If you’re a new Amazon Seller, looking to launch your business in 2021, then you might be wondering what’s the ideal business model for you. There are 2 main selling methods on Amazon – Fulfillment by Amazon, and Fulfillment by Merchant. So which is better? Here’s your guide to Amazon FBA vs. FBM.
Fulfillment by Amazon (FBA) means you list your products on Amazon, and send your inventory directly to Amazon’s warehouses. Amazon will store it in their fulfillment centers. Upon you receiving an order, they will pick, pack and ship it directly to the customer for you. Amazon will also manage any customer support inquiries on your behalf if you choose to use this method.
Fulfillment by Merchant (FBM) means you can list your products on Amazon but you will have to manage your own inventory. This includes storage, picking, packing, shipping and customer support themselves or through third-party logistics companies.
Regardless of your sales strategy… Whether it’s private label, wholesale, arbitrage, or dropshipping. Or whether your sales method on Amazon is limited to either FBA, FBM, or a mix of both. As a new seller, it’s difficult to decide which method to use. So in this article, we have laid out the pros and cons of each method for you.
Fulfillment by Amazon
FBA is a method that most existing sellers generally favor on Amazon. According to JungleScout statistics, 92% of sellers use Amazon FBA. That’s nearly all sellers on Amazon! It must be noted this does not mean Amazon FBA is the best method. There are still 34% of them that also use FBM to sell. Still, Amazon FBA is clearly a desirable sales method for Amazon sellers.
Pros of FBA
There are numerous advantages to using Amazon FBA. First and foremost, you don’t have to store, coordinate, package, or deliver your own products. You don’t have to handle returns or customer inquiries either. Not only this, but Amazon FBA sellers are automatically given Prime Shipping benefits. There are 112 million Prime subscribers in the US, so automatically being eligible for prime shipping is possibly the biggest benefit of Amazon FBA.
Another key advantage is that FBA products win the Buy Box almost all the time. Amazon decides which seller wins the Buy Box on fulfillment channels. Only the fastest and the most reliable sellers win the Buy Box. As an Amazon FBA seller, you are considered to have perfect scores across all these metrics. This is for FBA products, Amazon itself is in charge of fulfillment. They consider their own metrics to be perfect.
A lesser-known advantage is that FBA sellers have an edge when it comes to Amazon SEO. Performance data of sellers heavily implies that Amazon FBA products get higher positions in SERPs, simply because Amazon customers prefer to buy products fulfilled by Amazon. Fulfillment is a key factor that contributes to your Amazon SEO. While unconfirmed by Amazon, it is true that Amazon FBA products generally get more exposure.
If you want to focus on selling and not sourcing, and want Amazon as a part-time endeavor then Amazon FBA is for you. There is a truly vast amount of resources available on the internet on how to manage Amazon FBA stores, so the learning curve is not steep. Best of all, Amazon’s retail operations are open 24/7, so even when you’re asleep, your goods are shipped out and your orders keep running.
Cons of FBA
On the other hand, FBA does have its disadvantages. First of all, Amazon charges various small fees. They are complicated and hard to understand. You have to cultivate a level of trust with Amazon and accept that you are getting fair prices if you want to use Amazon FBA. Moreover, you also must place your faith in Amazon warehouse staff and believe that they are handling your products with care.
The biggest disadvantage to FBA comes from Amazon itself. It is widely known that Amazon FBA Seller Support is extremely unhelpful in times of crisis and has trouble answering simple seller inquiries. Not to mention, Amazon changes its policies frequently, it will sometimes limit your SKUs, or mismeasure your products and overcharge you until you bring it to their attention. One example of an impactful policy change was Amazon stopping deliveries during the global COVID pandemic, forcing FBA sellers to stop accepting more orders whether they wanted to or not.
In addition, FBA sellers are subject to Amazon’s pricing structure, if the FBA fulfillment fees increase, you have to pay them. In 2018, it was noted that fulfillment fees increased by 15% for nearly all categories, and it is likely this may happen again in the future. FBA fees and storage fees are also incredibly high for oversize products, which means Amazon FBA caters mostly to smaller, lightweight products.
While the convenience of FBA is undeniable, it’s a double-edged sword. If you face a worst case scenario where you have to recall defective products, it can take months to get those products delivered back to you simply because your inventory is spread between so many Amazon warehouses (even if its the same SKU) and commingled with other Amazon FBA seller’s products.
Fulfillment by Merchant
About 43% of sellers on Amazon use FBM, implying a fairly even split between FBA and FBM. However, out of these, only 9% of sellers on Amazon exclusively use FBM as their only sales method. This doesn’t necessarily mean it is not a good sales method. There are many advantages to FBM that can cater to sellers who aim to sell a specific type of product and those who aim to be as consumer-facing as possible.
Pros of FBM
FBM is less popular than FBA by far but that’s not to say it doesn’t hold its share of advantages. Most sellers who choose FBM do so because their profit margins are higher, and they can price more competitively because not having to pay Amazon FBA fees cut down their costs. FBM is especially attractive for sellers who want to sell large-size, expensive products with a slow inventory turnover rate. FBM allows them to leverage the Amazon marketplace without having to pay the exorbitant storage and fulfillment fees Amazon charges for large-size products.
There is also the opportunity of lower logistics and handling fees if you have the right connections. Often if you ship larger quantities, FedEx or UPS will offer discounts. You can also have cheaper multi-fulfillment channels via 3PL warehouses, and can fulfill both online and offline orders using the same warehouse. Amazon FBA does not allow this, because what warehouse your SKUs are stored at is simply out of your control.
FBM is ideal for sellers who prefer control over their inventory & fulfillment processes and do not want to be subject to Amazon’s policies. It is also perfect for those who value the exclusivity of their brand, and want to focus heavily on direct customer service, to find out their customer’s pain points and build their brand further.
Cons of FBM
FBM has some major disadvantages compared to FBA, and most of it comes down to product visibility. The most worrisome disadvantage of FBM is that you do not automatically get the Seller Prime badge on your products, and instead need to qualify for it. The Seller Fulfilled Prime (SFP) program is the only way for FBM sellers to get prime benefits that 112 million Americans flock to, and unfortunately the requirements are tough.
In order to get SFP, sellers have to pass a trial period of 90 days, and do the following:
- Ship over 99% of orders on time
- Boast order cancellation rates below 0.5%
- Use Amazon Buy Shipping services for over 98.5% of orders
- Allow Amazon to deal with customer service inquiries
- Deliver orders with Amazon’s supported SFP Carrier
Not only do FBM sellers have to work harder to obtain Prime, FBM products also have less Buy Box power. SFP often increases the odds of FBM products winning the Buy Box, but it’s hard to maintain it when FBA offers always have an edge, simply because customers trust Amazon to fulfill their orders better. FBM also doesn’t get any SEO perks like FBA for the same reasons. The only true way to counter this is effective brand marketing, and a truly exceptional product that has enough ratings, the ideal pricing and SFP badge, that will attract customers to your FBM product rather than an FBA equivalent.
FBA and FBM both come with their respective benefits and limitations, so we recommend instead of focusing on statistics, or focusing on the intricacies of each program, new Amazon sellers should focus on what their business needs.
Some Basic Questions
Here are several questions a new Amazon seller should ask themselves before they settle on FBM or FBA. They will serve as a guideline for what you want from your Amazon Business, and help lead you to a conclusion.
Some basic questions you absolutely need the answer to:
- What is the size and weight of my product?
- How much is the shipping cost per unit?
- How fast does my inventory turn over?
- What are the rates offered by 3PLs in my area?
- What weekly or monthly shipping volume is feasible for me?
- How much are my overhead fees and warehousing expenses?
Some Serious Questions
Other questions we recommend you think about seriously:
- Do I need or want custom, specialised packaging for my products?
- Does my product require personal interaction with customers?
- Do I want full control over customer support and seller feedback?
- Do I have strategies in place that will win me the Amazon Buy Box?
- Is it possible for me to achieve 2-day shipping on my own means?
- How much time can I devote to my Amazon Business?
These are just a few of the numerous questions you’ll need to ask yourself before you settle on FBA or FBM (or both). They can indeed serve as a guideline for you to collect your thoughts, but at the end of the day you will need to sit down and crunch some numbers before you make a final decision. We recommend using Amazon’s FBA Revenue Calculator, it is a free tool available to all prospective Amazon Sellers. If you are not confident in financial aspects, you can also choose to hire a consultant or purchase software that will help you achieve the same.
Amazon FBA vs FBM
We discussed a lot of pros and cons within this article, and it is definitely a lot of information to digest. To make it easier, we have compiled an overview for you, with a comparison table of Amazon FBA vs FBM. We’ve included the key differences and what each sales method is suited towards.
Armed with this comparison table and the list of questions we outlined in the previous section, you may find it easier to make the choice between FBA and FBM.
A Mixed Model
Even after learning the advantages or disadvantages of each method, you may be facing doubts and worry about whether you are making the correct choice. Luckily, it’s not actually Amazon FBA vs FBM. Why? That’s because you can choose to use both FBA and FBM at the same time!
We mentioned before that nearly all Amazon sellers use Amazon FBA, but this statistic might be misleading because, in the same survey by JungleScout, those who exclusively use FBA, and only FBA totaled to just 57%. About a third of sellers actually preferred to use both FBA and FBM, which is certainly a method worth considering for those looking to sell on Amazon.
A common strategy in a mixed FBA & FBM model is to send the bulk of your stock into FBA warehouses but retain some high-priced products for FBM. Similarly, you can use FBA for small products with fast turnover, and sell large products with slow turnover using FBM. This means you won’t be overwhelmed managing your smaller, popular products on your own, and at the same time you can avoid paying Amazon’s fees on your larger, more expensive, high-tier products. Using both FBA and FBM, you can optimize your Amazon business in terms of both fulfillment costs and customer service.
One thing to note is that a mixed FBA and FBM model is a strategy usually applied a few months down the line, when you are growing your product portfolio. If you are a new Amazon Seller, we recommend that you start with one – either FBA or FBM. There is a learning curve with managing both of them, so you do not want to dive headlong into a mixed model and struggle to balance your FBA products with your FBM ones.
In summation, we believe there are benefits to both Amazon FBA and FBM, and that the final decision comes down to what you value in your business. However, for new sellers, a concrete answer to the Amazon FBA vs FBM debate is… go with FBA. Unless you have extensive expertise in logistics, we recommend Amazon FBA. In 2021, when the Amazon Marketplace is so saturated with competition, you will need every perk you can get. Amazon FBA gives you two automatically – Seller Prime and Buy Box.
Whether you choose FBA or FBM, your key focus even before launching your products will have to be Amazon Advertising. Amazon PPC management and optimization is the only true way to beat your competition in 2021, regardless of your sales method. We highly recommend looking into Amazon PPC Tools and Amazon PPC Management Software that will work for you.
If you have questions or insights to share, please feel free to post them via the comments section. Please also consider joining our Facebook Group where we discuss any questions you may have about running an Amazon business.
We are SellerMetrics, our Amazon PPC Software helps Amazon sellers, brands, KDP Authors and agencies navigate Amazon Advertising PPC via bid automation, bulk manual bid changes, and analytics.