Welcome to our Shipping Methods Explained blog series. In this series, we will deep dive into fulfillment methods – that is, how businesses fulfill their online orders and get products to their customers.
Sounds simple right? Well, in theory it is. You could hop on your itty-witty bicycle and hand-deliver your product, mission accomplished. But consider the complexity when your company fulfills hundreds to thousands of orders daily, not to mention the skyrocketing shipping costs that could price you out of the market.
Managing inventory, navigating each carriers’ specific requirements, calculating the lowest cost from thousands of shipping options… it’s a daunting task. That’s why more and more businesses are outsourcing their fulfillment methods.
Are you ready to outsource your fulfillment? Let’s analyze your options to help you decide the best method for your business. In this article, we’ll discuss Fulfillment-by-Amazon (FBA) & Fulfillment-by-Merchant (FBM). What is FBA & FBM? What are the pros/cons of each? How do they compare/contrast and which one right for my business, if any? Let’s dive in.
What is FBA and FBM?
Fulfillment-by-Amazon (FBA) is the option where a company sells their product on Amazon, and Amazon ships it to the customer. For this to work, the seller keeps a bulk of inventory in Amazon’s fulfillment centers for Amazon to independently pick, pack and ship products.
Fulfillment-by-Merchant (FBM) is the option where a company sells their product on Amazon while handling storage, shipping and customer support on their own.
Of all current Amazon sellers:
- 57% use FBA only
- 34% use a combination of FBA and FBM
- 9% use FBM only
Amazon Prime Shipping
Both FBA and FBM sellers can ship products via Prime, Amazon’s reward program that offers one or 2-day shipping. According to Amazon, Prime sellers compete more effectively than non-Prime members.
FBA sellers are automatically available for Prime benefits. However, FBM sellers must first qualify to become a Prime seller once they join Amazon’s Seller Fulfilled Prime program and complete the trial period.
Currently Seller Fulfilled Prime is not accepting new registrations, but a waitlist if offered to join the program.
FBA vs. FBM – Choosing the right option for your business
Considering your specific business and the products you sell, you may be better off with FBA or FBM or a hybrid of the two. Each option is evaluated below on the cost & fees, autonomy & control, and ease of use, but in summary:
FBM is the better option for your company if:
- You sell heavy, bulky or oversized products
- Your products sell slowly and inventory turnover is low
- You already have logistics in place and can fulfill your own products
- You have existing customer service practices and want to control your customer experience end-to-end
FBA is the better for your company if:
- You sell small and lightweight products
- Your products sell quickly and inventory turnover is high
- You do not have logistics in place and expenses would be higher than fulfilling on your own
- You do not have existing customer service practices
- You are okay relinquishing control of your customers’ experience to Amazon
Cost & Fees
For FBM sellers, there are many ways in which to fulfill your product like Dropshipping, outsourcing to a 3PL, leasing and operating your own warehouse, or even using a spare bedroom in your apartment for storage. Consider your alternatives, then compare them against the costs and fees charged to FBA sellers below:
You can use Amazon’s FBA Revenue Calculator to predict fees and expenses given your item sizes and weight, but overall, the fee structure for FBA sellers greatly increases with the size and weight of a product; therefore, FBA sellers who have small, lightweight products incur less FBA fees and storage fees.
Inventory turnover is the speed in which a company sells and restocks inventory. Amazon tracks sellers inventory turnover and assesses fees based on the duration; in other words, sellers with products that sit in Amazon fulfillment centers for longer (i.e., have slow turnover rates) must pay higher FBA fees. Additionally, if a product sits in an Amazon fulfillment center longer than 365 days, they are additionally charged for long-term storage fees.
FBA Fulfillment Fees
All FBA sellers must pay FMA fees to cover the shipping and handling costs involved with fulfilling their company’s orders. These most likely cover the labor hours, packaging and overhead that Amazon incurs to provide this service.
If the above FBA costs and fees are too expensive, you should consider those alternative FBM methods.
Autonomy & Control
How much control do you hope to retain over your company? FBM clearly has the most control and autonomy when it comes to fulfillment, but consider the trade-offs below:
FBA sellers use Amazon to handle customer service on their behalf, as such FBA sellers rarely, if ever, speak with their customers. Therefore, you can outsource one of the more demanding aspects of your business to Amazon, but you also give up the best opportunity to engage with your customers and create customer loyalty.
FBA sellers have little concern over their seller feedback and rating because Amazon handles the most of the process. In fact, FBA sellers can request Amazon to remove negative feedback if Amazon was the one who handled the fulfillment.
Ease of Use
The whole process of order fulfillment, picking, packing, and shipping, is an extremely laborious and time-consuming process. can be incredibly time consuming.
For companies and brands that currently have no sales channels or fulfillment methods in place, Amazon FBA allows for instantaneous access to a gigantic logistics network, for a price. But this also saves you time to focus on the aspects of your business that need your attention most.
For companies and brands that already have fulfillment channels and are considering adding Amazon, they should be careful to consider whether the additional FBA logistics channel is worth the additional costs, especially companies that sell big, heavy products.
So, is FBA/FBM right for your business? Be sure to stay tuned to our Shipping Methods Explained series as we deep dive into the specifics of fulfillment.
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