Amazon FBA vs. FBM – Which is Right for Your Business?

If you sell products on Amazon, you have two main options for fulfilling your orders: Amazon FBA (Fulfillment by Amazon) or Amazon FBM (Fulfillment by Merchant). Each option has its advantages and disadvantages, and choosing the right one can make a big difference for your business.

What is Amazon FBA and How Does It Work?

Amazon FBA (Fulfillment by Amazon) is a service that allows you to sell products on Amazon’s platform and use their fulfillment network. With Amazon FBA, you buy or manufacture products and send them to Amazon’s warehouses, where they are stored and prepared for shipping. When a customer orders a product from your Amazon listing, Amazon picks, packs, and ships the product to the customer. Amazon also handles customer service and returns for you.

Amazon FBA is a great way to scale up your ecommerce business and reach millions of customers. However, not all products are suitable for Amazon FBA. You need to consider factors such as demand, competition, profitability, size, weight, and category when choosing products to sell on Amazon FBA.

What is Amazon FBM and How Does It Work?

Amazon FBM (Fulfillment by Merchant) is a service that allows you to sell products on Amazon’s platform and use your own fulfillment methods. With Amazon FBM, you buy or manufacture products and store them in your own warehouse or location. When a customer orders a product from your Amazon listing, you pick, pack, and ship the product to the customer yourself. You also handle customer service and returns yourself.

Amazon FBM is a good option for sellers who want to have more control and flexibility over their inventory, fulfillment, and pricing. However, not all products are suitable for Amazon FBM. You need to consider factors such as shipping speed, customer expectations, and seller ratings when choosing products to sell on Amazon FBM.

The Pros and Cons of Amazon FBA vs. FBM

Both Amazon FBA and FBM have their advantages and disadvantages, depending on your goals, budget, and preferences. Let’s compare them in terms of the following aspects:

Customer Satisfaction

One of the main benefits of Amazon FBA is that it can increase your customer satisfaction and loyalty. Customers who buy products that are fulfilled by Amazon can enjoy free and fast shipping, especially if they are Prime members. They can also trust that their products will be delivered on time and in good condition, and that they can easily return or exchange them if needed. Amazon FBA can also boost your seller reputation and ratings, as customers tend to leave positive feedback and reviews for products that are sold and fulfilled by Amazon.

One of the main drawbacks of Amazon FBM is that it can decrease your customer satisfaction and loyalty. Customers who buy products that are fulfilled by the merchant may have to pay for shipping, wait longer for delivery, and deal with inconsistent or unreliable shipping services. They may also have more difficulty returning or exchanging their products, and may encounter poor customer service from the seller. Amazon FBM can also lower your seller reputation and ratings, as customers tend to leave negative feedback and reviews for products that are sold and fulfilled by the merchant.

Inventory Management

Another aspect to compare is the inventory management of each fulfillment method. Inventory management is the process of planning, organizing, and controlling your stock levels and availability.

One of the benefits of Amazon FBA is that it simplifies your inventory management, as you don’t have to worry about storing, tracking, or replenishing your products. Amazon handles all the inventory-related tasks for you, and provides you with tools and reports to monitor your inventory performance and health. You can also use Amazon’s inventory placement service, which distributes your products across multiple fulfillment centers, to reduce your shipping costs and time.

One of the drawbacks of Amazon FBM is that it complicates your inventory management, as you have to take care of storing, tracking, and replenishing your products yourself. You have to find or rent a suitable storage space, hire or train staff, and use software or systems to manage your inventory. You also have to deal with the risks and challenges of inventory management, such as overstocking, understocking, theft, damage, or loss.

Marketing and Branding

Another aspect to compare is the marketing and branding of each fulfillment method. Marketing and branding are the processes of promoting and positioning your products and business to your target market and customers.

One of the benefits of Amazon FBA is that it can boost your marketing and branding, as you can leverage Amazon’s massive customer base and brand recognition. You can also benefit from Amazon’s Prime program, which offers free and fast shipping to millions of loyal customers. You can also use Amazon’s marketing tools and services, such as Sponsored Products, Sponsored Brands, Sponsored Display, and Amazon Advertising Console, to increase your exposure and conversions.

One of the drawbacks of Amazon FBM is that it can limit your marketing and branding, as you have to compete with Amazon and other sellers for the same customers and keywords. You may also miss out on the Prime customers, who tend to buy more and spend more on Amazon. You also have to create and manage your own marketing campaigns and strategies, and use external platforms and tools, such as Google Ads, Facebook Ads, or Shopify, to drive traffic and sales to your listings.

How to Compare the Costs and Fees of Amazon FBA vs. FBM

One of the most important factors to consider when choosing between Amazon FBA vs. FBM is the costs and fees involved in each option. Amazon FBA vs. FBM have different cost structures, and you need to calculate and compare them carefully to determine which one is more profitable for your business.

Here are some of the main costs and fees that you need to consider for Amazon FBA vs. FBM:

• Product cost: This is the cost of buying or manufacturing your products. This cost is the same for both Amazon FBA vs. FBM, unless you can get a lower price from your supplier by ordering in bulk for Amazon FBA.
• Shipping cost: This is the cost of shipping your products to Amazon’s fulfillment centers (for Amazon FBA) or to your customers (for Amazon FBM). This cost depends on the size, weight, and distance of the shipment, as well as the shipping method and carrier you use. You can use tools like Amazon FBA Revenue Calculator or Amazon FBM Calculator to estimate the shipping cost for each option.
• Storage cost: This is the cost of storing your products in Amazon’s fulfillment centers (for Amazon FBA) or in your own warehouse or location (for Amazon FBM). This cost depends on the size and type of the product, the duration of the storage, and the seasonality of the demand. Amazon FBA charges monthly inventory storage fees (per cubic foot) and long-term storage fees (per unit) for products that are stored for more than 365 days. Amazon FBM charges no storage fees, but you have to pay for your own storage space, equipment, and maintenance.
• Fulfillment cost: This is the cost of picking, packing, and shipping your products to your customers. This cost is included in the Amazon FBA fees (per unit), which vary based on the size and weight of the product and the shipping destination. Amazon FBM charges no fulfillment fees, but you have to pay for your own labor, materials, and supplies.
• Referral fee: This is the fee that Amazon charges for each sale you make on their platform. This fee is a percentage of the total sales price (excluding any taxes, shipping, or gift wrap charges) and varies by product category. The referral fee is the same for both Amazon FBA and FBM, and ranges from 6% to 45%, with most categories being around 15%.
• Other fees: These are the fees that Amazon may charge for other services or situations, such as returns processing, disposal, removal, labeling, prep, or unplanned services. These fees are usually optional or avoidable, and vary by product and service. You can check the Amazon FBA fee schedule or the Amazon FBM fee schedule for more details.

To compare the costs and fees of Amazon FBA and FBM, you need to add up all the relevant costs and fees for each option, and subtract them from your selling price. The difference is your profit margin, which you can use to evaluate the profitability and viability of each option. You can also use tools like Amazon FBA vs FBM Calculator or Amazon FBA vs FBM Comparison Tool to automate the calculation and comparison process.

How to Decide Which Fulfillment Method is Best for Your Products and Customers

There is no one-size-fits-all answer to which fulfillment method is best for your ecommerce business. The best option depends on your products and customers, as well as your goals, budget, and preferences.

Here are some questions to ask yourself when deciding between Amazon FBA and FBM:

• What are the size and weight of your products? Amazon FBA charges more for larger and heavier products, which can reduce your profit margins. Amazon FBM may be more cost-effective for bulky or heavy products, as long as you can find a cheaper and reliable shipping service.
• What are the demand and seasonality of your products? Amazon FBA charges more for storing your products for longer periods, especially during peak seasons. Amazon FBM may be more flexible for products that have low or fluctuating demand, as you can adjust your inventory levels and storage space accordingly.
• What are the expectations and preferences of your customers? Amazon FBA can offer faster and free shipping, which can increase your customer satisfaction and loyalty. Amazon FBM may be more suitable for products that require customization, personalization, or special packaging, as you can have more control and flexibility over your fulfillment process.
• What are your skills and resources? Amazon FBA can save you time and hassle, as you don’t have to worry about the logistics and overhead costs of running your own fulfillment operation. Amazon FBM may be more manageable for sellers who have experience and expertise in fulfillment, or who have access to affordable and efficient fulfillment services.

By answering these questions, you can weigh the pros and cons of Amazon FBA vs. FBM, and choose the best fulfillment method for your ecommerce business.