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Not sure whether Amazon FBA or FBM is better for your business?
Both fulfillment methods have their pros and cons, and you can use both to sell on Amazon, reach thousands of customers, and make more sales.
In fact, it's pretty easy to decide whether FBA or FBM is better for your business. All you need is a simple mathematical calculation.
If you want to know which fulfillment method you should go for, read on because I'll show you which one makes you more money in this post.
If you want to decide whether FBA or FBM is better for your business, you've to determine which fulfillment method is more lucrative.
It's that simple. The fulfillment method that costs you less money is the best for your business.
If you’re going for Fulfillment by Amazon, you'll have to pay more fees than an FBM seller.
On the other hand, if you fulfill orders on your own, you’ll have much more opportunity costs.
But what are opportunity costs?
Opportunity costs represent the profits you miss out when choosing one alternative over another. (Source)
Imagine you need to invest 10 hours a week in packaging and shipping. With an average hourly wage of $20, this will cost you $800 a month.
Finally, you’ve to ask yourself: Is self-fulfillment or outsourcing more profitable?
This mainly depends on the size & structure of your organization and on the products you sell.
Do you have enough manpower? Are your products small or over-size? What’s the selling price of your products?
All of this influences your fulfillment costs. If your organization can handle 100 orders per day, your costs will be much lower than if your organization can only handle 10 orders per day.
Estimate your fulfillment cost per order when using FBM. Then compare these costs with FBA costs. There's no way around this calculation.
Here's what you need to do to calculate FBA costs:
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:
Everything has pros and cons, including Amazon FBA and FBM.
Here's everything that's really important and has an impact on your business:
What’s Amazon FBA? The acronym FBA stands for Fulfillment by Amazon. Using Amazon's FBA service, Amazon takes care of the entire logistical order processing. This includes storage, shipping, returns, and customer service.
The only thing you need to do is to send your inventory to Amazon and then sell your products through the Amazon marketplace.
Here’s a video explaining how Amazon FBA works in detail:
However, Amazon FBA doesn't mean that Amazon sells your products for you.
They only fulfill your orders. You've to promote your products on your own to make sales.
Here are all the major pros of Amazon FBA:
This is the most important point to keep in mind when deciding whether to go for FBA or FBM.
As already mentioned, you've to sell your products on your own. And to succeed, you've to invest time and money into promotion.
These are all marketing activities that help you make more sales and grow your business in the long run.
But you’ll need time for them. And if you don’t have this time, you can't establish a successful business.
8 out of 10 online stores fail due to marketing problems. In fact, it's not the best product that wins, but the best-known one that wins.
When you use Amazon’s FBA service, your products are automatically eligible for Amazon Prime.
This will make a big difference. There are many advantages that come with Amazon Prime.
For example, Amazon Prime members spend $1,400 a year on average while non-Prime members only spend about $700 a year.
Here's an infographic showing the major benefits that come with Amazon Prime:
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It’s fact that FBA sellers win the Buy Box more often compared to FBM sellers.
That’s because you need to fulfill several criteria to win the Amazon Buy Box. The most important criteria is that you've great seller feedback and that you're a "reliable" seller.
When you use Amazon FBA, Amazon knows that you're "reliable", because they fulfill your order and handle customer service fo you.
Consequently, you'll win the Buy Box more often.
Here's what Amazon handles for you if you use the FBA service:
All these processes are outsourced. You don't have to spend money on staff or storage space.
What you need to do is find out if these savings will pay off or not.
How much would you've to pay per square meter? How much would you've to pay your employees per hour?
At the end of the day, you've to investigate which fulfillment method is more profitable.
FBM means Fulfillment by Merchant. If you go for FBM, you’ve to store, pack, and ship products on your own. You also have to handle customer service.
FBM is well suited for sellers who sell over-size products. That's because fees for over-size products are usually much higher than for standard-size products.
However, you're also able to register as an FBA and FBM seller.
In this section, I break down the main benefits of Amazon FBM:
If you choose Amazon FBM, you'll have more control over your own business.
If you're an FBA seller and a return occurs, Amazon decides whether the product is still sellable or not.
If they decide that a product isn't sellable anymore, they will throw it into the trash and you'll lose all your products and money.
But if you fulfill orders on your own, you can decide whether a product is still sellable or not.
For over-size products, the fees per m² are cheaper:
However, absolute fees are usually much higher.
Thus, if you sell over-size products, it could be beneficial to fulfill products on your own.
If you have a diverse product portfolio, you can also use FBA and FBM.
Here's everything that's important: