FBA vs. FBM: Discover the Best Fulfillment Strategy for E-commerce Success

We're often asked - should I use Amazon FBA or FBM? The truth is, there's no one-size-fits-all answer. The best Amazon sales model for your business depends entirely on your unique situation and goals.

Deciding how to fulfill orders is pivotal for all eCommerce sellers on Amazon.

Should you utilize Fulfillment by Amazon (FBA) and let them handle storage, picking, packing, and shipping? Or is Fulfillment by Merchant (FBM) better to give you control over the fulfillment process?

Comparing Amazon FBA vs. FBM requires understanding the key differences between these fulfillment methods.

In this comprehensive guide, we’ll break down the pros and cons of each approach to help you determine the best strategy for your e-commerce business.

Quick Overview of Amazon FBA and FBM

Before diving into the main topic, you should first understand FBM and FBA and their key concepts.

With Fulfillment by Amazon, sellers ship their products to Amazon's warehouses in advance. When a customer orders any product, Amazon picks, packs, and dispatches the product on the seller's behalf.

Amazon also provides customer service and handles returns for FBA orders. Sellers pay Amazon fees for storage space and fulfillment services.

With Fulfillment by Merchant, sellers manage the entire fulfillment process themselves. The merchant stores their own inventory and ships orders directly from their location to customers.

FBM gives sellers more control over fulfillment but requires handling all logistics and customer service themselves. FBM fees paid to Amazon are lower.

How Does Amazon FBA Work?

The FBA program provides a turnkey solution for sellers who want Amazon to handle fulfillment:

1. Sellers ship inventory to Amazon fulfillment centers in advance. They can use Amazon’s discounted shipping rates or their carrier of choice.
2. Amazon stores products until an order is placed. Sellers can monitor their inventory levels and sales reports through their Amazon Seller Central account.
3. Amazon employees pick, pack, and ship the order to the customer when a sale occurs. Amazon also offers gift wrapping and messaging options for FBA orders.
4. Amazon provides customer service and processes returns. Amazon handles inquiries, refunds, and exchanges for FBA orders and follows Amazon’s return policies.
5. The seller pays Amazon fees for storage space and order fulfillment. These fees vary depending on the product size, weight, category, and season.
6. FBA integrates directly with a seller’s Amazon Seller Central account. Inventory levels and sales reports are synced.

How Does Amazon FBM Work?

With Fulfillment by Merchant, sellers manage the entire fulfillment process:

1. The seller stores their own inventory in a personal warehouse or fulfillment center. They can use their own storage space or partner with a third-party logistics provider.
2. When an order arrives, the merchant selects, packages, and ships the items directly to the customer. They can use their own shipping methods or Amazon’s Buy Shipping service.
3. The seller provides all customer service and handles product returns. The seller is responsible for answering customer inquiries, issuing refunds, and accepting returns, and must follow Amazon’s customer service standards.
4. The seller pays FBM Amazon fees for listing and selling their products. These fees include the referral and closing fees based on the product category and price.
5. FBM requires sellers to manage their own inventory and sales reports. They can use Amazon’s inventory management tools or third-party software to track their stock and orders.
6. FBM sellers can still participate in Prime shipping on Amazon if they register for Seller Fulfilled Prime (SFP), but they must meet Amazon’s performance and delivery requirements.

Pros and Cons of Amazon FBA

Fulfillment by Amazon provides some significant benefits. But there are also some limitations to consider:

Advantages of FBA

The advantages of FBA include:

Convenience and time-saving for sellers

FBA handles time-consuming fulfillment tasks like picking, packing, shipping, returns, and customer service on the seller's behalf.

Getting rid of these tiresome tasks allows merchants to focus on other aspects of their business, like sourcing products, marketing, and managing sales.

Access to Amazon Prime and other benefits

FBA listings can qualify for Prime shipping badges, which draw in Prime members. Over 200 million Prime members globally actively filter searches for Prime-eligible products.

One 2021 survey found that 56% of shoppers filter searches specifically for Prime items. FBA typically performs better than FBM for winning the crucial Buy Box.

Faster shipping and improved customer experience

In many cases, Amazon leverages its supply chain infrastructure to ship products faster than individual sellers.

FBA items can qualify for 1-2 day Prime shipping, which customers have come to expect and appreciate for convenience.

However, not all FBA items are eligible for Prime shipping, as some products may have longer processing times or special handling requirements.

Disadvantages of FBA

The disadvantages of FBA include:

Higher fees and costs associated with storage and fulfillment

FBA storage and order fulfillment fees add up quickly, including monthly storage fees per cubic foot and per-order fulfillment fees. For some products, these fees can significantly eat into profit margins.

FBA also limits customization options compared to FBM, restricting branding opportunities. FBA shipments use generic Amazon packaging. Sellers cannot customize boxes or inserts with branded materials or personalized notes.

Loss of control over inventory and shipping process

One major downside of FBA is sellers need to give up control and oversight before orders ship out. They can't check product quality or ensure proper handling. Inventory issues like damages or shortages can occur.

Amazon mixes inventory from multiple FBA sellers together in their fulfillment centers. Mistakes can happen when picking items, especially if products lack unique labeling. This inventory commingling causes headaches for some sellers.

Strict preparation and labeling requirements

Amazon has precise rules for prepping and labeling FBA inventory before shipment to their centers. Products that don't strictly meet these standards risk being rejected upon arrival.

It can be a time-consuming and costly hassle for sellers new to the FBA requirements.

Comparison of Shipping Options: FBA vs Self-Fulfillment

Pros and Cons of Amazon Fulfillment by Merchant

Handling fulfillment in-house allows customization but comes with challenges:

Pros of FBM

Here are the pros of opting for FBM:

Greater control over inventory, packaging, and shipping processes

FBM allows sellers to inspect orders before shipment and optimize inventory management. They gain complete control and flexibility in packaging and branding as well.

Lower fees and cost savings for small businesses

Without FBA monthly storage and fulfillment fees, FBM offers improved profitability, especially for low-volume sellers or those with optimized in-house fulfillment operations. These FBM cost savings can be significant.

Ability to offer personalized customer experiences

FBM enables fully customized packaging, inserts, notes, and branding. Sellers can provide a tailored, premium unboxing experience for each order.

Cons of FBM

Here are the cons of opting for FBM:

Time-consuming fulfillment process for sellers

FBM requires manually handling picking, packing, shipping, and providing customer service instead of leveraging Amazon's automation and efficiencies.

Providing quality customer service while personally handling all queries and product returns adds workload, overhead, and opportunity cost.

Limited access to Amazon Prime benefits and potential impact on sales

Non-Prime FBM items lose the Buy Box more often compared to FBA offers. Slow shipping times can also deter some customers from purchasing FBM products.

We’ve seen that FBA listings beat FBM listings for winning the Buy Box the vast majority of the time, as much as 90% in some categories, which can significantly hurt conversions.

No Flexible scalability like FBA

FBM requires capacity planning and expanding infrastructure as sales grow. FBA offers nearly infinite, on-demand scalability up or down.

Key Differences Between FBA and FBM Sellers

Looking at actual Amazon seller data reveals insightful distinctions:

Profitability comparison

Looking at profitability, FBM sellers tend to earn higher revenues overall. According to the State of the Amazon Seller 2023 report, 28% of FBM sellers earn more than $25,000 monthly, compared to only 12% of FBA sellers hitting that revenue milestone.

Regarding profit margins, 38% of FBM sellers see margins over 20% versus just 35% of FBA sellers. The control over fulfillment and lower fees give FBM an edge.

Speed of getting started

When it comes to launching quickly, FBM has a slight lead. 42% of FBM sellers can get started on Amazon in less than two months, compared to 41% of FBA sellers.

15% of FBM sellers realize their first profit under three months after the launch, versus 14% for FBA sellers. The extra preparation needed for FBA adds a slight delay.

Time management

Regarding time invested, FBA and FBM sellers are nearly identical. 22% of FBM sellers spend 11-20 hours per week operating their Amazon business, compared to 22% of FBA sellers.

Around half of FBA and FBM sellers cite having sufficient time to commit as a critical factor in their success on Amazon.

Top product categories for each method

Some clear category preferences emerge when analyzing the top products sold via FBA versus FBM:

FBA Category Leaders:

• Home & Kitchen (30%)
• Beauty & Personal Care (24%)
• Kitchen & Dining (30%)

FBM Category Leaders:

• Home & Kitchen (25%)
• Books (16%)
• Garden & Outdoor (14%)

The data indicates FBA's strength in high-volume categories like home goods and beauty, while FBM sees strength in books and bulkier outdoor items.

Tips for Deciding Between FBA and FBM

FBA or FBM? Choosing the best fulfillment approach requires careful analysis:

Evaluate business goals, resources, and inventory size

• Consider your business's growth plans, existing staffing and resources, and expected inventory volume. FBA supports scaling up easily, while FBM gives smaller sellers more control.
• Audit the ability to handle support, returns, and fast shipping without Amazon’s infrastructure.
• If pursuing rapid growth is critical, FBA's order automation and storage capabilities excel. For niche products, FBM may be preferred.

Analyze selling patterns, customer expectations, and competition

• Review historical sales velocity patterns. If shoppers expect 2-day Prime shipping for your products, FBA helps you compete on convenience and speed.
• Research competitor shipping times and Prime eligibility.
• Match your fulfillment method to align with customer expectations.

Create a cost and profitability assessment

• Use Amazon's Revenue Calculator to compare total fulfillment costs, including FBA vs. FBM fees, labor hours, packaging, and shipping rates.
• Project costs over the next 12 months based on estimated sales.
• Weigh the profitability difference between FBA and FBM for your business.
• Developing this kind of data-driven analysis is critical. Look at short-term and long-term costs and profit potential between the two fulfillment methods.

Frequently Asked Questions

Below are a few frequently asked questions surrounding the topic of Amazon FBA vs FBM:

What percentage does Amazon FBA take?

Amazon charges referral fees of 15% on most products. There are also Fulfillment by Amazon fees for storage and order processing. Overall fees range from 20-45%.

What is Amazon FBA private label?

Sellers create private-label products with their own brand names and packaging. Many merchants use FBA to fulfill orders for their private-label items.

How much money do you need to start Amazon FBA?

To launch with FBA, we recommend having at least $3000-$5000 to cover initial inventory, shipping, and fee costs. High-volume sellers may need more upfront.

Conclusion

Determining the best fulfillment approach between Amazon FBM vs. FBA is crucial for e-commerce success.

FBA simplifies scaling with automation, Prime eligibility, and extensive infrastructure. It’s ideal for sellers focused on rapid growth.

Evaluating your business goals, resources, and product types is essential to choose between Fulfillment by Amazon and Fulfillment by Merchant.

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