In 2022, over 2 million businesses were selling on Amazon, with approximately 3,700 new sellers joining the platform daily. These sellers have to decide the mode of fulfillment of their orders to be Amazon FBA and FBM.
You can either pay Amazon to take the logistic nightmare off your plate (fulfillment by Amazon) or handle the orders yourself (fulfillment by the Merchant).
So between Amazon FBA and FBM, which one is right for your business? If you want to fulfill high volume inventory with higher margin products to avoid storing and shipping products, Amazon FBA will be a better choice. On the other hand, Amazon FBM will be more suitable for smaller scale, small margin products or one-off products, and if you don’t mind keeping and shipping products.
This guide will address the difference between these fulfillment methods and their pros and cons to help make an informed decision. Let’s begin. If you wonder whether Amazon FBA is a good way to make money, I wrote a whole article sharing the 8 best options to make money with Amazon FBA.
Amazon FBA vs. FBM: What Are The Differences?
The FBA model lets you buy and send inventory to Amazon’s warehouse. Amazon will then handle all logistics (packaging, labeling, and shipping) for you. On the other hand, Amazon FBM is a fulfillment method that allows you to take full responsibility for your inventory (storage, packaging, and shipping).
If you use Amazon FBA, you will pay fulfillment and monthly storage fees. But if you go with FBM, you store and ship your inventory, meaning you won’t incur Amazon fees.
In addition, Amazon FBA service enables sellers to send inventory to Amazon to store, ship, and handle returns of their products for a fee. On the other hand, Amazon FBM is where the seller stores, ships, and handles returns on their own.
Now, it can be challenging to decide between Amazon FBA and FBM without first knowing the pros and cons of each model.
Let’s demystify FBA and FBM to help you make better decisions that will benefit your business.
Pros of Amazon FBA
57% of third-party Amazon sellers use the FBA program. Here is why many sellers settle for this program.
1- Logistic Support and Scalability
Amazon FBA takes the logistical hustle of packaging, shipping, and customer service off your shoulder. You will only seek the best places to buy inventory, then allow the Amazon fulfillment network to handle the rest for a small fee.
Amazon FBA allows you to focus on building your brand and scaling your business.
2- Prime Eligibility
Amazon FBA products receive the Prime member badge, which increases visibility and sales. Prime eligibility also means qualifying for prime shipping times and rates without paying higher fees.
The two-day free shipping helps to reduce shopping cart abandonment, thus increasing sales.
3- Excellent Customer Service
With Amazon FBA, your customers get 24/7 customer service from Amazon. You don’t have to sit at your computer all day answering questions and handling complaints; Amazon will do it for you.
Furthermore, you can route your services through the FBA platform for easy management. 24/7 customer service will help you build trust and loyalty with your customers.
4- More Storage Space
Amazon has massive warehouses, and with the FBA program, you won’t worry about storage space.
On the other hand, if you store your own inventory, you are likely to run out of storage space or pay hefty fees to a third-party storage facility.
5- Multi-Channel Fulfillment
Another benefit of selling your merchandise through Amazon FBA is that it allows you to use various sales channels or marketplaces like BigCommerce, eBay, or your own website.
And with multi-channel fulfillment, you get the following:
- Competitive Pricing
- On-time delivery
- Fully trackable orders
- Connection with other e-commerce apps
- Simplified workflow
6- Buy Box
Selling products via Amazon FBA allows you to win a Buy Box, which makes it easy for customers to buy your products. Buy box also increases your product visibility and puts you ahead of the competition.
Winning a Buy Box is more challenging with FBM than with FBA.
7- Product Protection
When you ship large quantities of products, the chances are some are lost or damaged. This can result in losses, but instead of bearing the cost yourself, Amazon often reimburses FBA sellers.
Cons of Amazon FBA
Sometimes Amazon FBA will not suit your business. Here are some reasons to avoid this program.
1- Amazon FBA is Costly
While FBA is convenient, its fees can eat into your profits. If you sell low-cost items, FBA may be unsuitable for your business because the feed could take up all the profits.
Fortunately, Amazon has an FBA calculator to help you determine whether the program is profitable for your business.
2- Limited Branding
Amazon handles your products’ storage, packaging, and shipping without your intervention. The fulfillment centers will likely brand your product boxes with Amazon labels and logos.
Even if you package your products with your logo and branding label, Amazon will still wrap them with branded covers. This means the first thing your customer will see when receiving the product is the Amazon package.
3- Limited Growth Opportunities
This disadvantage is related to the one for branding. With Amazon FBA, you have no direct contact with your buyers.
And because you need their information, they won’t subscribe to your emails or follow you on social media, thus limiting your marketing, promotions, and growth.
4- Strict Inventory Guidelines
The FBA program requires that you send your products to the fulfillment centers- the process of “receiving.” However, the receiving standards need more flexibility and dictate that your product be ready for packaging when they arrive at the centers.
Failure to comply with these guidelines could attract a non-compliance fine, or they could refuse to ship your product to the customer. So, before sending your products to the fulfillment centers, ensure they are correctly packaged, have the correct labeling, and have followed warehouse guidelines.
5- More Returns
Amazon FBA has an open return policy, and many sellers have experienced more customers returning goods.
Let’s face it, once you sell a product, nobody wants to see their products returned to the store.
6- Sales Tax Compliance
While sales tax affects all sellers on Amazon, it is more complex to deal with when selling through Amazon FBA.
Since Amazon fulfillment centers house your products depending on your customer base, knowing how much tax to pay might take time and effort.
Additionally, Amazon FBA can store your products in different states with different sales tax laws, leaving you unsure where to register for compliance.
How To Improve Your Amazon FBA Sales?
Regardless of its challenges, Amazon FBA is worth it, and you can maximize your profits with this program. Here are some practical points to increase your earnings and propel your growth.
- Choose the right purchase places: You can select the best places to buy products for Amazon FBA cheaper and resell at a profit. Places like big box stores, B2B marketplaces, and Auction markets are ideal places to start.
- Use online analytics tools: These tools can help you with product research to discover the most popular and profitable products on Amazon.
- Be smart with your product selection: You want to stock moving products to reduce long-term storage fees. So, you should balance between sale rank and profitability.
- If possible, bundle products: One challenge you will face when selling on Amazon FBA is competitors with near-identical product listings.
- So, how do you stand out and increase sales? Create a bundled listing that catches your customers’ attention and offers value for their money.
- Sell high-quality products: You want to build a brand known for selling quality products by sourcing them from reputable suppliers.
- Improve customer support services: Customers will likely choose your store depending on how well you respond when they are provoked. If you handle the situation tenderly, you keep them; otherwise, they will leave.
Pros of Amazon FBM
Now, let’s consider the advantages of handling your inventory.
1- More Control Over The Fulfillment Process
As an Amazon FBM seller, you have complete control over inventory management, packaging, shipping, and customer service. And since you determine the shipping carrier, you can save money when you choose cheaper options.
2- Low Costs
FBM sellers don’t incur storage and fulfillment for Amazon fees. You can also set a lower shipping fee that could be lower than Amazon’s, meaning your products could be relatively cheaper than Amazon FBA products.
Amazon FBM allows you to sell products that are illegible for Amazon FBA, such as perishable goods or oversized items.
4- Brand Control
As an FBM seller, you’ve more control over your brand and customer experience. You can include personalized notes or packaging to build customer loyalty.
Cons of Amazon FBM
Amazon FBM has its disadvantages, and here are the most common ones.
Fulfilling orders independently and managing inventory, packaging, shipping orders, and customer service is time-consuming. You will need to invest heavily in your store to pull it off.
2- Stiff Competition From Amazon FBA Sellers
Amazon supports FBA sellers with Prime badges since they share profits. Most buyers prefer sellers with badges, which could reduce your sales revenue as an FBM seller.
Furthermore, the lack of a prime badge means lower visibility and reduced sales compared to sellers using FBA.
3- Storage Limitation
FBM sellers handle their inventory storage, which could be challenging for those with limited storage spaces.
4- Shipping Issues
Shipping can be a nightmare in case of damages or lost goods. FBM sellers are any issues that arise during the shipping process, including delays and customer complaints.
How to Improve Your Amazon FBM Sales?
While Amazon FBM is challenging and time-consuming, here are some things you can do to compete favorably with other sellers.
- Optimize your product listings: Ensure you have high-quality images and well-written product descriptions. Use keywords in the right places to enhance visibility and discoverability.
- You can learn more from our step-by-step guide on building a successful e-commerce site.
- Offer competitive prices: Nothing attracts customers to your store like discounts or offers. So, examine your competitors’ pricing strategy and see how to compete. Read this exciting piece on psychological pricing strategy for e-commerce for more ideas.
- Provide excellent customer service: Respond promptly to customer inquiries and complaints, and offer refunds or exchanges when necessary. Your customers are people who will likely stick to your store if you show them you care.
- Focus on product quality: Customers will identify stores that sell quality products based on customer reviews. And even if you receive negative customer reviews, respond professionally and look for ways to improve.
Is It Worth Being an Amazon FBA Seller?
The short answer is yes. Think about it, over 85% of Amazon’s biggest sellers use FBA. Why? Because it has a high-profit margin and allows you to focus on building your brand as Amazon does the rest.
What Is Amazon FBA, And How Does It Work?
Amazon FBA (fulfillment by Amazon) is an e-commerce selling program allowing you to send your inventory to fulfillment centers for packaging and shipping orders. The seller doesn’t handle inventory storage and customer service with this program.
What Is Amazon FBM, and How Does It Work?
Amazon FBM (Fulfillment by the Merchant) is a selling program where the seller handles warehousing, packaging, shipping, and customer service. You won’t pay Amazon fulfillment fees, but you will deal with all issues relating to your store.
How Do The Costs of Amazon FBA and FBM Compare?
Since Amazon FBA involves storage and fulfillment fees, it is more expensive than Amazon FBM. FBA fees include monthly storage fees, per-item fulfillment fees, and long-term storage fees, which FBM sellers don’t have to pay.
Amazon FBA vs. FBM: Which One Is More Convenient?
Generally, Amazon FBA is more convenient because it handles the entire fulfillment process from storage, packing, shipping, and customer service. On the other hand, FBM is inconvenient because sellers are responsible for all aspects of fulfillment.
How Does Using Amazon FBA or FBM Affect Your Sales On The Platform?
Using Amazon FBA means you have access to prime badges, which can improve your sales on the platform. You will likely enjoy increased visibility and trust among customers. Conversely, FBM sellers may have more control over their brand and customer experience but may need the Prime badge on their products, resulting in lower visibility and sales.
Can You Switch Between Using Amazon FBA and FBM?
Yes, you can switch between Amazon FBA and FBM at any time. However, you may incur additional costs or requirements, such as managing inventory and adjusting shipping settings.
What to read next:
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- 7 Ways to Optimize Your Blog for Ad Revenue (Plus a bonus tip!)
Amazon FBA vs. FBM: Which is better?
FBA is ideal for sellers with high-volume products and earns high-profit margins. A high-profit margin will help you care for the relevant FBA fees and still make a profit. Amazon FBA is also suitable for sellers who avoid handling warehousing, packing, shipping, and customer services.
On the other hand, FBM is better for low-volume products with low-profit margins. You need low volume as an FBM seller because you handle your inventory storage.
If you find it challenging to choose between FBA and FBM, you can combine them. So, you will still make a profit when circumstances suit either way.