When you start your business on Amazon, one of the many things you must decide is whether you want to ship the products yourself or have Amazon ship them for you. In this FBA vs FBM guide, we’re going to analyze each method with their pros and cons, so you can decide which one is the best for you.
Part 2: Fulfillment by Merchant
Part 3: FBA vs FBM: How to Choose?
Part 4: Down to You
Fulfillment by Amazon, in short FBA, is one of the most employed methods. Sellers seem to praise this method despite the costs it incurs. Let’s have a more in-depth look into the matter.
What is FBA?
To put it simply, FBA means that you sell the item but Amazon ships it. This service works in a very simple way.
You order your products from the manufacturer, but when your cargo arrives, instead of taking it to your warehouse, you send it to an Amazon warehouse.
Amazon stores your items, and for an extra fee, it can even label them with SKUs and EANs/UPCs, in case you haven’t labeled them already. This extra service helps thousands of sellers to improve logistics, as you won’t risk having your items rejected because they are labeled incorrectly.
Once they are in the warehouse, Amazon takes care of everything else on your behalf. What that means is that they will ship the product whenever you receive an order, liaise with the customer and provide customer support, and will even manage any returns on your behalf.
You will be responsible for keeping your inventory under control and make sure to replenish your products on time.
It’s also your responsibility to respond to any customer queries or feedback, but apart from this, the process is pretty straightforward.
Things are also simple when it comes to payments. You won’t be able to access your money immediately after the purchase, but Amazon pays all your earnings minus FBA fees directly into your bank account every two weeks.
Obviously, all this simplified logistics comes at a cost.
What Are the Costs of FBA?
There are two types of costs associated with the FBA method, fulfillment fees, and monthly storage fees.
The fulfillment fees comprise:
- Packing and handling
- Customer service and returns management
How much you will have to pay depends on the size of your products, which can be standard or oversized. If you want to know how much you’ll pay for each type of items, check out the table below:
|Small (up to 10oz)||$2.41||Small (up to 71lbs)||$8.26 + $0.38/lb above first 2lbs|
|Small (10 – 16oz)||$2.48||Medium (151lbs or less)||$9.76 + $0.38/lb above first 2lbs|
|Large (10oz or less)||$3.19||Large (151lbs or less)||$75.78 + $0.38/lb above first 2lbs|
|Large (10 – 16oz)||$3.28||Special||$137.32 + $0.91/lb above first 90lbs|
|Large (1 – 2lbs)||$4.76|
|Large (2 – 3lbs)||$5.26|
|Large (3 – 21lbs)||$5.26 + $0.38/lb above first 3lbs|
The monthly inventory storage fees are also determined by the size of your items, but also change from one period of the year to another. Currently, Amazon charges:
|Period||Price/cubic foot||Period||Price/cubic foot|
|Jan – Sept||$0.69||Jan – Sept||$0.48|
|Oct – Dec||$2.40||Oct – Dec||$1.20|
To calculate your monthly fee, you can determine the volume of your items by transforming inches into cubic foot in the following way:
- Calculate the volume of your units multiplying length x width x height of the unit in inches;
- Divide the volume by 1,728, which corresponds to 12 cubic inches. For example, if your unit measures 40 x 10 x 10 inches, your unit will occupy 2.31 cubic feet.
For a more accurate calculation, you can utilize the useful Fulfillment by Amazon Revenue Calculator accessible from your Seller Central account.
Also, keep in mind that while these are standard fees you can expect to pay for FBA, they aren’t the only costs that will affect your price.
While these are standard fees you can expect to pay for FBA, they aren’t the only costs that will affect your price.
Indeed, Amazon also applies long-term storage fees, which can be quite hefty. These fees apply if your products sit in storage for over 365 days, as Amazon’s intent is to sell products, not to store them.
You must also account for the shipping costs from the manufacturer to your warehouse – luckily, some manufacturers can ship your products directly to Amazon – as well as labeling and other logistics costs.
With this in mind, FBA might not be the best choice if you’re selling cheap items. Indeed, if your products cost less than $10, FBM could benefit you more.
What Are the Pros and Cons of FBA?
FBA might be praised by most sellers, but it still comes with pros and cons. If you’re tackling the idea of cutting of logistics, here’s what to expect:
Effortless logistics: With FBA, all you have to do is to make sure the products get from the manufacturer to the Amazon warehouse. There are many services that can take care of this part for you, and some even label your products. If you’re a beginner with no e-commerce experience, FBA could be a great plus.
Higher sales: FBA doesn’t only take the logistics burden off your shoulders; it also incentivizes shoppers to buy more. Indeed, your products will be Prime-eligible and benefit from lower shipment rates. Customers also tend to trust more those products that arrive at them via Amazon that via a private merchant.
Painless return management: If your customer doesn’t like the product, Amazon will take care of the whole return process on your behalf. Another big advantage you should consider if your e-commerce experience is minimal.
24/7 customer service: Unless you have big e-commerce and dozens of employees, chances are you won’t be able to provide 24/7 customer service to your shoppers. However, Amazon has the capacity to do this, and they are also known for offering stellar support to shoppers. A thing that could draw your store reputation and get your reviews higher.
Unlimited storage space: Although you have to pay a monthly storage fee as well as long-term storage fees, you can still benefit from unlimited storage space. Also, because Amazon has no minimum inventory requirement, you can potentially store as many products as you want without worries.
Quick delivery: Another big advantage of Amazon storing your products is the quick delivery you can benefit from. Prime customers can get next-day free delivery, and standard orders also benefit from speedy shipment. Another thing that builds customer trust and loyalty.
Multi-channel fulfillment: If you plan to sell on other marketplaces, such as BigCommerce, you can still opt for Amazon fulfillment and benefit from the entire range of advantages.
Shipping and storage costs: Perhaps the main downside of FBA is the shipping and storage costs. If you’re mainly selling cheap products, FBA is simply inconvenient.
Long-term storage fees: Another thing that can make FBA inconvenient is the long-term storage fee, especially if you’re a new seller. If you need time to build brand awareness and customer trust, starting with FBM could be a wiser idea.
Higher return rate: Because Amazon manages everything on your behalf, including the returns, you may face higher return rates. This happens because returning a product to Amazon is much easier than returning it to the merchant.
Difficulties in preparation and inventory tracking: Amazon has specific requirements you should follow if you want to opt for FBA. This includes packaging, labeling your products, and more. Luckily, they can take care of everything on your behalf for an extra cost. Inventory tracking can also be difficult, even if Amazon updates it automatically. Using an external service that monitors your account could be necessary, and this means extra costs.
Now that you know what’s the hype with Amazon FBA, you should know that there is also the FBM route. Here’s what you should know about it.
What is FBM?
FBM means fulfilled by merchant and is quite the opposite of FBA. If you opt for FBM, you will have to take care of the entire logistics, customer service, and returns, with no help from Amazon.
This method is rather advantageous if you’re selling cheaper products, as you’ll have better margins; however, beginners may get stuck in all this maze of storing, shipping, and dealing with returns.
For the seller, Amazon FBM is a bit more complicated than FBA. Indeed, after setting up your seller account and creating your listings, you will be responsible for shipping any orders to your shoppers, dealing with returns, providing customer service, and handling storage.
Besides, you will also have to find a reliable delivery partner, which is cost-effective. There is no reason to opt for FBM if it costs you more than FBA.
But despite the apparently negative fulfillment type, there are moments when FBM can be a better choice.
In fact, you should choose FBM in the following situations:
Sell exclusive products: If you sell a new product, FBM can increase customer trust and also cuts off your fees until you build brand awareness as long as your sales frequency is low.
Low-profit margins: When you sell cheap products, fulfilling them yourself can help you cut off handling, shipping, and storage fees incurred by FBA. You can sometimes cut off storage fees completely if the products are small enough to store in your home.
All situations when FBM is cheaper than FBA: Before deciding which path to go, calculate your costs and margins with both fulfillment methods. If fulfilling yourself is cheaper, choose this path without overthinking it.
What Are the Pros and Cons of FBM?
With this in mind, let’s have a look at the main pros and cons of Amazon FBM.
Major control over your business: By keeping your products into your own warehouse and managing shipments by yourself, you get more control over your business. It will be easier to manage the inventory and keep track of your orders and income.
Freedom in running your business as you want: With FBM, you can set your own return policy and follow your own shipping rules. No strings attached means you can run your business in any way you find fit.
Offline and online store opportunities: Another nice thing about keeping all your inventory in one place is that you can manage both online and offline sales. That’s a huge advantage if you have a physical store and want to expand your business online; or if you sell online already but plan to open a physical store too.
Greater margins: FBM often means greater margins. However, you should calculate all costs and make sure that FBM truly is convenient before opting for this fulfillment method.
Higher opportunities for building a brand: If you plan to build a solid brand, FBM could bring more benefits. You’ll learn what it takes to fulfill the orders, will manage your clients personally, and can benefit from their direct feedback and valuable insights. Through FBA, you won’t be able to interact with your customers directly.
Less paperwork: Amazon FBA comes with a lot of paperwork attached. You can avoid all these headaches through FBM, though.
Less unavoidable losses: As mentioned above, FBA comes with a lot of fees. You will have fees through FBM too, but they are usually cheaper than FBA. Again, you should calculate your costs before deciding which fulfillment method is the best for you.
You’ll be location-dependent: While FBA gives you the possibility to benefit from Amazon’s logistics and sell wherever you want in the world, FBM is quite location-dependent. Unless you can afford to spend a lot of money for shipping your products to any country.
You have to handle the logistics: Selling online is complicated. You have to store your stock, manage your orders, liaise with delivery companies, and make sure they get your shipments to your shoppers on time, handle any returns, and provide customer service. Quite a headache, especially for a beginner.
Lower chances of winning the Buy Box: Because shoppers tend to trust Amazon more, you’ll probably struggle to make sales at first. Which means higher costs for the marketing and lower chances of winning the Buy Box.
No Amazon Prime benefits: Since the launch of Amazon Prime, many Amazon customers have decided to pay the monthly subscription and get free shipping and speedy delivery on almost all FBA orders. However, FBM products are not Prime-eligible, another thing that may draw your sales down.
Harder to sale: Keeping in mind the above, it’s harder to sale if you’re using FBM. At least until you start to gain a reputation as a brand, and arriving at that point could really take a while.
Hidden costs: While FBA has straightforward, transparent costs, FBM could come with hidden costs. For instance, you might end up having to pay longer-term storage fees you didn’t know about or unexpected return fees.
Both FBA and FBM comes with ups and downs, so choosing between them is not always easy. To decide which fulfillment method works best for you, start with asking yourself these questions:
- Do I want full control over my business or hassle-free logistics?
- Do I want to build a brand or just to make money from selling goods online?
- What are the costs of FBA vs FBM?
If you want to have full control over your business and don’t mind being location dependent, if you want to build brand awareness, or if fulfilling the orders by yourself is cheaper, then you should opt for FBM.
When choosing, though, don’t forget to weigh in all costs you might have to face through FBM.
These include manufacturer to warehouse transport fees, any incurring storage fees if you don’t have enough space at home, delivery fees for each order as well as any fees associated with the returns.
On the contrary, if you’re a beginner with no order management experience, if you just want to make money without too much hassle and if you still have good margins despite the FBA costs, then this option could benefit you more.
Keep in mind, though, that FBA can be an awful choice if you don’t have good margins. Indeed, because they practice fixed fees, you might sometimes have to pay more than you earn just because your product’s selling price is too low.
Who wins in the FBA vs FBM battle is ultimately down to you. Weigh in the pros and cons of each method, calculate your costs and potential margins, and decide which is the best fulfillment method for you.
In the end, you’re the only one who can tell which method is more profitable or if you can manage order fulfillment without help.
If you opt for FBM, also know that there are many dedicated services that could handle logistics on your behalf.
The only thing to keep in mind is that this isn’t a decision to take lightly. Choosing the right fulfillment method can really make a difference between success and failure in the competitive world of e-commerce and Amazon businesses.