What’s the difference between Amazon FBA vs FBM? This is one of those Amazon seller questions you should probably ask before you start selling. In this financial guide, we will help you understand these two main selling models on the Amazon platform. We will cover benefits, financial implications, profitability, cost, and other considerations. By the end, you’ll have better insight as to which model to use for your business.
Fulfillment by Amazon is part of a set of automated services offered to those who want to sell on their platform. Instead of sellers packing orders and shipping it to customers themselves, Amazon takes over. They take care of the whole order fulfillment process, including post-purchase customer service. With FBA, sellers can store their products in one of many global Amazon warehouses or “fulfillment centers”. This popular selling method is one reason the marketplace has seen such massive success.
Selling via FBA is one of three ways to earn an Amazon Prime badge. As a seller, this badge allows you to offer exclusive shipping deals (same-day delivery, two-day delivery, etc.) to Prime subscribers.
Amazon handles customer service. This ensures sellers stay compliant with Amazon stringent policy regarding messages, returns, refunds, etc.
Their fulfillment allows even startup sellers to get a head start and not have to worry about arranging their own storage, couriers, shipping, and packaging.
Fulfillment by Amazon is not just for local orders. It also allows you to dip into the global market with their FBA international programs.
As mentioned earlier, though the service has a lot of benefits, they come with a cost. As an FBA merchant, the cost of selling on Amazon goes beyond the referral and selling plan fees. For instance, in exchange for using their fulfillment centers, Amazon asks FBA sellers to pay storage costs. Also, you may also need to pay long-term storage fees in certain situations like if you don’t sell enough merchandise. We will break these costs of selling on Amazon a little more later on in this post.
On the other side of the marketplace, you have FBM (Fulfilled by Merchant) sellers. As you may have guessed, this method means that sellers must take care of the fulfillment process themselves. This means that when a customer places an order, they are responsible for picking and packing. They must also arrange shipping and delivery. Customer service including the handling of returns/refunds, is also the seller’s responsibility. Sellers are also in charge of storing their inventory.
For Amazon FBA vs FBM benefits, how do they stack up?
The biggest advantage of FBM is control. While it’s nice that you can be hands off with FBA, this can get pricey. For example, you can have your own arrangement for how long you can store inventory.
There are potentially more cost-effective solutions out there for storage. You might even use a spare bedroom or a place where long-term storage won’t come with a bill.
FBM is also good if you want to support smaller local courier businesses.
If you decide to do your own order fulfillment, you need to consider certain costs. These include:
Regardless of the selling model, sellers must pay subscription fees, referral fees, and refund fees.
These are specific fees that FBA sellers pay:
There really aren’t any specific fees FBM sellers have to pay aside from the general three listed earlier. On top of the financial considerations listed earlier, FBM sellers should also consider other potential hidden costs. For instance, PPC advertising on the platform requires you to bid for keywords. You should also consider international shipping costs and customs fees.
One of the main reasons we’re comparing Amazon FBA vs FBM is to help you find the more profitable model for you. You can certainly take your estimate of FBM-related fees and weigh them against the aggregate FBA fees. However, measuring profitability is more than factoring in the costs related to selling. Think about it also in terms of opportunity cost. FBA allows you to focus your time on building your brand, improving your advertising strategy, and finding new products to sell.
On the other hand, FBM allows you to stay in control and potentially improve your margins by cutting costs and selecting the right shipping and courier companies. Whether you’re on Amazon or selling on eBay or Shopify, you shouldn’t let the fees scare you away. We get it. They can certainly be daunting. But always consider the potential return on your investment and how you can use tools and services to your full advantage.
Amazon not only charges FBA sellers for long-term storage, they also don’t like it if your inventory levels are low. Effective April 2024, Amazon will also implement an FBA low-inventory fee. This will apply to sellers whose stock levels have not historically met customer demand. Stockout is a concern for both types of sellers. This is true even if you are an FBM seller partnered with a third party warehousing company. Amazon can penalize you for low inventory levels if it becomes a recurring thing. You can also lose out on Buy Box eligibility. You can mitigate this by monitoring inventory levels and tracking product sales. An inventory management software can help you with these and automate restock alerts and reordering.
On a platform like Amazon, customer service is at the forefront. They care so much about customer satisfaction and experience that they have stringent guidelines in place when communicating with buyers. Even saying “thank you” might get you in trouble. The great thing about FBA is that Amazon takes careof the communication with buyers. They will be able to adhere to their CS guidelines more closely than the average seller. On the other hand, FBM allows you to be more personalized with your CS. You can lose that more personal touch with buyers if all they receive are automated Amazon messages.
Some of the largest companies with thousands upon millions of items reportedly use Amazon FBA like Procter & Gamble. This is because Amazon has a network of warehouses that can accommodate large quantities of products. If you want to expand your product lineup, you can be sure Amazon has the space for you. FBM sellers not only have to consider warehousing, but also how to manage everything else besides fulfillment. One solution for FBM sellers is to hire people to help with the load. It can help free up time, but it is an additional expense.
First, think about the size of your business and investment. What budget do you have to purchase your initial merchandise and how many kinds? Second, consider the types of products you are going to sell and in what product categories. FBA is great for those selling smaller products, but if you want to sell bulkier items, FBM might be the better choice. Third, consider your business goals. What do you value? Does FBA fit into your long and short-term goals? Is Amazon more of a side hustle? Do you value their automation or do you want more control?
It is possible to switch between models if you want to. Some do it because they find a cheaper shipping option or because they want to add branding to their packaging. You can do this through your inventory tab in your Seller Account. After selecting “Manage Inventory”, you can find which SKUs to convert. Find the arrow next to the edit button for that SKU and select your fulfillment option.
The most important areas you’d want to use tools are keyword research and tracking, inventory management, analytics, and customer service automation. Amazon Seller Tools include Jungle Scout, SellerApp, and Helium10.
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And here’s some free resources:
It’s clear that there are distinct differences between the two seller models. Each has its own advantages and potential drawbacks. As a seller, it’s important to know these things and how to use either or both to your advantage. Really, in the squaring up between Amazon FBA vs FBM, the only winner should be you.
