What are the Pros and Cons of selling on Amazon FBA vs FBM? Which is the best one?
In this blogpost we’ll show you all the differences (you will find everything explained briefly in the infographics you can download at the end of the article)
Amazon Sellers- FBA & FBM
Amazon has shown to be one of the world largest and most complex marketplaces in the world.
Amazon sellers have to compete with millions of other sellers, while managing all the processes connected to selling and shipping.
Amazon offers two solutions: you can choose between FBA and FBM process. Your decision will impact all your online business.
What is FBA and FBM?
We started to talk about two solutions, but what do FBA and FBM mean?
FBA means “Fulfillment by Amazon”: Amazon offers to its sellers the possibility of managing their inventory, shipping and customer care.
Sellers using FBA service ship their products to Amazon fulfillment center, where products are stored until a new order arrives. Once received the new order, the product will be packed and shipped directly from Amazon.
FBM means instead “Fulfillment by Merchant”: a completely different situation. In FBM all the inventory, stock and shipping are managed by the seller.
The seller uses his own resources to manage processes, and he is completely responsible of all the phases.
After this short definition of Amazon FBA and FBM, let’s analyze better this two processes.
In four words, FBA works this way: You sell, Amazon ships.
In detail, Fulfillment by Amazon is developed in this way:
1. The seller directly sends his products to Amazon fulfillment center, products are registered and stored
2. Amazon manages the inventory and the seller can monitor the movements of his products using a tracking number
3. When a buyer makes an order, on Amazon.com or from other sources, the product stored in Amazon inventory is packed
4. Amazon then ships the product using the way preferred by the customer, and provides the tracking info
5. In FBA the and Amazon staff manages customer care and returns
FBA doesn’t work only for orders made on Amazon.com, but also for orders coming from other marketplace or for the seller’s website. Many Shippypro customers use FBA to manage logistics and shipping of all their products, while using Shippypro’s dashboard to keep under control all the orders received from different channels, so that they can easily communicate to Amazon which product has to be shipped where.
Amazon keeps the inventory for all selling channels, and it manages the orders in an unique center.
One of the main advantages of being a FBA seller, is surely that products become Prime products, shown before the others. Entering into this category, we can gain customers and orders received, also because Prime member usually make more orders.
FBA sellers have a higher probability of winning the BUY BOX. Buy Box accounts for 82% of Amazon sales: everybody wants to know how to win the buy box.
Another advantage is that FBA seller’s customers will have free shipping in 48 hours provided by Amazon, and overnight delivery for 3,99$. Thanks to this opportunity many sellers increased their sales by 25%.
Added to these advantages, sellers have nothing to manage in the after sales phase. The only thing to do is to ship their products to Amazon fulfillment center, and to pay a monthly/annual fee to Amazon.
FBA sellers usually obtain higher conversion rate: that’s because their product is considered as if it was sold directly from Amazon. This impression gives a sense of trust to the customer, as Amazon is one of the most reliable trademarks in the world.
Moreover, in case your products are delivered late or some other delivery problems happen, Amazon is fully responsible. Negative feedbacks will not affect the seller reputation.
FBA makes the process easier, especially for sellers managing high volumes of sales.
Of course, FBA has not only positive aspects, but even some flaws.
1- In case the sellers choose FBA, he will face addictional costs that will affect their final profit. In fact, FBA seller will pay not only the FBA fee but even the shipping costs to the fulfillment center.
2 – Another flaw is that Amazon asks to be paid for every cubic feet of space occupied in the storehouse. This is a problem, especially for the “long-tailed products” which have long storing time.
3- Multichannel can be costful and inventory can be difficult to be traced.
4- Many sellers don’t want to put all their inventory into Amazon’s hands.
5 – Last but not least, the seller’s performances could be affected by problems and mistakes due to external logistics management: late deliveries, damaging, lost items.
Costs for using FBA
After exploring Pros and Cons of being a FBA seller, let’s see better the costs. Comprehension of FBA fees can help us to understand if FBA could be the right decision for us or not.
Amazon asks for fees basing on the product type: media (e.g. CDs), non-media (e.g. phone cases), oversize items (e.g. furniture), and then zero fee fulfillment ($300+ software).
For our articles, Amazon FBA has these costs:
Pick & Pack for every unit ordered
Managing (based on lbs) per unit
Storing per cubic feet per month (fees change in different periods of the year)
Moreover, there are other cases in which Amazon will apply additional fees. For example, in these cases we will have a change in standard prices:
Oversized products have special shipping costs
Items stored in the warehouse for more than six months have additional storing fees
Storing fees are different in different period of the year: cost per cubic feet will be higher in the period from October to December.
After analyzing FBA, and all the costs connected to FBA, let’s see FBM. If you want to get deeper into FBA, here you can find a good guide here!
If you don’t want to use FBA, we will choose the Merchant process, Amazon FBM.
Some sellers prefer to mantain the control over all the selling process.
Without paying FBA fees they can increase their profit margins. Usually, FBM sellers obtain higher profit margins than FBA sellers.
Moreover, being a FBM doesn’t exclude you from entering to Prime products. It will just be more difficult: the sellers will have to avoid late deliveries, provide perfect customer care, immediate confirmation and shipping of the order and have very good feedbacks. For FBM sellers it is very important to reduce shipping costs: while Amazon manages very high volumes obtaining low prices for the fast delivery, FBM will have to compare prices and services of the different couriers, in order to get the best service at the lowest price.
Of course, FBM too has some flaws. If we have to manage high volumes it could be difficult to have an adequate process. We will have to guarantee that our processes perform at the top every day, without interruptions.
FBM sellers don’t have a “free pass” to Prime: they will have to work a lot to get it, and it is not simple at all.
Nothing to see with the Buy Box: the path to access it is even more difficult. We have to succeed in managing customer complaints and delivering without any delay to have the possibility to win the most desired buy box across the internet.