Articles

Amazon FBA vs FBM: Which is better for Amazon Sellers?

Nishant Singh

05 Jul 2024

Introduction

Selling on Amazon can be a great way to get your products out there. But once someone buys your item, there’s the whole question of getting it to them. This is where fulfillment comes in.

There are two main options on Amazon: FBA (Fulfillment by Amazon) and FBM (Fulfilled by Merchant).

Think of them as two different ways to handle shipping and customer service for your Amazon sales. In this blog post, we will break down how they work, the pros and cons of each option, the costs associated with each, and more, so you can choose the best fit for your business.

What is Amazon FBA?

Amazon FBA (Fulfillment by Amazon) is a service provided by Amazon that allows sellers to store their products in Amazon’s fulfillment centers. Amazon then takes responsibility for packing, shipping, and providing customer service for these products. When a customer orders a product, Amazon picks, packs, and ships it on behalf of the seller. This service also includes handling returns and refunds, managing customer inquiries, and providing access to Amazon’s customer service network.

What is Amazon FBM?

Amazon FBM, or Fulfillment by Merchant or Merchant Fulfilled Network, is a method of order fulfillment on the Amazon marketplace where the seller is responsible for storing, packing, and shipping their products directly to the customer. Unlike Amazon’s Fulfillment by Amazon (FBA) program, where Amazon handles the logistics and customer service on behalf of the seller, FBM requires the seller to manage these aspects themselves.

Sellers using FBM list their products on Amazon, and when an order is placed, they must ensure timely and accurate processing and shipping to meet Amazon’s performance standards. This includes maintaining adequate inventory levels, selecting appropriate packaging materials, and choosing reliable shipping carriers to deliver orders within the expected timeframe.

Additionally, FBM sellers are responsible for handling customer inquiries, returns, and any issues that arise during the shipping process.

Pros of Amazon FBA

Efficient Logistics

Amazon FBA simplifies the entire process for sellers. Instead of worrying about storing inventory, finding packaging materials, and shipping out each order, sellers send their products to Amazon’s warehouses. Once there, Amazon takes charge, handling everything from picking the right items for orders to carefully packing them and sending them off to customers. This saves sellers time and reduces the headaches associated with managing logistics independently. Amazon’s efficient system ensures that orders are processed quickly and accurately, leading to satisfied customers.

Prime Eligibility

A major perk of using Amazon FBA is that it often makes products eligible for Amazon Prime benefits. Prime members love getting their orders fast and for free. When sellers opt for FBA, their products can qualify for Prime shipping, attracting more Prime customers who are more likely to make purchases. This increased visibility can potentially lead to more sales for sellers. Being part of the Prime program opens up access to a vast pool of loyal and eager customers who value the convenience of fast shipping.

Customer Trust

When customers see that a product is fulfilled by Amazon, it automatically adds a layer of trust. Amazon has built a solid reputation for reliable and speedy shipping over the years. So, when buyers come across products with the “Fulfilled by Amazon” badge, they feel more confident about their purchase. This trust factor can significantly boost conversion rates because customers are more likely to complete their purchases without hesitation or second-guessing. Ultimately, the peace of mind that comes with knowing their orders will be handled by Amazon contributes to a positive buying experience.

Scalability

Another key advantage of Amazon FBA is its scalability. Whether a seller is just starting out or experiencing rapid growth, FBA can adapt to meet their needs. Sellers don’t have to worry about investing in additional warehouse space or hiring more staff to handle increased order volumes. Amazon’s robust infrastructure can handle fluctuations in demand seamlessly, ensuring that orders are fulfilled efficiently even during peak periods. This scalability gives sellers the confidence to grow their businesses without being held back by logistical constraints.

Customer Service

Amazon FBA doesn’t just take care of shipping; it also handles customer service. From dealing with returns to addressing any questions or concerns that buyers may have, Amazon’s dedicated support team is there to assist. This takes a significant burden off sellers’ shoulders, allowing them to focus on other aspects of their business. By outsourcing customer service to Amazon, sellers can ensure that their customers receive prompt and professional assistance, leading to higher satisfaction levels and repeat business. Ultimately, the comprehensive support provided by Amazon FBA contributes to a smoother and more enjoyable shopping experience for customers.

Higher Search Ranks

Products fulfilled by Amazon through FBA often receive a boost in search rankings on the platform. Amazon’s search algorithm tends to favor products that offer Prime shipping and those with high customer satisfaction ratings. Since FBA products typically meet both criteria, they’re more likely to appear higher in search results when customers are browsing or searching for items to buy. This increased visibility can lead to more clicks and ultimately more sales for sellers. Essentially, by using FBA, sellers can improve their products’ visibility and chances of being discovered by potential customers on Amazon’s platform.

Buy Box Advantages

The Buy Box is the section on an Amazon product page where customers can directly add an item to their cart. It’s highly sought after because most purchases on Amazon are made through the Buy Box. When a product is fulfilled by Amazon (FBA), it often gets a better chance of winning the Buy Box. This is because Amazon trusts its own fulfillment method to deliver orders reliably and quickly, making FBA products more likely to win the Buy Box over products fulfilled by merchants (FBM). When a seller’s product wins the Buy Box, it means that their product is displayed prominently on the product page, making it more likely to be chosen by customers. Winning the Buy Box can significantly increase a seller’s sales and visibility on Amazon.

Cons of Amazon FBA

Costs

While Amazon FBA offers convenience, it comes with a monthly inventory storage fee. Sellers must pay Amazon for storage space in their warehouses and for fulfillment fees for each order processed. These costs can eat into profit margins, especially for products with low-profit margins or slow turnover. Additionally, sellers may incur additional fees for services like labeling or removing inventory.

Lack of Control

When sellers opt for FBA, they relinquish some control over the fulfillment process. Amazon manages inventory, packaging, and shipping, which means sellers have less oversight and control compared to fulfilling orders themselves (FBM). This can be concerning for sellers who prefer to handle these aspects of their business directly or have specific packaging or branding requirements.

Long-Term Storage Fees

Amazon charges long-term storage fees for inventory that remains unsold in their warehouses for an extended period. This can be a significant expense for sellers with slow-moving or seasonal products. To avoid these fees, sellers must carefully manage their inventory levels and consider removing or discounting slow-selling items before incurring additional charges.

Restricted Access

Amazon’s FBA program has certain eligibility requirements and restrictions that may limit participation for some sellers. For example, sellers may need to meet specific performance metrics or adhere to Amazon’s product preparation and labeling guidelines. Additionally, certain product categories may be restricted or require approval for FBA participation, limiting opportunities for sellers in those niches.

Pros of Amazon FBM

Cost Control

With Amazon FBM, sellers have more control over their costs compared to FBA. Since sellers handle storage, packaging, and shipping themselves, they can potentially save on fulfillment fees charged by Amazon. This is particularly beneficial for sellers with tight profit margins or those who want to minimize expenses associated with fulfillment.

Flexibility

FBM offers sellers greater flexibility in managing their inventory and fulfillment processes. Sellers can choose their own storage facilities, packaging materials, shipping methods, and customer service. This flexibility allows them to tailor these aspects to their specific needs and preferences, enabling them to adapt quickly to changes in demand, seasonal fluctuations, or unique shipping requirements for certain products.

Brand Control

With FBM, sellers retain full control over their branding and customer experience. They can customize packaging, include personalized notes or promotional materials, and ensure that orders are packaged and presented exactly as they desire. This level of control allows sellers to reinforce their brand identity and build stronger connections with customers through personalized interactions.

Direct Customer Interaction

FBM enables sellers to interact directly with their customers throughout the fulfillment process. Sellers can communicate directly with buyers, address customer service inquiries or concerns promptly, and provide personalized customer service. This direct interaction fosters trust and loyalty, as customers appreciate the personalized attention and responsiveness from sellers.

Avoidance of Long-Term Storage Fees

Unlike Amazon FBA, which incurs long-term storage fees for inventory stored in Amazon’s warehouses for an extended period, FBM allows sellers to manage their inventory independently. This means sellers can avoid long-term storage fees by selling products more quickly or storing inventory in their own facilities or third-party warehouses.

Cons of Amazon FBM

Logistical Challenges

With Amazon FBM, sellers are responsible for storing inventory, packing orders, and arranging for shipping. This can be time-consuming and labor-intensive, especially for sellers managing large volumes of orders or operating without access to efficient logistics infrastructure. Sellers may also encounter difficulties in managing inventory levels and coordinating shipments, leading to potential delays or errors in order fulfillment.

Limited Prime Eligibility

Unlike FBA, where products are often eligible for Prime benefits such as free two-day shipping, FBM products may not qualify for Prime eligibility. This can put FBM sellers at a disadvantage, as Prime members tend to prioritize products with Prime shipping options. Without Prime eligibility, FBM sellers may struggle to attract and retain customers who value fast and free shipping, potentially impacting sales and competitiveness on the platform.

Customer Trust and Satisfaction

FBM sellers may face challenges in building and maintaining customer trust and satisfaction compared to FBA sellers. Customers may perceive FBM orders as less reliable or professional due to longer shipping times, inconsistent packaging, or lower perceived quality of service. Additionally, FBM sellers may struggle to provide customer service at the same level and convenience as FBA sellers, leading to lower customer satisfaction and potential negative feedback.

Increased Workload

Managing fulfillment operations independently can significantly increase the workload for FBM sellers. From handling inventory management and packaging to arranging shipping and managing customer inquiries, FBM sellers must juggle multiple tasks simultaneously. This can be overwhelming, especially for small or inexperienced sellers who may lack the resources or expertise to efficiently manage these responsibilities.

Risk of Seasonal Fluctuations

FBM sellers may be more susceptible to seasonal fluctuations in demand and shipping volumes compared to FBA sellers. During peak seasons or periods of high demand, FBM sellers may struggle to keep up with order volumes and ensure timely delivery to customers. Conversely, during slower periods, FBM sellers may face challenges in managing excess inventory and minimizing storage costs.

Choosing Between FBA and FBM: Which is Right for You?

The best fulfillment method for your Amazon business depends on your specific needs. Here’s a breakdown of when FBA (Fulfillment by Amazon) and FBM (Fulfilled by Merchant) might be the better choice:

FBA is ideal for:

High-volume sellers: If you sell a lot, FBA handles the logistics, letting you focus on growth.
Sellers who want to outsource: FBA takes care of packing, shipping, and customer service, freeing up your time.
New sellers: No need to set up your own shipping – Amazon’s network takes care of it all.
Sellers with limited space: Store your products in Amazon warehouses and avoid storage costs.
Sellers with standard-sized products: FBA is cost-effective for items that fit Amazon’s size and weight tiers.
Sellers comfortable with FBA fees: The convenience of FBA comes with storage and fulfillment costs.

FBM is a good option for:

Sellers with slow-selling products: Avoid FBA storage fees for items that don’t sell quickly.
Experienced logistics managers: If you already have a shipping system in place, you can potentially save money with FBM.
Sellers with existing shipping partners: Leverage your existing relationships for potentially better rates.
Sellers with storage space: Manage your inventory in your own warehouse and avoid Amazon storage fees.
Sellers with non-standard sized products: FBM is more flexible for unique or oversized items that may incur high FBA fees.
Sellers focused on profit margins: Avoid FBA fees and potentially increase your profit margins with FBM.

Can Amazon sellers use both FBA and FBM fulfillment methods?

Yes, absolutely! Amazon sellers can leverage both FBA and FBM fulfillment methods for their products. There are two main ways to do this:

Using FBA and FBM for different products: You can choose to fulfill different products through FBA and FBM depending on what makes the most sense for each item. For example, you might use FBA for your fast-selling, standard-sized products and FBM for your bulkier, slower-selling items.
Using both FBA and FBM for the same product: This is done by creating two listings under the same product ID (ASIN). One listing would be set up for FBA fulfillment, and the other would be set up for FBM fulfillment. This can be useful for ensuring you never run out of stock on your product listing, even if your FBA inventory runs low.

What is Amazon Seller Fulfilled Prime?

Amazon Seller Fulfilled Prime (SFP) is a program designed for sellers on Amazon who want to offer Prime benefits (like fast and free shipping) to customers, but handle the fulfillment themselves. In simpler terms, you get to store and ship products from your own warehouse, but still display the Prime badge on your listings.

Requirements:

Strict performance standards: Maintain high on-time delivery rates (over 93.5%), valid tracking rates (over 99%), and low cancellation rates.
Fast shipping speeds: Offer one-day or two-day shipping to Prime customers.
Fulfillment options: You can fulfill orders from your own warehouse or use a third-party logistics (3PL) service.

Conclusion

In conclusion, whether you opt for FBA or FBM depends on what matters most to your business: convenience, control, or cost savings. FBA offers a streamlined process with Prime benefits and trusted fulfillment, but it comes with higher fees. On the other hand, FBM gives you more control and potential cost savings but requires more effort and may lack Prime eligibility.

By weighing these factors against your business priorities, you can make an informed decision that sets you up for success on the Amazon platform.