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Amazon FBA vs. FBM - A Complete Comparison Guide to Choosing Between the Two?

One of the most common problems that sellers face on Amazon is choosing an option to fulfill their orders. They can either do it by themselves, that is, use the Fulfillment by Merchant (FBM) way, also known as Merchant Fulfilled Network, or they can rely on Amazon to do the heavy-lifting, a.k.a Fulfillment by Amazon (FBA). Both of these systems have their own sets of pros and cons and if you are confused between the two, don’t worry - you are not alone. With that in mind, we have prepared this comprehensive guide to help you pick an option between Amazon FBM vs. Amazon FBA.

Right off the bat, here is a quick comparison chart between FBA and FBM. While this will give you a brief idea of which option to choose, you will be more convinced after we look at each of these fulfillment options in detail, as mentioned below.

Amazon FBA will work better for you if: Amazon FBM will be more feasible provided:

Your items have a high sales velocity

Your products are not selling at a fast pace

You do not want to fulfill the orders yourself

You are more than capable of fulfilling your orders and processing returns, if any, for the same

You don’t have a well-established logistics network, or you are unable to find a reliable shipping/delivery partner

You have a reliable logistics network and necessary resources to deal with packaging and shipping orders

You don’t have the space to store your products

You have sufficient space to store your inventory

Your items are small, lightweight, and preferably, priced on the higher-end

Your products are bulky and heavy and expensive

You don’t mind paying extra FBA fees

You want greater margins

You don’t have the bandwidth to provide customer support

You can easily provide customer support

Here are some significant advantages of using FBA:

Prime Eligibility

On listing your products with FBA, you make yourself eligible to about 80 million subscribers of Amazon Prime. Prime customers buy more frequently, spend more money yearly, and make-up half of Amazon's customer base. Your products are also eligible for Amazon Prime free two-day shipping. With Amazon Prime, you are likely to sell more products as your listings are associated with Amazon, and therefore make more profits.

Buy Box Advantages

Many factors go into winning the Buy Box and fulfillment method is a big one. Sellers with FBA have higher chances of winning the Buy Box than non-FBA sellers. As you may know, the sellers with Buy Box have a greater potential of earning sales than other sellers on Amazon. Therefore, it is vital to win the Buy Box as often as possible and while there are other factors at play too, FBA is definitely a big one.

Fulfillment is done by Amazon’s Able Hands

As stated before, your orders are fulfilled by Amazon. It uses its state-of-the-art fulfillment and logistics network to process and ship your orders in time. Your inventory is systematically stored in its warehouses/fulfillment centers. With Amazon taking care of the logistics part of your business, you can focus on other crucial aspects.

Customer Service and Processing Returns

In addition to handling fulfillment for you, Amazon will also provide customer service for your products and process any returns that may arise in the process.

Higher Position in the Search Results

Sellers with FBA will have their listings displayed at a higher position in the search results. While it is not stated officially, it is common knowledge that fulfillment by Amazon is one of the major factors that go into Amazon SEO. This, in turn, translates into more exposure and higher sales.

Disadvantages of Using Amazon FBA

Higher Fees

Among the major cons of using Amazon FBA is high fees. It needs to be considered into your margins and consequently, will reduce your profits. For this reason, FBA is more feasible for those items that are small and lightweight. All of this is in addition to the usual Amazon fees that every seller must pay to do business in the marketplace.

On top of this, you also have to consider the inventory storage fees. These are the charges you pay Amazon to store your goods in their fulfillment centers. It depends on the duration for which you store your items, along with the size of the product.

Comingling of Products

Since Amazon stores products from various categories at the same place, there is a strong possibility that your products may get mixed up with those from other brands. If not labelled correctly, you products may be mishandled and may even lead to damages.

No Flexibility with Packaging

Sellers who opt for FBA have to follow stringent packaging requirements as stated by Amazon. Failure to do so may result in the product not being shipped to the customer at all. Therefore, it can be a tedious and time-consuming process to prepare your products as per the standards mentioned.

Tax Obligations

Amazon FBA also comes with certain tax obligations that vary from state to state. As a seller, it is crucial to understand your tax liabilities.

To sum it up, here are the pros and cons of Amazon FBA:

Pros Cons

Amazon Prime Eligibility

High FBA fees

Buy Box advantages

Inventory storage charges

Greater sales potential with improved visibility within the search results

Low profit margins

Customer service, returns, and shipping are processed by Amazon

Less control over packaging

Better conversions since people prefer to buy products that come with Amazon FBA

Tax liabilities

Convenient inventory storage

Limited access to inventory

To find whether FBA is suitable for you or not, you can use an FBA calculator and calculate the profitability of your products in seconds. It will give you a good idea of what your margins may be like and help you formulate your business plan accordingly. Remember, making a pick between FBA vs. FBM requires a bit of research and calculation!

Fulfillment by Merchant - Can it Make a Difference Against FBA?

Fulfillment by Merchant, also commonly referred to as Merchant Fulfilled Network (MFN) is the best alternative to FBA. As stated previously, with FBM, you are responsible for processing and shipping the orders by yourself. In addition to this, you must also provide customer service and process the returns and refunds, as and when the situation arises.

Since all the responsibilities here lie on your shoulders, you must have a concrete system in place to ensure that the business runs smoothly. Here are some of the requirements that you should ideally meet before thinking about opting for Amazon FBM:

  • A place to store your inventory neatly and systematically
  • Reliable logistics/delivery network in place to ensure that the order is delivered smoothly on time
  • The ability to process the orders quickly. This involves packaging and labeling the orders as per the standards
  • The necessary bandwidth to conveniently process returns, refunds, and provide customer service for your products without it impacting your business negatively

If you can handle all of these duties without breaking a sweat, then you may want to consider FBM.

Amazon Seller Fulfilled Prime (Amazon SFP) - Prime Benefits Without FBA

Amazon Seller Fulfilled Prime is precisely similar to FBM - merchants are entirely responsible for processing orders and shipping the same to their customers in time. However, this one comes with a big plus - sellers can display the Prime badge on listings that they fulfill themselves and enjoy all the associated benefits, without enrolling for FBA. It also allows sellers to compete more effectively for the coveted Buy Box.

In such a scenario, the battle of Amazon Seller Fulfilled Prime vs. FBA becomes an evenly matched tie. In many ways, Amazon SFP is a game changer as it allows qualified sellers to get the Prime badge without paying those hefty FBA fees. However, it isn’t that easy to join the program.

Since Amazon is essentially giving its Prime badge to sellers that aren’t using its fulfillment network, it wants to ensure that sellers can indeed make the cut and live up to the high expectations that customers have regarding Prime shipping. Therefore, in order to join the Seller Fulfilled Prime Program, sellers must prove that they can meet Amazon Prime shipping standards. This happens over a 30-day trial period wherein:

  • Sellers must ship more than 99% of their orders on time
  • Have a cancellation rate of less than 0.5%
  • Use Amazon Buy Shipping services for more than 98.5% of orders
  • Allow for customer service queries to be dealt by Amazon
  • Deliver orders with Amazon’s supported Seller Fulfilled Prime Carrier

A more detailed list of these requirements can be found on Amazon’s site. Upon successfully completing the 30-day trial period, sellers will be automatically enrolled in the SFP.

Advantages of Using FBM

Some of the pros of using Amazon FBA in comparison to FBA are:

  • More Control over Packaging
  • If you are using FBM, then you will be able to pack your products in a way that is perfect for you and your customers. You can also opt for customized packaging options and take your products up a notch in comparison to your other competitors on Amazon.
  • Inventory Tracking Made Easier
  • Since you are storing your entire inventory at one place, it will be easy for you to monitor and track it. You will have more control over your inventory in the process as well.
  • Superior Margins
  • With FBM, you will not incur any unexpected costs or the pesky FBA fees that would otherwise eat into your margins. You won’t even have to pay long-term storage fees or other related charges since you are not using Amazon’s fulfillment centers. You can agree on a quotation with your shipping partner beforehand and get a good idea of your expected profits.
  • Ability to Compete for Buy Box
  • If you qualify for Seller Fulfilled Prime, then you can compete for the Buy Box with FBA sellers. Moreover, Amazon SFP will also give your listing the Prime badge and improve its visibility within the search results.

Disadvantages of FBM

  • Stiff Competition from FBA Sellers
  • A common complaint that many FBM sellers have is that they lose most of their sales to FBA sellers. Amazon customers often prefer to buy products that have the Prime badge and are fulfilled by Amazon. One way to counter this would be an effective brand marketing, combined with an exceptional product, good reviews, competitive pricing, and joining the SFP.
  • Other Overheads
  • Even though you aren’t paying FBA fees, you will have other overheads to consider like staff charges, warehouse rent, utilities, et cetera. Therefore, before going down this road, it is strongly recommended that you make the calculations properly.
  • A brief summary of the pros and cons of Amazon FBM

Pros Cons

Better margins

Overhead costs

More control over inventory

Tough competition from FBA sellers

Greater control over the business

More responsibilities

Ability to fulfill offline and online orders from the same warehouse

Difficult to join the SFP

More control over packaging

Ability to compete for the Buy Box with SFP

Conclusion: Amazon FBA vs. Amazon FBM - Which One to Choose?

After understanding how the two fulfillment methods work, it is safe to say that Amazon FBA should be preferred when you have a popular product with a fast turnover. Since you are likely to receive multiple orders a day, it is better to have Amazon take care of fulfillment and other associated processes.

At the same time, you should also ensure that your items are not bulky or heavy to not incur high FBA fees. While these fees are inevitable with FBA, they are certainly worth it, given that they help you get the Prime badge and the Buy Box advantage.

On the other, it is better to go with Amazon FBM or Seller Fulfilled Prime provided you have a product with low sales velocity. Since the orders you receive may not be consistent or frequent, there is no point in paying Amazon FBA storage fees. It will also bode well for you to choose this fulfillment option if you already have an established shipping network.

Additionally, FBM will work well if your items are particularly heavy, large, and require specialized packaging. It will give you more control over your packaging, and you can pack your products the way you want. If you do take the FBA route in this case, then your products may not be handled properly and may even lead to damages. All of this is in addition to incurring high fulfillment fees.

Therefore, the scale of your business and the type of items you are selling matter a lot when it comes to selecting one between FBA and Amazon FBM. For better results, you can use an FBA calculator to run the numbers carefully before you jump into the business.

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