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There are almost 3 million active sellers on Amazon – a number that grows at a rate of 3,000 new sellers per day. Each of those Amazon sellers has to make a decision when it comes down to fulfilling orders: pay Amazon to fulfill orders or manage the process themselves.
Amazon can ship orders on your behalf through the Fulfillment by Amazon (FBA) program, or you can skip this altogether and take full ownership with Fulfillment by Merchant (FBM). A large majority of Amazon sellers utilize FBA in their fulfillment strategy while only a third use Amazon FBM.
What's the Difference Between FBA & FBM
Fulfillment by Amazon (FBA):
With FBA, you will need to send your inventory directly to Amazon and from there, they manage end-customer shipments on your behalf. Amazon’s staff will then pick, pack, and ship your products to customers as orders come in. This service includes the handling of customer service tasks – including returns and refunds.
Amazon FBA tends to be ideal for businesses if their items have a fast turnover and/or items are small or expensive. FBA is also recommended for sellers who do not possess the manpower to fulfill orders smoothly and efficiently. Amazon also charges you a fulfillment fee and a monthly storage fee which is calculated based on multiple factors regarding your business and products.
Fulfillment by Merchant (FBM):
On the flip side, FBM places sole responsibility on the seller. With the FBM program, you list your products on Amazon but take care of the entire handling process, order fulfillment, and shipping and returns operations yourself.
Instead of paying a fee to Amazon, you’ll use your own resources to store, package, and ship orders directly to buyers – oftentimes this requires the utilization of a 3PL (third-party logistics partner). With FBM, Amazon will provide you with a platform to list your products while you handle the rest of the business operations.
FBM is usually recommended for sellers who sell items that are large or heavy and/or products that do not have a fast turnover.
Advantages of FBA:
- Able to earn eligibility for Amazon Prime (access to frequent buyers and faster shipping)
- Greater sales potential with improved visibility within search results
- Customer service, returns, and shipping are all processed by Amazon
- Better conversions since people prefer to buy products that come from FBA
- Conveniency with inventory storage
Disadvantages of FBA:
- Severe delays during the holiday season
- Higher storage fees and inventory charges
- Lower profit margins
- Less control over packaging with minimal transparency
- Limited access to inventory
- Lengthy wait times before a product goes live
Advantages of FBM:
- Higher control over packaging inventory
- Simplified order tracking
- Ability to fulfill offline and online orders from the same warehouse
- Overall better margins
- Better control over business operations as a whole
Disadvantages of FBM:
- Overhead costs
- Tougher competition from FBA sellers
Now you have an understanding of how the two fulfillment methods work with Amazon. In summary, Amazon FBA should be chosen when you have a product with a fast turnover – especially since you are more likely to receive multiple orders a day. With this in mind, it’s proven beneficial to have Amazon at the backend of your fulfillment process.
On the other hand, if you have a product with a low sales velocity, FBM is a necessary choice, since the orders you receive may not be selling at a consistent pace. Therefore, it would be unwise to continuously pay Amazon for FBA storage fees when an FBM strategy best suits your needs. Choosing this fulfillment option if you already have an established shipping network or a 3PL partner will prove beneficial.
With FBM, you’ll also be able to work more efficiently with branding as you have full control over packaging. With FBA, your products will be packaged in the standard Amazon box (due to product criteria and weight dimensions) and possibly be improperly handled.
The items you are selling while paying attention to the size and budget of your business matter when selecting between FBA or FBM. It can prove to be a “make or break” for your business. This is why it’s important to analyze and carefully plan every step of the process before jumping into FBA or FBM operations.
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