In the world of e-commerce, Amazon is a dominant force, with millions of sellers vying for customers’ attention. As an Amazon seller, choosing the right fulfillment method is crucial to your success. Two popular options are Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). In this comprehensive guide, we will explore the differences between Amazon FBA and FBM, and help you determine which method is the best fit for your business.
What is Amazon FBA?
Fulfillment by Amazon (FBA) is a fulfillment method in which sellers send their products to Amazon’s fulfillment centers. Amazon then takes care of storing the inventory, picking, packing, and shipping the orders, as well as handling customer service. With FBA, sellers can leverage Amazon’s extensive logistics network and benefit from the Prime badge, which offers fast and reliable shipping to millions of Amazon Prime members.
What is Amazon FBM?
Fulfillment by Merchant (FBM), on the other hand, is a fulfillment method in which sellers handle all aspects of the fulfillment process themselves. This includes storing the inventory, packaging and shipping the orders, and managing customer service. FBM gives sellers more control over the customer experience and allows them to customize their shipping methods and packaging.
Factors to Consider Before Choosing a Fulfillment Method
Before deciding whether to use Amazon FBA, FBM, or a combination of both, there are several factors you should take into account. Let’s explore these factors in detail:
1. Size and Weight of the Product
The size and weight of your products play a significant role in determining the most cost-effective fulfillment method. Amazon’s FBA fees are more favorable for small and lightweight products that have a high turnover rate. On the other hand, FBM may be more suitable for oversized or heavy products that would incur higher storage and shipping costs through FBA.
To determine which method is best for your product, you can use Amazon’s FBA revenue calculator to forecast fees and expenses. Consider the example of selling a non-inflatable kayak. The size of the kayak would take up a lot of space in Amazon’s fulfillment centers and result in higher shipping costs. In this case, fulfilling the product yourself through FBM may be more profitable.
2. Control of Customer Experience
One of the key differences between FBA and FBM is the level of control you have over the customer experience. FBA sellers rely on Amazon to handle customer service, shipping, and returns, while FBM sellers handle these aspects themselves. If you prefer a more hands-on approach and want complete control over the customer experience, FBM may be the better choice for your business.
3. Seller Feedback
Seller feedback plays a crucial role in building a reputable brand on Amazon. FBA sellers have a slight advantage in terms of seller feedback, as Amazon handles most of the fulfillment process. In the event of negative feedback, FBA sellers can request its removal. FBM sellers, on the other hand, have more responsibility for the entire customer experience and must focus on delivering exceptional service to maintain positive feedback.
4. Turnover Rates
Inventory turnover rate refers to how quickly a seller sells and restocks their inventory. FBA sellers need to consider the length of time their products remain in Amazon’s fulfillment centers. If products remain in storage for an extended period, they may incur storage fees, impacting profitability. FBM sellers have more control over inventory turnover rates and can adjust their restocking strategies accordingly.
5. Logistics
Managing the logistics of picking, packing, and shipping orders can be time-consuming. For sellers who are just starting or do not have their own fulfillment logistics in place, FBA can be a convenient option. However, if you already have established fulfillment processes or are looking for more customization options, FBM allows you to maintain control over your logistics.
6. Expenses and Fees
Both FBA and FBM come with their own set of expenses and fees. FBA sellers need to pay FBA fees, which cover the costs of picking, packing, and shipping the goods. FBM sellers, on the other hand, need to consider the expenses involved in handling and shipping their own products, including storage costs, labor costs, packaging, and shipping fees. It’s essential to calculate these costs and compare them to determine which method is more cost-effective for your business.
7. Prime Badge
The Prime badge is a significant advantage for FBA sellers. Amazon Prime members, who number in the millions, are actively looking for products with Prime shipping options. By using FBA, your products automatically become eligible for Prime shipping, which can significantly increase your visibility and sales. FBM sellers can also offer Prime shipping through the Seller-Fulfilled Prime program, but it requires meeting certain criteria and may involve additional logistics challenges.
Can You Use Both FBA and FBM?
Yes, you can use both FBA and FBM fulfillment methods simultaneously. Some Amazon sellers choose to use a combination of both methods to maximize their profits and minimize expenses. For example, if you have a variety of products, you can use FBA for small and fast-selling items, while fulfilling oversized or slow-selling products through FBM. This approach allows you to take advantage of the benefits offered by each method.
Key Differences Between FBA and FBM Sellers
While FBA and FBM have their unique advantages and considerations, it’s essential to understand the key differences between sellers who use these methods. Based on data from Jungle Scout’s 2023 State of the Seller Report, we’ve identified some notable differences:
Profitability:
- FBM sellers tend to have more sales and larger profit margins compared to FBA sellers.
- FBM sellers reported that 28% of them earn more than $25,000 per month in revenue, while only 12% of FBA sellers reach that level.
- On the other hand, 35% of FBA sellers have profit margins over 20%, while 38% of FBM sellers achieve the same level.
Getting Started:
- FBM sellers tend to launch their Amazon businesses faster than FBA sellers.
- 42% of FBM sellers took less than two months to get started on Amazon, compared to 41% of FBA sellers.
- Additionally, 15% of FBM sellers realized a profit in fewer than three months, while 14% of FBA sellers accomplished the same.
Time Commitment:
- FBA and FBM sellers spend a similar amount of time on their businesses.
- 22% of FBM sellers spend 11-20 hours per week on their Amazon business, which is the same percentage as FBA sellers.
- Both FBM and FBA sellers attribute their success on Amazon to having time to commit to their businesses.
Top Product Categories:
- The top product categories for FBA sellers include Home & Kitchen, Toys & Games, Sports & Outdoors, Health, Household & Baby Care, Beauty & Personal Care, Kitchen & Dining, Office Products, Tools & Home Improvement, Grocery & Gourmet Food, and Garden & Outdoor.
- FBM sellers focus on similar categories, but with slight variations. The top categories for FBM sellers are Home & Kitchen, Health, Household & Baby Care, Toys & Games, Sports & Outdoors, Beauty & Personal Care, Tools & Home Improvement, Books, Office Products, Garden & Outdoor, and Kitchen & Dining.
Sales Models and Start-up Capital:
- FBA sellers are more heavily focused on the private label sales model, with 55% of them using this approach.
- FBM sellers engage in various sales models, with 44% using the private label business model.
- FBM sellers tend to start their Amazon businesses with less start-up capital, with 17% starting with $2,501-$5,000. In comparison, 18% of FBA sellers begin with the same amount.
- 46% of FBA sellers start with more than $5,000, while 43% of FBM sellers have a similar starting capital.
Conclusion
Choosing the right fulfillment method for your Amazon business is a critical decision. Both Amazon FBA and FBM offer unique advantages and considerations. When deciding between the two, consider factors such as the size and weight of your products, control of the customer experience, seller feedback, turnover rates, logistics, expenses and fees, and the Prime badge.
Remember, you can use both FBA and FBM methods simultaneously to optimize your profitability and efficiency. Take into account your specific product offerings, business goals, and available resources to make an informed decision. By carefully considering the factors discussed in this guide, you can select the fulfillment method that aligns best with your business strategy and helps you achieve success on Amazon.
