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 become a successful Amazon seller.
However, it’s easy to decide whether you should go for FBA or FBM. The fulfillment method that makes you more money is the better one.
If you want to know which fulfillment method you should choose, you’ve come to the right place.
Here are the contents of this article:
- FBA and FBM Costs
- Amazon FBA Pros
- Amazon FBM Pros
Amazon FBA or FBM? You Need to Consider This…
If you want to know whether FBA or FBM is better for your business, you’ve to find out which fulfillment method is more lucrative.
If you’re going for FBA, you have to pay more fees than an FBM seller.
- Amazon Seller Account fees
- Storage fees
- Referral fees
- Fulfillment fees
Especially the long-term storage fees can become costly for FBA sellers. Compared to that, FBM sellers only have to pay the following fees:
- Amazon Seller Account fees
- Referral fees
Both FBA and FBM sellers must pay additional fees like refund administration fees.
However, 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 ten hours per week for shipping orders on your own. With an average hourly wage of $20, this will cost you $800 per month.
Therefore, you need to figure out whether the FBA fees are higher or lower than the costs when shipping orders on your own.
You also need to store your products in your own warehouse because you can’t store them in an Amazon warehouse as an FBM seller.
So, which fulfillment method is better depends mainly on the size and structure of your business and the products you sell.
Is your workforce large enough? Are your products small or over-size? Is it cheaper to store your products in your own warehouse or one of Amazon’s fulfillment centers? What’s the profit margin 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 handle only ten orders per day.
You need to calculate your fulfillment costs per order when using FBM. Then compare these costs with the FBA costs.
Here’s how to calculate your FBM 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:
The True Benefits of Amazon FBA and FBM…
Amazon FBA and FBM both have their pros and cons. Here is everything you need to know to decide whether Amazon FBA or FBM is better for your business.
What Is Amazon FBA?
FBA stands for Fulfillment by Amazon. With the FBA service, Amazon takes care of the entire logistical order processing, including storage, shipping, returns, and customer support.
You only need to send your inventory to Amazon, and Amazon handles the rest of the fulfillment process for you. You have to pay Amazon FBA fees for this service.
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 do the order fulfillment, but you’ve to promote your products yourself to make sales on Amazon.
Amazon FBA Pros
Amazon FBA has lots of benefits for ecommerce businesses. We believe that these are the most important ones:
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:
Win the Amazon Buy Box More Often
It’s a fact that Amazon FBA sellers win the Buy Box more often compared to FBM sellers.
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 Outsourced
Here’s what Amazon handles for you if you use the FBA service:
- Customer support
All these processes are outsourced. You don’t have to spend money on staff or storage space.
However, you need to find out whether 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?
You’ve to investigate which fulfillment method is more profitable.
What Is 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).
FBM is well suited for sellers who sell over-size products. This is because the fees for this product category are usually much higher than for standard-size products.
Amazon FBM Pros
Like Amazon FBA, FBM also has some benefits. Here are the most important ones:
Greater Control Over Your Business
If you go for Amazon FBM, you’ll have full control over your business.
As an FBA seller, Amazon decides whether a product is still sellable or not when a return occurs.
If they decide that a product isn’t sellable anymore, they will throw it into the trash, and you’ll lose your product and money.
But if you fulfill orders on your own, you can decide whether a product is still sellable 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.
Here is everything important:
- With Amazon FBA, Amazon doesn’t sell your products. They only fulfill your orders.
- You’ve to calculate your fees and profits to determine whether FBA or FBM is better for your business.
- If you’re selling over-size products, FBM could be a good choice.
- It’s essential to know your opportunity costs.
- The more lucrative fulfillment method is the best for you.