees, find the best and a cheaper choice for your warehouse, reduce the shipment charges. Especially when it comes to products large dimensional products with lesser profit margins.
An FBM seller has to interact with his customers directly. You get a better understanding of your customer’s requirements and complaints since you are directly involved with them. Sometimes you even get valuable ideas and insights from interaction with them.
Amazon changes its fulfillment pricings and policies often. It also imposes long Term storage fees for products that are in the Amazon repository for a long time. An FBM seller does not these worries.
An FBA seller has two unavoidable headaches. One is the Amazon’s taxations for fulfillment and the other is loads of paperwork. An FBM seller is free from both these issues.
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Amazon deducts a referral fee each time a product unit is sold. The referral fee is a percentage of the total sales price and is usually 15% in most product categories, however, it differs in a few categories, going as low as 6% and high as 45% for Amazon Device Accessories. Check out the image below for your category of product and the referral fee involved.
The Amazon FBA fee includes the shipping fee, in the case of FBM, the shipping fees are additionally paid by each customer.
|Categories||Referral fee percentages||Applicable minimum referral fee (applied on a per-item basis unless otherwise noted)|
|Amazon Device Accessories||45%||$1.00|
|Baby Products (excluding Baby Apparel)||45%||$1.00|
|Baby Products (excluding Baby Apparel)||45%||$1.00|
|Camera and Photo||8%||$1.00|
|Cell Phone Devices||8%||$1.00|
|Furniture & Decor||15%||$1.00|
|Home & Garden (including Pet Supplies)||15%||$1.00|
|Software & Computer/Video Games||15%||--|
|Sports (excluding Sports Collectibles)||15%||$1.00|
|Tools & Home Improvement||15%, except 12% for base equipment power tools||$1.00|
|Toys & Games||15%, except 12% for base equipment power tools||$1.00|
|Unlocked Cell Phones||8%||$1.00|
|Video & DVD||15%||--|
|Video Game Consoles||8%||--|
|3D Printed Products||12%||--|
|Automotive & Powersports||12%, except 10% for tires and wheels products||$1.00|
|Clothing & Accessories||17%||$1.00|
|Collectible Coins||See Category Requirements for referral fees.|
|Entertainment Collectibles||See Category Requirements for referral fees.|
|Fine Art||See Category Requirements for referral fees.|
|Grocery & Gourmet Food**||15%||--|
|Health & Personal Care (including Personal Care Appliances)||15%||$1.00|
|Industrial & Scientific (including Food Service and Janitorial & Sanitation)||12%||$1.00|
|Luggage & Travel Accessories||15%||$1.00|
|Shoes, Handbags & Sunglasses||$1.00|
|Sports Collectibles||See Category Requirements for referral fees.|
Amazon has strict labeling specifications for all the stocks shipped to the Amazon warehouse. FBA sellers could also opt for the FBA labeling service where Amazon labels the products.
There are specific Amazon packaging rules. FBA sellers could either opt to pay Amazon for packaging or pack the product themselves by paying the Amazon packaging fee. In case of improperly packaged products, you might be issued FBA unplanned prep fees where Amazon repacks your products according to their specifications.
Processing returns is free in most Amazon categories, but not for the categories Amazon offers free returns. Also if the returned products need to be repackaged, FBA sellers are levied Amazon repackaging fee.
Amazon also has additional long-term storage fees if stocks remain unsold for longer than 6 months.
Removal of unsold inventory for disposal is also chargeable if you want to pull inventory off Amazon’s warehouse.
If you are considering to switch from FBM to FBA, you must be aware of these fees else which will creep into your bills at some point in your selling cycle. Choosing the right fulfillment is based on a lot of comparisons and preferences for paying money for saving time, and efforts. Be aware of all the costs before you take the plunge into deciding the fulfillment choice. Comparing all the costs including the ad costs, shipping before starting off gives you an idea of the costs and the fees even before you start selling on Amazon. SellerApp has two free tools to understand and analyze FBA costs and prices.
The Amazon FBA calculator helps calculate and investment costs, FBA costs, and estimated sales upfront. A cooler version of the FBA calculator is the chrome extension, which can be popped out right on the Amazon website to compare products and the profits you could make by selling the product on Amazon.
The Amazon ACoS calculator is the FBA calculator upgraded for a killer performance. Along with analyzing the FBA fees for any Amazon product, the Amazon ACoS calculator helps analyze the price points and the numbers you must be selling at, including the Ad costs to reach your desired profit levels.
With advanced features such as Product Research, Keyword Research, Product Analytics, Business Alerts and Listing Optimization features, PRO plan brings the power of SellerApp to E-Commerce business owners.