Amazon FBA vs FBM: What is the best solution?

Amazon, the world’s most extensive online marketplace, offers two primary fulfillment methods to its sellers: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). Choosing the best method is a crucial decision that can significantly impact your business’s profitability, scalability, and overall success. This article aims to shed light on both methods, discussing their benefits and drawbacks, to help you determine the best fit for your business.

FBA vs FBM: Amazon Fulfillment Models

Fulfillment by Amazon (FBA) is a service provided by Amazon that offers storage, packaging, and shipping assistance to sellers. This takes the burden of fulfillment from sellers, allowing them to focus more on their product and less on the logistics of delivery.

In the FBA model, the seller sends their inventory to Amazon’s fulfillment centers. Amazon stores the products, and when a customer places an order, Amazon packs and ships the product on the seller’s behalf. Furthermore, Amazon also provides customer service for these orders, which includes handling returns and refunds.

Fulfillment by Merchant (FBM) is another model offered by Amazon where the seller is responsible for managing their inventory, packing, shipping their products, and providing customer service. In this model, the seller does not send their goods to Amazon’s fulfillment centers. Instead, when a product is sold, the seller is responsible for shipping the product directly to the customer.

FBM gives the seller more control over their inventory, packaging, and shipping process. It is often chosen by sellers who want more hands-on control of their business, have the capacity to store their own inventory, or sell products that may not be cost-effective under the FBA model due to size, weight, or other factors.

Pros & Cons of Amazon FBA

Pros of Amazon FBA:

Ease of Scaling:

Amazon’s robust logistics infrastructure can handle substantial inventory and order volumes, facilitating easier business growth and expansion.

Prime Shipping: 

When you use Amazon’s FBA service, your products can be shipped through Prime. What this means is, if a customer has an Amazon Prime subscription, they can get your item in just two days, and sometimes even within a day, without paying extra for shipping. This Prime shipping can boost your sales since Prime subscribers are always on the lookout for fast delivery options.

Winning the Buy Box:

When you’re selling the same thing as other sellers on Amazon, it’s super important to win the Buy Box.

What’s the Buy Box? Well, it’s where you find the “Add to Cart” and “Buy Now” buttons on a product page. Only one seller gets their offer in the Buy Box at a time, and that’s a big deal because 85% of all sales happen through the Buy Box.

So how do you win that coveted Buy Box spot? Fulfillment plays a key role. In simpler terms, the more reliable, quick, affordable, and hassle-free your shipping and delivery are for the customer, the better your chances of scoring the Buy Box spot.

Task Priorities:

Sure, you can take on the tasks of managing stock, getting warehouse employees on board and trained, handling packaging, shipping, and returns all by yourself. But why should you put in the time for all these when Amazon has a well-established supply chain up and running for years? Wouldn’t your time be better spent on sourcing dependable suppliers, crafting the perfect product, and spreading the word about it?

What’s more, using FBA lets you expand your business fast without needing to bring in more staff or find extra storage space.

Amazon SEO:

Amazon keeps the workings of its A9 search algorithm under wraps, officially. However, it’s a well-known fact that opting for FBA can boost your product’s ranking in the search results. Here’s how: Non-FBA sellers’ items get ranked based on the total cost, which includes shipping, but for FBA sellers, only the price of the product is considered. This automatically gives FBA items an edge, pushing them higher up in the search results. And we all know, the higher your product appears in search results, the more people see it, and the more sales you’re likely to make.

Customer Trust: 

Products fulfilled by Amazon often inspire more customer confidence due to Amazon’s established reputation for reliable delivery and customer service.

Cons of Amazon FBA:

Cost: 

FBA comes with various fees, including storage and fulfillment fees. These fees can add up, particularly for items that are large, heavy, or slow-moving.

How FBA fees are formed:

• Sales plan: $0.99 per item sold on the Individual plan or $39.99 monthly on the Professional plan.
• Referral fees: usually range from 8 to 15%, depending on the product category.
• Fulfillment fee: several fees, including additional handling charges for weight or size

Inventory Control: 

Sellers may have less control over their inventory as it’s stored in Amazon’s warehouses. This might lead to potential challenges with stock management.

Potential for High Return Rates:

Because Amazon handles customer service and returns are easy and free for customers, you may experience higher return rates than you would by handling fulfillment yourself.

Packaging and Labeling Requirements:

Amazon is pretty strict when it comes to how you need to package and label your stuff before they let it into their warehouses.

If you don’t prep your inventory right according to these rules, Amazon might turn away your shipment. Then you’ll have to spend extra time and cash to get back and fix up your inventory.

Fulfillment by Merchant (FBM): Pros and Cons

Pros of Amazon FBM:

More control over inventory and fulfillment:

FBM gives you full control over your inventory and fulfillment processes. For instance, as a seller, you have the freedom to decide when to restock and can personally check on your inventory. Plus, Amazon has a history of changing FBA procedures and rules, which can be disruptive for sellers.

Cost Savings: 

Amazon FBM can save on fees, particularly for larger, heavier, or slower-moving items that would incur higher storage and fulfillment costs under FBA. In this case, sellers only pay Amazon referral fee and do not incur Amazon storage and fulfillment fees. 

Product Range: 

Amazon FBM allows sellers to offer products that don’t meet FBA’s requirements, such as oversized items or those in certain restricted categories.

Reduced Dependence:

By handling fulfillment themselves, sellers are not dependent on Amazon’s logistics, which can be a benefit during peak seasons or unforeseen disruptions.

Cons of Amazon FBM:

Less Buy Box power:

All other factors being equal, FBA offers will beat standard FBM offers for the Buy Box.

If you’re selling through FBM, you can increase your chances of winning the Buy Box by opting for Seller Fulfilled Prime. However, remember that FBA still has a bit of an upper hand when it comes to winning the Buy Box, but Seller Fulfilled Prime certainly gives you a better chance than sticking to the standard FBM approach.

No SEO Advantage:

FBA gives your listings a bit of a lift in search rankings compared to FBM offers. While FBA isn’t some magic solution that’ll make your keyword and SEO strategies unnecessary, it definitely provides a helping hand.

Customer service and returns responsibilities: 

Handling customer service and returns as an FBM seller can be time-consuming, but it’s not always a downside.

When FBM sellers communicate directly with customers, they get a closer look at what customers want and what issues they’re facing. This direct interaction can give sellers handy insights and spark new ideas for their business.

Amazon FBA vs FBM. What to choose?

Choosing Amazon FBA vs FBM depends on various factors like your business model, resources, and products.

If you sell small, lightweight, high turnover items and want to scale quickly with minimal logistics hassle, FBA may be more suitable. It’s also an excellent choice if a majority of your customer base consists of Amazon Prime members.

However, if you sell large, heavy, or unique items that move slowly, FBM might be more cost-effective. It’s also a good choice if you want more control over inventory and shipping, or if you already have efficient logistics and customer service setup.

Some sellers choose a hybrid model, using FBA for some products and FBM for others, to balance cost and convenience.

Final Word

In wrapping up, it’s clear that there isn’t a universal solution to the Amazon FBA vs FBM debate. The best choice will largely depend on the specific needs and dynamics of your business. By evaluating the advantages and disadvantages, crunching the numbers for costs and potential profits, you can arrive at a decision that not only aligns with your current business operations but also fuels your growth plans. It’s all about finding a path that best complements your business model, products, and long-term goals, enabling you to thrive in the dynamic Amazon marketplace.