Here’s the truth: we all want a piece of Amazon’s online market. Merchants make Amazon over 56% of their profit, which was an attractive $11.59 Billion in 2019.
However, the site-to-success process seems complicated for the uninitiated. As a merchant, you’ll have a ton of choices to make, one of the first is whether you use Fulfilled By Amazon (FBA) or Fulfilled By Merchant (FBM) to bring your products to your customers.
As we know, understanding Amazon’s ecosystem can be confusing; we’ve put together this article to help you choose the right fulfillment method for your business.
Amazon FBA in One Paragraph
Fulfillment By Amazon (FBA) is simply when Amazon ships the products you sell. When you sign up for FBA, Amazon will ask you to ship your products to a fulfillment warehouse in bulk. When a customer buys one of your products, Amazon will pick, pack, ship the product straight to the customer for you. There is an option to pack the items yourself to Amazon’s standard to save some costs here.
Amazon FBM in One Paragraph
Fulfillment By Merchant (FMB) is a method of order fulfillment carried out entirely by you — the merchant. You list your product on Amazon, and when a customer buys your product, it is your responsibility to pick, pack, and ship the product yourself. You will bear the brunt of all logistics and operations costs.
FBA vs. FBM — The Differences
Amazon FBA and FBM sound simple on a high level, but weighing up the differences as a merchant is far more nuanced. Depending on whether you use FBA or FBM, you’ll use different customer service set-ups, shipping methods, and fee structures — all of which come with unique pros and cons.
However, what’s right for other merchants isn’t necessarily right for you. To better understand the nuances of FBA and FBM, let’s have a look at some of the key differences between the two types of fulfillment methods.
Customer Experience
Depending on whether you use FBA or FBM, the experience your customers will have with collecting their purchase is very different. All products bought on Amazon take customers through the standard sale checkout experience.
As a merchant using FBA, you don’t need to worry about your customers as long as you’re happy with Amazon’s customer support. Your customers will be taken care of by Amazon, whose customer service is already the subject of fluffy Forbes pieces. However, when you choose FBM, you are signing up to control your customer service. If a customer wants a refund or an update on their package, it will be your responsibility to face the music.
Of course, with different customer experiences come different costs. Amazon’s customer service is covered under the seller’s fees, so if you can’t scale your customer service team, it might be economical to outsource to Amazon. However, if your company already has a strong relationship with your customers, removing that connection could sever your competitive advantage.
It’s also worth remembering that as an FBM seller, you won’t be able to sell your product on Amazon Prime, which is a prime draw for many customers. You can still join Seller-Fulfilled Prime, but it will be your responsibility to meet Amazon’s triathlon-level shipping standards.
Every good company looks both long-term and short-term when thinking fiscally — meaning that the decision to go FBA or FBM won’t always come down to your quarterly bottom-line. Your customers are valuable, but so is compensating yourself for your efforts. Speaking of finances, let’s dive into the differences in fee structures.
Fee Structures
The most significant difference between FBA and FBM is the fee structures between the two types of fulfillment. Amazon charges its sellers a range of fees, including referral, subscription, fulfillment, and inventory storage fees.
Naturally, the fees you pay depend on the fulfillment method you choose — visible in the table below.
| Referral Fees | Subscription Fees | Fulfillment Fees | Inventory Storage Fees | |
|---|---|---|---|---|
| Fulfillment by Amazon (FBA) | ✅ | ✅ | ✅ | ✅ |
| Fulfillment by Merchant (FBM) | ✅ | ✅ | ✅/❌ | ❌ |
If you are an FBA seller, you can also opt to pay for some extra bells-and-whistles services, including product return and disposal.
Referral Fees
Corporate social responsibility might be all the rage in 2020, but Amazon is no charity. When you list a product on their site, they charge you a per-item fee — charged at a percentage of the item’s retail price. This price ranges from 8% for personal care products to 45% for kindles. Beauty brands – you’re in luck!
Subscription Fees
Some good things in life are free, but Amazon isn’t one of those. Instead, Amazon charges FBA and FBM sellers either a pro-plan subscription fee or a per-item fee. As an individual seller, you will pay a fee of $0.99 for each item you sell. As a pro-plan seller, you will are charged a one-off fee each month – no matter the amount of product you sell.
Fulfillment Fees
Fulfillment fees are based on your products’ weight, dimensions, and product type. Lighter and smaller products are more straightforward to ship than bulkier and heavier products, so expect to pay more for a cleansing solution than cotton swabs. Fulfillment fees are charged every time one of your products is bought. If you are under FBM, then Amazon will charge the standard shipping rates to your customers and credit the amount to your account.
Inventory Storage Fees
Amazon isn’t going to let you use their network of warehouses for free. Instead, you’ll pay for each cubic foot your product uses each month. Naturally, you’ll pay less if your products are small and stackable, and there are ways to optimize your product packaging to reduce Amazon inventory costs.
Is FBA Cheaper Than FBM?
According to peer-reviewed research into over 260,000 Amazon products, items sold by FBA sellers had a higher number of weekly sales. Despite selling less, the items sold by FBM merchants yielded a profit that was 35% higher.
While both FBA and FBM have their benefits, there are many situations in which FBM allows sellers to make a higher profit than FBA sellers.
When calculating your fulfillment costs, you’ll have to consider whether paying for FBA or paying a higher cost of operations will be cheaper for you as a merchant. Merchants incur lots of operational costs, from customer service, labeling, and packaging to shipping costs. For small companies, these costs add up fast. Amazon has its supply chain locked-down, so they are usually able to sell and deliver your product cheaper than you can.
Here are some situations in which FBA might be cheaper for you than FBM:
- You are located outside the US. Over 85% of Amazon sellers sell inside the US, but only 52% live here. If you’re one of those people, shipping internationally is going to cost you an arm and a leg.
- Your product turnover rate is high. Amazon’s inventory storage fees are high, but you won’t feel them pinch your wallet if your products are always moving.
- You sell a lot of standardized products. If all your products are in small boxes, Amazon will be able to store and ship products much cheaper than you will.
- Your product return rate is high. Customer service, especially domestically, is costly. If you want to skip that cost, FBA will completely cut it from your budget for the small price of a returns processing fee.
However, there are also many circumstances when FBM is a more financially lucrative option, including when:
- You are only selling a small range of products. The majority of merchants on Amazon sell less than five products. If you are a smaller merchant with few products, your products may not have the turnover rate to justify the investment of storage space.
- Your customers have a connection with your brand. If your customer experience is a crucial selling point for customers, FBM will let you handle every customer touchpoint the way you want it. On the other hand, FBA will be stress-free for you.
- You sell handmade products. If your selling individual, handmade products, factory storage isn’t going to work. Your customers want the personal touch, not an Amazon-stamped box on their doorstep.
- Your products are odd shapes and sizes. If you sell strangely packaged items, cubic storage isn’t going to be efficient for you. You’ll need to pay for more room than everyone else, and you’ll get less for it.
Can I Sell FBA and FBM?
In modern times with many choices, merchants don’t have to choose between FBA and FBM.
If you look at a breakdown of Amazon’s merchants, you’ll see that 29% of Amazon merchants use both fulfillment types to sell their product range. Out of 3 million active Amazon sellers, only 6% of merchants choose to fulfill all their orders themselves, while the remaining 66% use FBA.
However, if you do choose to mix up your fulfillment types, you’ll be in good company. While brands like Clinique sell their pressed powers in pretty little Amazon Prime boxes, eye shadow palettes that need particular types of storage come from the manufacturer directly. It’s all about maximizing the customer experience while minimizing the cost of doing business.
The Bottom Line
While you can sit here and read statistics about Amazon sellers all day, they won’t do you any good unless you can apply the knowledge to your merchant business. Whether you choose to become an FBA or FBM seller will depend on several factors:
- Your current order fulfillment processes
- Your customer service values
- Your cash flow
- Your products and your customers
How you weigh up each of those factors can’t be measured per pound. Ultimately, there is no standard rate for measuring your business options, but here at BellaVix, we can help you find the right balance. Let’s have a chat and see which option is best for you.
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