FBA Fulfillment by Amazon vs. FBM Fulfillment by Merchant
- FBA involves sending your inventory to Amazon’s warehouses, where they handle the storage, packaging, shipping, and customer service.
- FBM means you, as the merchant, are responsible for these tasks, managing every aspect of the order fulfillment process.
Your choice between FBA and FBM can affect your costs, sales, and overall competitiveness within the market.
|Fulfillment by Amazon||Fulfillment by Merchant|
|Fees & Costs|
|Fulfillment Fees||Based on item size & weight. Includes picking, packing, shipping, customer service, and returns.||You handle shipping and all related costs.|
|Storage Fees||Charged by Amazon based on item size & duration in storage. Higher during holiday season.||Based on your storage method – e.g., renting space or using third-party fulfillment centers.|
|Visibility||Higher product ranking on Amazon.||Less visibility compared to FBA.|
|Prime Eligibility||Products are eligible for Prime.||Products not eligible for Prime.|
|Logistics & Fulfillment||Handled by Amazon.||Managed by you.|
|Wait Times||Possible delays before products go live.||Direct control over product listings.|
|Fees||Potential for higher fees and storage costs.||Generally lower costs but more hands-on involvement.|
|Warehousing||Products stored in Amazon’s fulfillment centers.||You handle your own warehousing.|
|Turnover Rate||Potential for faster rate with Prime eligibility.||Might be slower without Prime benefits.|
|Control||Less control; Amazon handles inventory.||More control over inventory management.|
|Returns & Refunds||Managed by Amazon based on their policies.||You set and manage your own policies.|
|Customer Support||Handled by Amazon’s team.||Managed by you or your team.|
|Seller Feedback||Often reflects Amazon’s performance.||Direct reflection of your interaction with customers.|
Numerous factors come into play when deciding between FBA and FBM. For instance, if storage fees are a primary concern for your business, FBM allows you to control costs by taking full responsibility for the inventory. With FBA, you may benefit from Amazon’s vast network of warehouses and shipping services and its reputation for swift and reliable deliveries. Consider your resources, financial obligations, and market position to find the most suitable option when selling for Amazon.
Understanding FBA and FBM
What is FBA?
Fulfillment by Amazon (FBA) is a service provided by Amazon that takes care of the storage, packaging, and shipping of products on behalf of sellers. When you choose FBA, you send your products to Amazon’s fulfillment centers, and they handle the entire fulfillment process. This service has several benefits, such as access to Amazon Prime’s free two-day shipping, which can attract more customers and boost your Amazon sales. Under FBA, Amazon also takes care of customer service and returns, providing a seamless experience to sellers and customers.
However, sellers should also be aware of the costs associated with FBA, such as storage fees and fulfillment fees. These costs may vary depending on product size, weight, and time of the year.
What is FBM?
Fulfillment by Merchant (FBM) is an alternative option where sellers handle the storage, packaging, and shipping of their products to customers themselves. Under FBM, you retain full control over the entire fulfillment process, which can provide more flexibility in your business operations.
While FBM may save on some fees associated with FBA, there is a trade-off regarding convenience and time. Sellers must handle shipping, customer service, and returns. Furthermore, their products may not be eligible for Amazon Prime’s free two-day shipping, potentially impacting sales volume.
Some key factors to consider when choosing between FBA and FBM include:
- Shipping: FBA handles shipping, while FBM requires the seller to manage shipping.
- Storage: FBA stores inventory in Amazon’s warehouses, while FBM requires sellers to organize their own storage solutions.
- Customer service: FBA provides customer service assistance, while FBM sellers are responsible for handling customer inquiries and problems.
- Costs: FBA has associated fees, including storage and fulfillment, while FBM may involve other costs, such as shipping partnerships and warehouse rentals.
Ultimately, choosing to use FBA, FBM, or a hybrid of the two depends on your specific business needs, priorities, and the products you sell.
Key Differences: FBA vs. FBM
Regarding Amazon fulfillment methods, there are two main options: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). Understanding the key differences between these methods will help you choose the best strategy for your business needs.
FBA involves sending your products to Amazon’s warehouses for storage. Amazon then handles the entire order fulfillment process, from packaging and shipping to handling customer service and returns. In contrast, FBM requires you to manage the entire fulfillment process, including storage, packaging, shipping, customer service, and handling returns.
When comparing FBA and FBM, consider the following aspects:
- Shipping: FBA provides a competitive advantage, as your products are eligible for Amazon Prime and Amazon’s extensive shipping network. FBM may require you to work with multiple carriers, which could result in higher shipping costs and longer delivery times.
- Storage: FBA utilizes Amazon’s fulfillment centers for inventory storage, while FBM gives you more control over storage space and location.
- Fees: FBA usually incurs higher fees, including storage and referral fees. However, the increased fees allow you to leverage Amazon’s vast resources and infrastructure. FBM may have lower fees, but you must cover storage, packaging, and shipping costs independently.
- Customer service: With FBA, Amazon handles customer service, including returns and refunds. This can save you significant time and resources. By choosing FBM, you assume full responsibility for all aspects of customer service.
- Control: FBM offers more operational control, allowing you to manage inventory levels, warehouse locations, and order fulfillment procedures. FBA provides less control over these aspects as Amazon manages most of the process.
Here is a summary of the differences:
|Shipping||Amazon shipping network, Prime eligible||Multiple carriers, no Prime eligibility|
|Storage||Amazon fulfillment centers||Your choice of storage space and location|
|Fees||Higher fees, including storage and referral fees||Lower fees but independently managed costs|
|Customer Service||Handled by Amazon||Handled by you|
|Control||Limited control, mainly managed by Amazon||Greater control over operations|
As an Amazon seller, you must thoroughly examine each fulfillment method’s pros and cons before choosing the one that best aligns with your goals, resources, and overall business strategy.
Fees and Costs: FBA vs. FBM
When comparing FBA and FBM, the fees and costs can significantly impact your bottom line. Keeping track of these expenses will help you maximize profits and ensure you choose the right fulfillment method.
FBA cost and fees mainly consist of the following:
- Fulfillment Fees: These are based on the size and weight of your items. They include picking, packing, shipping, customer service, and product returns.
- Storage Fees: Amazon charges these fees for storing your items in their warehouse. They’re calculated monthly and are typically higher during the busy holiday season.
FBM sellers, on the other hand, handle the following fees and costs:
- Shipping Costs: You’re responsible for all shipping charges, including packaging, shipping labels, and courier fees.
- Storage Fees: If you’re not storing products at home, you’ll need to rent storage space or find a third-party fulfillment center, which will come with its own set of costs.
FBA and FBM sellers need to consider referral fees, a percentage of the item sale price (excluding tax) Amazon charges for each product sold. This percentage varies by category but ranges from 6% to 45%.
Here’s a brief comparison of FBA and FBM fees and costs:
|Fulfillment||Amazon handles fulfillment fees (picking, packing, shipping, etc.)||You manage shipping and handling costs.|
|Storage||Amazon charges storage fees for warehouse space.||Home storage is free; otherwise, you pay rent or fees to third-party fulfillment centers.|
|Referral Fees||Charged by Amazon based on the item’s sale price and category.||Same as FBA.|
To make the most of your Amazon business, it’s crucial to understand both FBA and FBM costs thoroughly. You can choose the fulfillment method that best suits your needs and improve your profit margins by analyzing your specific product, prices, and costs.
Advantages and Disadvantages
When comparing Amazon FBA and FBM, there are various pros and cons. By understanding these differences, you can choose the appropriate fulfillment method for your business and improve profitability.
Amazon FBA offers multiple benefits. First, utilizing FBA allows your products to be eligible for Prime, increasing the likelihood of your items being chosen by Prime customers. Additionally, FBA greatly supports brand building as your products are ranked higher in Amazon’s search results, giving your items more visibility. Lastly, FBA simplifies logistics and order fulfillment, as Amazon handles storage, packaging, shipping, and customer service on your behalf.
However, FBA comes with its share of drawbacks. Storing your inventory in Amazon’s warehouses may result in lengthy wait times before your product goes live. FBA also involves additional fees and storage costs, potentially reducing profit margins.
On the other hand, FBM provides you with more control over your inventory and better overall margins. You can manage your own packaging and fulfill online and offline orders from the same warehouse. This simplifies order tracking and allows you to better adapt to your customers’ needs.
However, FBM comes with its own challenges. Your brand might not enjoy as much visibility as with FBA, and your products will not be eligible for Prime. Moreover, unlike FBA, you are responsible for handling all aspects of storage, shipping, and customer service – which can be time-consuming and possibly limit scalability.
FBA FBM Calculators
Calculators make it easier to analyze and compare FBA and FBM fees. Different calculators address various needs, ranging from profit estimation to keyword research. Utilizing these tools can maximize your revenue and optimize your fulfillment strategy.
When evaluating FBA fees, consider Amazon’s FBA revenue calculator. This user-friendly tool helps assess the profitability of your products by comparing fees for FBA and FBM. Remember that FBA involves additional costs like storage and long-term storage fees.
To measure FBM-related fees, Amazon’s fulfillment by merchant calculator is a practical option. This online resource provides detailed estimates on referral fees, variable closing fees, shipping costs, and other charges, allowing sellers to understand their profit margins better.
Let’s explore some key metrics in these calculators:
- Referral Fees: Amazon charges a percentage of the sale price, which varies depending on the product category.
- FBA Fulfillment Fees: These fees differ based on product size and weight. Large and heavy products can be expensive to ship, making FBM more attractive for some sellers.
- Storage Fees: Monthly inventory charges add up for FBA sellers, especially during peak holiday seasons when rates increase.
To get accurate results from FBA and FBM calculators, input the following data:
- Product size and weight: Required for calculating shipping, storage, and handling fees.
- Cost of Goods Sold (COGS): The total manufacturing cost per unit.
- Selling Price: The listing price, excluding shipping fees.
Once you enter the necessary information, the calculators will generate projected profit margins and fees for FBA and FBM. This information will help you evaluate which fulfillment method suits your business best, giving you a clearer path toward success on Amazon’s platform.
Regarding inventory management, there are some key differences between Fulfillment By Amazon (FBA) and Fulfillment By Merchant (FBM). Let’s explore these differences to help you understand their impacts on your business.
FBA sends your inventory to Amazon’s warehouses, also known as fulfillment centers. Amazon takes care of inventory storage and management, giving you more time to focus on other aspects of your business. One advantage of using FBA is the potential for a faster inventory turnover rate since products stored in Amazon’s fulfillment centers are eligible for Amazon Prime’s 2-day shipping. However, remember that using FBA may result in inventory storage fees, which can vary depending on the size and weight of your products and the time of year.
On the other hand, with FBM, you will be responsible for managing your inventory in your warehouse or storage facility. This offers you more control over your inventory and can result in lower inventory storage costs if you efficiently manage your warehouse space. However, since your products are not stored in Amazon’s fulfillment centers, they may not be eligible for Amazon Prime’s 2-day shipping, which could impact your sales and inventory turnover rate.
To determine which option might be best for your business, you should carefully consider the following factors:
- Warehouse space: Do you have enough space in your warehouse to store your inventory or will you need to rent additional space?
- Inventory management expertise: Do you have the necessary skills and resources to manage your inventory storage and fulfillment efficiently?
- Shipping costs and speed: Can you offer competitive shipping times and rates compared to Amazon Prime’s 2-day shipping?
- Inventory turnover rate: Which fulfillment method will help you achieve a faster inventory turnover rate to maximize your profits?
Sales and Marketing Perspectives
When comparing FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant) from a sales and marketing perspective, there are several aspects Amazon sellers should consider. Choosing the right fulfillment method can impact your brand’s visibility, competitiveness, and profitability.
Amazon Prime and Shipping Advantages
Amazon Prime is a powerful tool for sellers, as it substantially boosts visibility, thanks to its loyal member base. With FBA, you automatically become a part of the Amazon Prime program, thereby increasing sales velocity as Prime members tend to choose Prime-eligible products. Although some FBM sellers may qualify for Prime shipping through Seller Fulfilled Prime, this option requires meeting stringent performance targets.
Buy Box Importance
The Buy Box is a key factor in driving sales on Amazon. FBA sellers often enjoy an advantage in winning the Buy Box, as Amazon determines Prime eligibility, shipping speed, and seller performance. Losing the Buy Box on Amazon FBA significantly impacts your sales. It directly affects your visibility and accessibility to customers as the Buy Box accounts for 85% of sales on Amazon.
Profit Margin Considerations
Understanding the impact of fees and costs is essential in comparing FBA and FBM. While FBA saves you time by handling inventory, shipping, and returns, it also comes with additional fees and storage costs, affecting your profit margin. With FBM, managing these aspects allows for more control, but you must balance potential savings against the increase in workload.
Sales Velocity and Ranking
A higher sales velocity improves your product ranking and visibility in Amazon’s search results. Since FBA sellers have access to Amazon Prime and generally higher Buy Box chances, their sales velocity can be faster, improving their search rankings and the likelihood of attracting more buyers.
Amazon SEO and Advertising
A well-optimized product listing can be the key to success. While FBA and FBM sellers have equal opportunities to optimize their listings through Amazon SEO, FBA sellers may have better results with Amazon advertising due to the shipping advantages and Prime eligibility, giving them a competitive edge.
Customer Services: FBA vs. FBM
When it comes to providing customer service, FBA, and FBM have distinct approaches. With Fulfilled by Amazon (FBA), Amazon handles all aspects of customer service, including returns, customer support, and refunds. Sellers using FBA can benefit from Amazon’s extensive resources, like their responsive customer service team and established return policies.
On the other hand, Fulfillment by Merchant (FBM) requires sellers to manage customer service independently. This involves handling returns, issuing refunds, and managing customer support inquiries. While this may pose additional responsibilities, FBM sellers have the opportunity to build direct relationships with their customers.
When comparing FBA and FBM in terms of customer service, here are some key differences:
- FBA: Amazon handles all customer service-related tasks.
- FBM: Independent management of customer service.
Regarding returns, FBA offers Amazon’s well-established return policies, while FBM sellers need to develop their own return procedures.
- FBA: Benefit from Amazon’s return policies.
- FBM: Develop and implement your own return procedures.
Seller feedback is an essential aspect of customer service. With FBA, seller feedback is often more related to Amazon’s performance rather than the individual seller. For FBM sellers, feedback reflects their direct interaction with customers.
- FBA: Seller feedback may reflect Amazon’s performance.
- FBM: Seller feedback is a direct measure of a seller’s efforts.
Providing prompt and efficient customer support is crucial to maintain high customer satisfaction. Relying on Amazon’s customer support saves time and resources for FBA sellers. In contrast, FBM sellers must allocate resources to their customer support team.
- FBA: Amazon’s customer support team takes care of inquiries.
- FBM: Allocate resources to manage your customer support team.
Decision Making: Choosing Between FBA and FBM
When evaluating FBA vs. FBM options, numerous aspects come into play. Let’s dive into some of the key factors you should consider.
First, think about the Amazon average income margins of each fulfillment method. FBA often comes with higher fulfillment fees but provides streamlined operations and support, making it suitable for high-volume retailers. On the other hand, FBM allows you to control costs more closely and is ideal for those looking to maintain a flexible business model. Make sure to weigh the costs and benefits associated with each option.
Next, consider delivery time. For customers, quick delivery can make all the difference. With FBA, Amazon’s expansive logistics network ensures rapid delivery. FBM sellers, however, have the opportunity to join the Seller Fulfilled Prime program if they consistently meet stringent performance targets. This program enables fast and reliable shipping, thus leveling the playing field between FBA and FBM.
As a seller, flexibility is crucial. FBA tends to work best for those retailers who opt for a hands-off approach, allowing for scalability and less personal involvement. Alternatively, FBM allows you to be more hands-on with inventory management and pricing strategies. This level of control could enable you to experiment with different dropshipping options and product offerings.
Amazon Seller Central offers various tools to monitor and manage your sales. Whether you choose FBA or FBM, these tools can help you optimize your strategies for maximum growth.
Lastly, explore the possibilities of Multi-Channel Fulfillment (MCF) for diversifying sales beyond just Amazon. FBA sellers benefit from MCF by outsourcing fulfillment to Amazon, even for non-Amazon sales, ensuring a seamless and efficient process for orders across different platforms. FBM sellers may seek other fulfillment partners to expand their sales channels and improve their distribution capabilities.
Denes, with 20 years experience in logistics, holds a Logistics Manager degree from Budapest’s Logistics Association and has penned a thesis on mobile devices. Venturing into e-commerce, Denes specializes in Fulfilled By Amazon and passionately educates others about Amazon selling techniques.