Let’s say you’ve started your own artisanal product business. Between listing products online, figuring out social media, buying materials, and bubble-wrapping every product that you ship, you’ve run out of time to make the gorgeous items you’re known for.
There are often big questions and concerns when owning a business that operates internationally, like “What does customs cleared mean” or “What is Importer Of Record?” Amazon Marketplace must answer these questions, on top of making several important choices. For example, choosing your fulfillment method and external suppliers will impact how you run your business. For most sellers, the choice lies between Fulfillment by Amazon vs. fulfillment by Merchant. These are commonly known as FBA and FBM:
Fulfilled by Amazon – So, how does Amazon FBA shipping work? With FBA, you ship your products to an Amazon warehouse and Amazon employees handle order fulfillment and customer service. Amazon fulfillment includes picking, packing, and shipping your orders, as well as managing returns for Amazon shoppers.
Fulfilled by Merchant – So, how does Amazon FBM shipping work? Under FBM, you arrange for storage of your products and handle the order fulfillment and customer service process yourself.
How Do I Decide Between Amazon FBA And FBM?
As with any business decision, you need to calculate which approach makes the most financial sense for you. Since there are such a variety of product types, package sizes, shipping methods, and inventory demands, there is no one-size-fits-all solution to the FBA vs FBM question. Consider:
- Cost – Based on the type of inventory and business model you have, what does the math tell you when you determine what each method will cost?
- Resources – Do you have (or are you willing to source) access to sufficient storage space, packing materials, and human resources to get your products out on a tight timeframe after each sale is made?
- Time – Is handling the fulfillment process the best use of your time to support and grow your business? The difference between FBM and FBA can take a big bite out of your time.
Keep in mind that you don’t need to make a permanent decision at any one time. Some business owners start with FBM and move to FBA as their business scales up or claims more of their attention for strategic management.
Another factor that adds flexibility to this decision is the ability to use both methods. The categorization of FBA vs FBM rests at the product level rather than being a single option for a seller’s entire stock.1
What Are The Pros And Cons Of Amazon FBA?
There are some bright and shiny benefits to the FBA program, but keep reading to get a complete picture before you decide.
Amazon FBA pros include:
- Lower shipping cost – Amazon’s size means it can negotiate rates well below what any small to midsize business can obtain. Some businesses save money with FBA over FBM on shipping costs alone.
- Prime eligibility – FBA products automatically qualify for Amazon Prime free and two-day shipping.
- Buy Box showcasing – The buy box is near the top right of every product page, with the first method of purchase using the big yellow “Add to cart” button. When a product is not sold directly by Amazon, multiple sellers compete for that top-dog position. The customer will see the seller, price, and shipping info next to the “Add to cart” button, and they click it 82% of the time after further shopping around in the “Other Sellers” section.2
Many factors are at play in deciding who wins the buy box, but which fulfillment method is used by a seller is one of the most important. Even if an FBM seller’s price is slightly lower, an FBA seller is likely to still win the buy box—which is a huge selling advantage.
- Brand power – Amazon was rated the #1 most reputable global company among the American general public from 2014 to 2016, and while it’s dropped slightly since then, it’s still tremendously powerful. Amazon shoppers trust sellers in the marketplace to deliver, and that trust extends significantly to products that are fulfilled by Amazon.3
- Increased sales – While it’s not a guarantee, being associated with Amazon entitles you to certain benefits such as Prime-eligible shipping, which provides the opportunity for higher visibility and sales for FBA merchants.
- Multi-channel fulfillment – So you say you already have an e-commerce site? No problem! With the multi-channel option, you can choose to have Amazon handle all of your fulfillment, both for what you sell through Amazon.com and what you sell at AwesomeYoyos.com (or whatever you call your storefront).
- One-stop reporting – A cohesive dashboard includes reports and notifications covering product listings, inventory (including how much time your stock is sitting on the shelf), sales, and returns.
Amazon FBA cons include:
- Extra Amazon fees – You’ve paid your fulfillment fees and inventory storage fees, but guess what? If your products are still on the shelf after 365 days, you’ll be hit with another fee. Long-term storage fees can add up enough to consider either having your inventory shipped home to you or having it destroyed (both of which will cost you).
- Product preparation – Amazon is nitpicky about how you individually package and label your goods before they arrive at the warehouse. With more and more reliance on robotics for the picking part of the fulfillment process, barcoded labels need to be applied. You can either do it yourself, arrange with your supplier to handle barcode labeling, or pay a per-item fee to have Amazon do it (FBA Label Service).
- Multi-state taxation – As Benjamin Franklin said, “In this world, nothing is certain except death and taxes.” What he forgot to mention was the certainty that tax season can be stressful, especially for an Amazon FBA seller. Because Amazon requires you to ship your goods to the warehouse or warehouses based on their shipment systems, you become the proud owner of a “sales tax nexus,” or significant presence, in those states. That means you have to add a new item to your tax season to-do list.
Translation? You’ll need to change the default tax settings in your Amazon seller dashboard to collect tax from people living in each of your warehouse states who buy your product. You’ll also need to provide state tax registration numbers from those states when tax season rolls around.
- Multi-channel fulfillment – While multi-channel fulfillment is an excellent option for selling on multiple storefronts from a single fulfillment provider, the downside is that it’s very costly. You will incur some hefty additional fees for adding this option to your FBA agreement.
What Are The Pros And Cons Of Amazon FBM?
Are you leaning toward rolling up your sleeves and doing it yourself? Let’s take a look at both sides of choosing FBM.
Amazon FBM pros include:
- Control – The fulfillment steps will be the same: you have to store, pick, package, ship, and handle customer complaints and product returns. But if you want to comparison-shop for each of these services or have local access to your inventory, you might be an FBM-er.
- Savings based on your resources – If your sister-in-law has a lovely dry pole barn and no need for it, or your nephew crashed your car and owes you 200 hours of labor to pay it off, you could have an advantage in the FBM game. If you have space, labor resources, or a truckload full of packaging supplies, add those into the mix when you check the numbers on FBA vs. FBM.
- Branding – Is it essential that your products appear in custom boxes showcasing a premium brand experience? Amazon FBA products will arrive in the quintessential Amazon box, and that is the brand that will be visible to the customer. If you’re looking to grow a brand experience, you may consider the FBM route and invest in packaging as a branding cost.
- Prime eligibility – Okay, you’re going to have to jump through some hoops for this one. Still, FBM sellers can qualify for Amazon Prime benefits with a history of outstanding performance metrics and high-volume sales under a professional account. But since there are more than 200 million Prime members who want that free and two-day shipping, these hoops are worth the jumps.4,5,
Amazon FBM cons include:
- Ongoing responsibility – Whether you’re hiring, outsourcing, or doing it all yourself, FBM involves a lot of work and oversight that doesn’t take a vacation. Getting the product sent out quickly can be exhausting, and not maintaining accurate and timely shipping will hurt your store’s stats and profile.
- Missed holiday sales – Prime two-day shipping is never as important as during the winter holiday season, thanks to the influx of buying happening at the last minute. If you’re counting on a jump in 4th quarter sales to ring in the new year, the lower profile of an FBM seller and the lack of Prime status can make it challenging to meet your goals.
- Overheads – Yes, you are saving on those FBA fees, but your inventory still has to occupy some kind of real estate. When it overflows your garage, renting storage or warehouse space becomes part of your overhead costs. And packing materials aren’t free; FBM sellers need to purchase the necessities to securely package and label their products.
When Should I Use FBA?
Nothing comes for nothing, but there are many benefits to going the FBA route as an Amazon seller.
Amazon FBA is likely your best bet if you:
- Sell high-volume, large-margin products,
- Depend on the holiday rush to fuel projected sales,
- Are looking to expand your buyer market to other countries,
- Have the flexibility to absorb price drops or removal of aged stock,
- Need the hassle of 24/7 fulfillment taken off your to-do list,
- And want a dependable provider to handle fulfillment for multiple storefronts.
When Should I Use FBM?
If you’ve read this far, you probably have a good idea of which solution you’re leaning toward. But as always: do the math. Go with FBM if:
- You have the right combination of patience, resources, and availability,
- Your products are slower sellers and are not overly reliant on a holiday rush,
- Your product characteristics calculate a profit margin significantly higher under FBM,
- You’re just starting your business with stock and a shipping setup that fit in a spare room,
- Or you sell one-off or low inventory products.
Ready To See Where FBA Can Take You?
The pros and cons above are guidelines—your exact situation, strengths, and goals are all unique. Gather information, use FBA calculators, and follow the data before making a decision for your Amazon business.
Part of that research is identifying the tools and partners you can depend on. Zee is an all-in-one import and logistics service provider specializing in helping large e-commerce merchants expand their businesses internationally.
There are some things, like shepherding goods through the export/import steps and accessing a trusted network of shipping providers, that you do not want to DIY. Drop us a line when you’re ready to learn more about growing your business to multiple countries. We’ve got you covered!
- Amazon Seller Forums. What is the difference between fulfilled by amazon and fulfilled by merchant. https://sellercentral.amazon.com/forums/t/what-is-the-difference-between-fulfilled-by-amazon-and-fulfilled-by-merchant-i-am-a-new-seller/550553
- Viral Launch. FBA vs FBM: A Full Comparison for Amazon Sellers. https://blog.viral-launch.com/tips-for-selling-on-amazon/fba-vs-fbm-a-complete-comparison-for-amazon-sellers-infographic/
- Forbes. America’s Most Reputable Companies In 2017: Amazon Knocked Out Of The Top Spot. https://www.forbes.com/sites/karstenstrauss/2017/03/28/americas-most-reputable-companies-in-2017-amazon-knocked-out-of-the-top-spot/
- DataFeedWatch. Amazon FBA vs FBM: Which Solution Is Best For Your Business? https://www.datafeedwatch.com/blog/amazon-fba-vs-fbm
- Statistica. Number of paying Amazon Prime members worldwide as of 1st quarter 2021. https://www.statista.com/statistics/829113/number-of-paying-amazon-prime-members/
- MarketWatch. Amazon Prime member total reaches 142 million in U.S. with more shoppers opting in for a full year, data shows. https://www.marketwatch.com/story/amazon-prime-member-total-reaches-142-million-in-u-s-with-more-shoppers-opting-in-for-a-full-year-data-shows-11611073132