FBA vs. FBM: Which Is Better?

There is little doubt that selling on Amazon is a great place to make money, with 3 million active sellers finding methods to

There is little doubt that selling on Amazon is a great place to make money, with 3 million active sellers finding methods to be successful on the platform. With a marketplace rife with buyers, spanning many different needs, demographics, and niches, selling on Amazon can be a fantastic way to enhance your business and your life. However, there are certain logistics and obstacles that a seller needs to address before the rewards of an Amazon selling business really pick up. This means setting up the powerful selling platform in such a way that makes the most sense to your style of business.

One of the keys to operating a successful Amazon sales business is to assure that your buyers are receiving the product they ordered in a timely fashion. For that reason, every Amazon seller will need to determine their order fulfillment method. The two methods available to sellers are FBA (Fulfilled by Amazon) or FBM (Fulfilled by Merchant). Knowing the advantages and disadvantages of both can help you choose the one that suits can assist a seller in meeting their own logistical requirement, provide the best experiences for buyers and clients, and maximize your earnings returns.

About 66% of sellers on Amazon utilize the FBA method, while only 6% opt for FBM. An additional 29% however, use a hybrid combination of the two. Let’s take a look at some of the key aspects and differences between the FBA and the FMB fulfillment methods.

be successful on the platform. With a marketplace rife with buyers, spanning many different needs, demographics, and niches, selling on Amazon can be a fantastic way to enhance your business and your life. However, there are certain logistics and obstacles that a seller needs to address before the rewards of an Amazon selling business really pick up. This means setting up the powerful selling platform in such a way that makes the most sense to your style of business.

One of the keys to operating a successful Amazon sales business is to assure that your buyers are receiving the product they ordered in a timely fashion. For that reason, every Amazon seller will need to determine their order fulfillment method. The two methods available to sellers are FBA (Fulfilled by Amazon) or FBM (Fulfilled by Merchant). Knowing the advantages and disadvantages of both can help you choose the one that suits can assist a seller in meeting their own logistical requirement, provide the best experiences for buyers and clients, and maximize your earnings returns.

About 66% of sellers on Amazon utilize the FBA method, while only 6% opt for FBM. An additional 29% however, use a hybrid combination of the two. Let’s take a look at some of the key aspects and differences between the FBA and the FMB fulfillment methods.

What is FBA?

Simply put, FBA is a method by which the seller sells the product, but Amazon takes on the order fulfillment duties. Sellers who use the FBA method store their inventory in an Amazon fulfillment center or warehouse. One an order is placed, Amazon will pick, pack, and ship the product to the buyer. This alleviates the sellers of any shipping responsibilities, helping them to focus on simply marketing and moving their products.

Advantages of FBA:

  • Hands-Off Operation: The FBA method makes it easier for sellers who may not have the time to get out to ship their products out frequently (depending on how popular the item is, this could mean multiple shipments per day). Amazon keeps the inventory and disperses it when notified that a sale has been made. By letting Amazon take care of the fulfillment, the seller can better leverage their time by enhancing the sale’s end of the business.
  • Inventory Storage: A seller needs a place to store their inventory which calls for a need for storage space. A seller operating out of their home for example is unlikely to have an overabundance of space. Even if there is space to store the product, it will be tough for the seller to predict when to get more from their supplier to not run low or not to overstock. When the products sit in an Amazon warehouse, they are not in the way, and the seller can order more from their supplier without the concern of overstocking their own place of operation.
  • Prime Eligibility: With Amazon FBA, the seller’s items will automatically qualify for a prime rating. This means that the items will be ready for free 2-day delivery. This also allows a boosted chance of winning the ‘buy box’. This is the area that appears on the right side of the listing and is selected by the buyers on Amazon 80% of the time as their choice for ordering the product. By scoring this prized spot, sellers can have a giant boost to the sales of the particular item that qualifies for this distinction. Since Amazon will do the legwork on the fulfillment, the seller has a higher chance of consistently remaining in the buyer box when utilizing Amazon’s FBA service.
  • Multi-Channel Fulfillment: Sellers can sell products from their own websites through Amazon. By leveraging Amazon’s brand, sellers can build up their own business. Sellers can set up their own eCommerce markets with services like Shopify and sell their products without being concerned about being entirely dependent on Amazon’s shopping base to push their product sales.

Disadvantages of FBA:

  • High Cost: A seller’s cost framework might be higher based on how many listings Amazon stores for them and how much time it takes for the product to sell. In addition to monthly storage costs, every sale incurs a fulfillment charge. Slow selling items will incur storage costs until the product can move. If a product sells too quickly, while the seller restocks they could lose their Amazon ranking as well.
  • Control: While an Amazon fulfillment site will keep your inventory, it can be difficult to keep track of returns and sales on a real-time basis. A lot depends on the item selection. Additionally, as the seller is not handling the shipping of the item, the product could incur negative reviews because it arrived in poor condition, something the seller had no way of assuring would be done appropriately.
  • Taxes: Amazon platform will collect the sales tax for merchants, but sellers need to know their sales tax duties depending on the state where a buyer purchased from (as some states do not utilize a sales tax). The same is true for sellers in Europe with exception that it’s the national tax rather than state tax.
  • Preparation: Before letting Amazon hold onto and ship out the products, a seller has to assure that the products are correctly labeled and the necessary components are stored/shipped together. The labeling may need to be done through a third-party which can raise costs. Not having the product sufficiently ready to be fulfilled could also cause Amazon to reject one’s supply until proper adjustments have been made.

What is FBM?

When using Amazon FBM, sellers of Amazon handle the storage space and every aspect of the order fulfillment procedure. An Amazon FBM seller is responsible for making listings and once then after a sale is created, selecting and packing and delivering the product directly to the client. Remember that a seller will take complete responsibility for any damage to late product arrival as well as missing items.

Advantages of FBM

  • Business: FBM sellers have a lot more flexibility in how they market their brand, run their business, and how they choose to sell their products without the confines of Amazon’s FBA rules. This helps sellers have a greater sense of control over the business. If Amazon changes its FBA policies, sellers using that method need to change along with it to abide by those rules, a burden that impacts FBM sellers far less.
  • Cost: FBM sellers avoid storage fees that would be incurred with the Amazon FBA program. By cutting out the storage and some other fees out of the equation, more of the product’s revenue comes back as profit. To be clear, however, there are still fees to pay including a listing fee for Amazon and the out of pocket shipping costs. But overall, the fees incurred are lower.
  • Quality Control: When using the FBM method, sellers are able to personally inspect and ship every item, which dramatically increases the chances of the item arriving in good condition.

Disadvantages of FBM

  • Prime: While Amazon’s Prime program can be utilized for FBM fulfillment methods, it is often not the case due to sellers not wishing to be bound by Prime’s strict customer service standards. Amazon requires an on-time shipping rate of 99%, a sub-0.5% order cancellation rate, and the requirement of using Amazon purchase delivering services 98.5% of the time. As there are more Prime members on Amazon than there are not, chances are many products not eligible for Prime will be disregarded by Prime customers.
  • Delivery Rates: With the FBA method, the delivery costs are built into the service. When a seller is responsible for paying their own delivery fees, they may end up being prohibitive. If a $100 item costs $40 to ship and incurs another $15 in fees and another $5 in sales taxes, the profit from this item is a mere $40. If the item is actually worth about that much, then buyers who see it being sold for $100 will immediately disregard it as a ‘rip-off’.
  • Storage: Without being able to store the inventory in a warehouse or a fulfillment center, the inventory storage burden falls on the seller. This means either cluttering a home or office with products and constantly evaluating inventory based on sales volume or renting space in a third-party warehouse to store the equipment. This comes with its own charges and the need for assurances that a seller can access their product whenever they need to.
FBA vs FBM

FBA vs. FBM: Which is better?

If you are a merchant with a high rate of sales and large margins on most of your items, FBA might be the best way to go. In this type of selling situation, the expenses of Amazon FBA should not dramatically impact a seller’s bottom line too much. Additionally, with Amazon doing the fulfillment work, the seller can better concentrate on several other aspects of their business, such as marketing and product pricing. FBA tends to work out better for smaller, lighter products. They cost less to ship and the logistics are already worked out by the experienced fulfillment team at Amazon. A seller who would incur higher costs from shipping items on their own, would cut into their profit margins more by not taking advantage of the FBA service.

If the products are sold on a smaller scale or the profit margins are low, Amazon FBM is the best choice for fulfillment services. If the items being sold are larger and heavier, and the rate at which they are purchased is lower, it makes sense for a seller to incur the shipping cost on their own and forego the various fees associated with the FBA service. Sellers who have a lower inventory may not be able to cost-justify keeping their products in storage. All of these are methods to mitigate costs and increase the profit from selling the product.

It is also possible to utilize FBA and FBM methods together. This greatly depends on the variety of products a seller distributes. If some items are sold less often and are costlier to ship, the FBM option might work better, whereas a frequently sold product that is cheap and easy to ship could work better with the FBA program.

As with most aspects of the e-commerce market, there’s no clear cut winner in the debate among Amazon FBA and FBM. The final choice ultimately depends on what method the seller can use to reduce costs and maximize profits. The moral of the story for a novice or a veteran seller is that both options have their benefits and pitfalls, so time and diligent consideration should be taken when deciding what methods would end up being most cost-effective and profit-maximizing.