In the realm of e-commerce, the colossal presence of Amazon provides merchants with two distinct models to propel their products into the marketplace: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM).
Each approach bears its own set of advantages and disadvantages, and the decision between them holds the potential to significantly shape the triumph of your online venture.
Within the pages of this article, our exploration will delve into the disparities between Amazon FBA and FBM. The aim is to equip you with insights that aid in the pivotal decision-making process, guiding you toward the model that aligns best with your unique needs and aspirations.
The Differences Between Amazon FBA and FBM
In the quest for the optimal choice, discerning which of the two fulfillment methods, FBA or FBM, holds greater economic allure is paramount. The preferred option is the one entailing lower costs.
Opting for Amazon FBA incurs higher Amazon fees compared to an FBM merchant. On the flip side, FBM merchants contend with heightened opportunity costs.
Opportunity costs encompass foregone profits resulting from choosing one alternative over another. Consider, for instance, dedicating 10 hours weekly to packaging and shipping. At an average hourly wage of $20, this translates to costs amounting to $800 per month.
The pivotal question emerges: Is insourcing or outsourcing more financially viable? The answer primarily hinges on the size and structure of your business, coupled with the nature of your products. Do you have ample personnel? Are your products on the smaller or larger side? What is the selling price of your products?
All these factors influence your overall costs. If your company can process 100 orders per day, your costs will be considerably lower than a business handling only ten orders daily.
Against this backdrop, it becomes imperative to calculate your costs per order with FBM and subsequently compare them with the costs associated with FBA. This process aids in determining whether Amazon FBA is financially advantageous for your specific circumstances.
To ascertain your FBA costs, follow these steps:
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:
The Advantages of Amazon FBA and FBM
In the evaluation of Amazon FBA and FBM, as with any business model, both positive and negative aspects come to light. This section provides comprehensive insights to facilitate an informed decision on which of the two models, Amazon FBA or FBM, best suits your business.
The Advantages of Amazon FBA
The acronym FBA stands for “Fulfillment by Amazon“. With the FBA service, Amazon assumes all logistical aspects of order fulfillment, including storage, shipping, returns processing, and customer service.
Simply dispatching your products to an Amazon Fulfillment Center suffices, and Amazon takes charge of all subsequent steps in this process. Here is a video explaining the functionality of Amazon FBA:
Amazon FBA does not mean that Amazon actively markets your products, but takes over the entire logistical process. However, you remain responsible for promoting your products yourself. These are the most important advantages of Amazon FBA:
More Time to Grow Your Business
This benefit is the most important one when deciding between FBA and FBM. As already mentioned, you’ve to sell your products on your own through the Amazon marketplace.
And like with any other sales channel, you’ve to invest time and money into promotion. For example, you can promote your product listings with:
- Amazon PPC
- Facebooks Ads
- Email Marketing
These are all marketing activities that help you make more sales and grow your Amazon 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.
Eligibility for Amazon Prime
FBA products are automatically eligible for Amazon Prime and thus for prime shipping. Selling products via Amazon Prime makes a big difference – many advantages come with Amazon Prime.
First, you can provide a better customer experience as your products are eligible for one-day delivery, and the amazon prime badge will show up on your product listing. Second, Amazon Prime members spend $1,400 per year on average, while non-Prime members only spend $700 a year.
Here’s an infographic showing the most significant benefits that come with Amazon Prime:
Furthermore, Amazon Prime members convert at 74% while non-prime members at 13%:
Win the Amazon Buy Box More Often
That’s because you need to fulfill several criteria to win the Buy Box. One important criterion is 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 for you. Consequently, you’ll win the Buy Box more often.
Most Processes are Outsourced
With the FBA service, Amazon takes care of storage, shipping, returns and customer service. All of these processes are outsourced to Amazon, so you have no expenses for staff or warehouse space.
When deciding between Amazon FBA and FBM, it is crucial to find out whether these savings are worthwhile for your business.
The Advantages of Amazon FBM
FBM is another fulfillment option and means Fulfillment by Merchant. If you go for FBM, you’ve to store, pack, and ship products yourself, or you can outsource fulfillment to a 3rd party (not Amazon). Like Amazon FBA, FBM also has some benefits. Here are the most important ones:
Greater Control Over Your Business
If you opt for Amazon FBM, you have more control over your own business. When a return is made as an FBA merchant, Amazon decides whether the product is still sellable or not.
If Amazon decides that the product is no longer sellable, they throw it in the trash and you lose your product and your money. As an FBM retailer, however, you can decide for yourself whether a product is still saleable or not.
Fewer Amazon Fees
For over-size products, the storage fees per m² are cheaper:
However, the absolute fees are usually much higher. Thus, if you sell over-size products, it could be beneficial to fulfill orders on your own. If you have a diverse product portfolio, you can also use FBA and FBM.
Keep in mind that you only have to pay your Amazon seller account fees and the referral fees as an FBM seller. This will also save you some costs.
Opportunity for the Prime Program
Seller-Fulfilled Prime offers Amazon sellers the benefits of FBA without paying fulfillment or storage fees. Amazon sellers with a professional seller account can display the Amazon Prime badge on their product listings for orders processed through their own warehouse.
Conclusion – Amazon FBA vs. FBM
The decision between Amazon FBA and FBM is crucial for the success of your e-commerce business. With Amazon FBA, the giant takes care of the logistics, enables sales via Prime and increases the chances of winning the Buy Box. However, this requires an investment in self-promotion and comes with higher fees.
In contrast, 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 as with FBA.
The choice between FBA and FBM depends on the size, structure and product range of the business. FBA allows more time for growth and automated prime selling, while FBM offers more control and potentially lower fees for certain products.