Amazon provides e-commerce sellers with two models to sell their products on the marketplace: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM).
Each approach offers its own set of advantages and disadvantages, and the decision between them can significantly impact your online venture’s success.
This article will explore the disparities between Amazon FBA and FBM to provide insights that aid in the pivotal decision-making process, guiding you toward the model that aligns best with your business needs.
8 Factors To Consider When Choosing a Fulfillment Method
Amazon FBA is a popular choice for Amazon sellers but it’s not ideal for every product. Here are 7 factors to consider when choosing the ideal fulfillment method for your business.
1. Item Size/Weight
Amazon’s fee structure and logistics benefit Amazon FBA sellers selling small, lightweight products that sell quickly. However, Amazon’s fees are not conducive to oversized products with slower turnover.
You can use the Amazon’s FBA revenue calculator to decide which method is right for you. It will predict fees and expenses so you can determine which fulfillment method is the most profitable.
Here’s an example of where FBM may make more sense for your business. Let’s say you are selling a large item that will take up a lot of space in Amazon’s fulfillment centers and be expensive to ship. If you have the space and capabilities, it will likely be less costly to ship the item yourself.
2. Control of Customer Experience
Amazon FBM sellers manage product storage, shipping, and customer service themselves, while FBA sellers rely on Amazon for storage, shipping, and customer support.
FBA sellers have minimal direct interaction with customers, giving them less control over the customer experience. However, this ‘hands-off’ approach frees them from handling issues and customer concerns directly.
3. Seller Feedback
Customers can rate their satisfaction with Amazon sellers using the seller feedback system, which includes two components: a star rating, where shoppers assess the seller’s performance on a 1-5 scale, and a comments section, allowing them to share details about their experience.
Note that the seller rating is different from a product rating. The seller rating only covers elements such as shipping, whether or not the product matches its description, and seller communication. It does not refer to the product itself.
Amazon handles most of the FBA fulfillment process so FBA sellers don’t have to be as concerned with seller feedback. In fact, if Amazon handles an FBA seller’s transaction and the seller receives negative feedback, the seller can request feedback removal.
FBM sellers have more control over their transactions so they are more vulnerable to negative feedback on Amazon. They must focus more on product condition, shipping speed, and customer service to ensure a positive customer experience.
4. Turnover Rates
A seller’s turnover rate refers to how quickly they sell and restock inventory. An FBA seller’s turnover rate is important because Amazon tracks the time inventory remains in their fulfillment centers.
FBA sellers incur storage fees, which increase the longer a product remains in storage. If products are stored in an Amazon fulfillment center for 180 days or longer, the inventory will start incurring an aged inventory surcharge which will negatively impact your IPI score. You will also be unable to send more inventory to the center.
Sellers with products that have slow turnover rates should consider FBM fulfillment to avoid Amazon’s expensive storage fees.
5. Logistics
Picking, packing, and shipping products are time-consuming processes. New Amazon sellers who do not have the means to handle these processes may prefer to start with Amazon FBA. That way, they can focus on building their business.
Sellers who add Amazon as a new sales channel to their existing business may already have logistics in place. However, they still may want to review whether Amazon FBA can save them money, especially if they sell and ship high-turnover products.
6. Amazon Fees
Amazon FBA sellers pay fees covering picking, packing, and shipping within Amazon’s fulfillment network. FBM sellers avoid these fees but must handle their own shipping, storage, labor, and packaging costs. If these expenses outweigh FBA costs, switching to FBA might be more cost-effective.
7. Prime Badge
FBA products automatically qualify for Amazon Prime shipping, displaying the well-recognized Prime badge on listings. This visibility grants access to over 200 million Amazon Prime members worldwide, who prioritize Prime products for their promise of fast, 1-2 day delivery with free shipping. This eligibility is a significant advantage for FBA sellers, boosting both visibility and sales potential among Prime shoppers.
FBM sellers can also access Prime’s benefits by enrolling in Seller-Fulfilled Prime, allowing them to display the Prime badge on listings if they meet Amazon’s standards for fast and reliable shipping. While more involved logistically, Seller-Fulfilled Prime gives FBM sellers the opportunity to appeal to Prime members while retaining control over fulfillment.
8. Economic Benefit
In the quest for the optimal choice between FBA or FBM fulfillment methods, you must determine which provides the greatest economic benefits and lowest costs.
Amazon FBA incurs higher Amazon fees. However, FBM merchants must dedicate more time to their business, possibly missing out on opportunities.
Opportunity costs include foregone profits. Consider, for instance, dedicating 10 hours weekly to packaging and shipping. At an average hourly wage of $20, this translates to $800 per month.
You must ask yourself: Is insourcing or outsourcing more financially viable? The answer depends on the size and structure of your business and the nature of your products. Do you have ample personnel? Are your products small or large? What are your price points?
These factors influence your overall costs. Companies that process 100 orders per day will have lower costs than a business handling only ten orders daily.
Calculate your costs per order with FBM and compare them with FBA costs. This process will help you determine whether Amazon FBA is financially advantageous for your circumstances.
To ascertain your FBA costs, follow these steps:
1. Sign up for a free Helium 10 account
2. Download Helium 10’s Chrome Extension
3. Head over to Amazon and choose a similar product:
4. Change values such as Unit Manufacturing Cost, Est. Freight Cost and check costs and profits:
5. Once you know all costs for Amazon FBA, decide what’s better for your business.
Key Differences Between Amazon FBA and FBM Sellers
Several key distinctions exist between Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM) sellers. Understanding these differences can help sellers make an informed decision on the best approach for their business.
Profitability: FBA vs. FBM
Studies indicate that FBM sellers often report higher revenue and profit margins than FBA sellers. For instance, 28% of FBM sellers earn over $25,000 in monthly revenue, compared to just 12% of FBA sellers. Profit margins also tend to be higher among FBM sellers, with 38% achieving margins over 20%, while only 35% of FBA sellers reach the same margin level (Jungle Scout, 2023).
Speed to Market
When it comes to launching on Amazon, FBM sellers typically get their businesses up and running faster than FBA sellers. Data shows that 42% of FBM sellers were able to start within two months, with 15% realizing a profit within three months. Similarly, 41% of FBA sellers launched within two months, with 14% achieving profitability in the same timeframe (Jungle Scout, 2023).
Management Time
Both FBA and FBM sellers spend similar amounts of time managing their Amazon businesses, generally between 11 and 20 hours per week. According to a survey by Jungle Scout, about 53% of FBM sellers and 52% of FBA sellers attribute their success to the time they commit to their business operations (Jungle Scout, 2023).
Business Models: Private Label vs. Wholesale
A larger proportion of FBA sellers focus on private label products, with 55% using this model compared to 44% of FBM sellers. FBM sellers are more likely to use the wholesale business model, with 35% opting for this approach versus 26% of FBA sellers (Jungle Scout, 2023).
Startup Capital
FBM sellers typically require less startup capital than FBA sellers. Approximately 17% of FBM sellers begin with $2,501-$5,000, while 46% of FBA sellers launch with over $5,000 in initial capital, compared to 43% of FBM sellers (Jungle Scout, 2023).
Conclusion – Amazon FBA vs. FBM
The decision between Amazon FBA and FBM is crucial for the success of your e-commerce business. With FBA, Amazon takes care of the logistics, enables sales via Prime, and increases the chances of winning the Buy Box. However, it comes with higher fees.
FBM offers more control over the business and can be more cost-effective for oversized products. The retailer retains decision-making power over returned products, but the processes are not as outsourced giving the seller more control.
The choice between FBA and FBM depends on the size, structure, and product range of your business. FBA allows more time for growth and automated prime selling, while FBM offers more control and potentially lower fees for certain products.
