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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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, 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:
If you can handle all of these duties without breaking a sweat, then you may want to consider FBM.
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:
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.
Some of the pros of using Amazon FBA in comparison to FBA are:
More control over inventory
Tough competition from FBA sellers
Greater control over the business
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
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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