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 are Amazon FBM and FBA?
Fulfilled by Amazon (FBA) is the option where a company sells its product on the Amazon Marketplace, and Amazon handles all fulfillment. For this to work, the seller keeps a bulk of inventory in Amazon’s warehouses and fulfillment centers for Amazon to independently pick, pack, and ship products.
Fulfilled By Merchant (FBM) is the option where a company sells its product on Amazon sales channels while handling storage, shipping, and customer support on its 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 free two-day shipping. According to Amazon, Prime sellers compete more effectively than non-Prime members. Basically, customers are more likely to make a purchase if the Amazon Prime badge shows up on your listings because customers want fast deliveries.
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 (SFP) program and complete the trial period. Maintaining Prime eligibility is tough and even missing delivery timeframes by a percentage point can result in Amazon removing you from the SFP program.
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.
Is FBA better than FBM?
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
- You want higher margins
- You don’t want to be at the mercy of Amazon’s fees
- You sell products that aren’t in the approved categories for FBA
FBA is better for your company if:
- You sell small and lightweight products
- Your products sell quickly and have a high volume of inventory turnover
- You do not have logistics in place and expenses would be higher than fulfilling on your own
- Your products are large margin products that can offset Amazon’s additional fees
- You do not have a customer service department
- You are okay relinquishing control of your customers’ experience to Amazon
Amazon FBA Costs & 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 Calculator to predict fees and expenses given your item sizes and weight. 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 fewer fees.
Inventory turnover is the speed at 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 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 a laborious and time-consuming process.
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.
Amazon FBA vs FBM: Which Is Best?
The decision between FBA and FBM isn’t an easy decision to make. There’s no doubt Amazon is going to remain the #1 ecommerce site for a long time. For merchants who want to grow their business, selling on Amazon is a safe bet. The right decision between FBA and FBM is, “it depends.”
However, we do have to mention that Amazon is focused on growing its business first. There are plenty of reports that show Amazon often creates competing products based on what sells best.
Let ShipHero handle Amazon Fulfillment
Need help with fulfillment for your Amazon orders? Here’s how ShipHero can help you offer Amazon-like delivery speeds without breaking the bank.
2-day delivery and overnight delivery
With ShipHero’s distributed fulfillment network, orders can be delivered to most locations with 1 to 2 days. This allows you to offer the same delivery speeds that Amazon does, without having to let Amazon’s FBA fees reduce your profits.
Fulfillment for all your sales channels
We don’t just handle fulfillment for your Amazon orders. In addition to Amazon, ShipHero handles multi-channel fulfillment for Walmart, eBay, Shopify, BigCommerce, and most other ecommerce sales channels.
Reduced shipping costs
Due to our partnerships with other carriers, Amazon sellers working with ShipHero get reduced shipping costs for each order. Even better, our use of distributed fulfillment centers means you save even more money on transit costs and can get orders delivered faster.
So, is FBA or 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.
Learn more about ShipHero’s industry-leading warehouse management software.