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Amazon business is one of the fastest and best ways of making money online. According to Sellerapp blog, Nearly 9.5 million sellers are associated with Amazon platform globally.
Being a vast business platform, Amazon has given two options to sell on Amazon,
- FBA(fulfillment by Amazon)
- FBM (Fulfilled by Merchant)
This makes a problem for most of the sellers whether they should do Amazon FBA or FBM (ship Yourself). Let’s have a quick introduction to both the models and we proceed to the differences betwwen fulfilled by Amazon and Fulfilled by merchant business.
Fulfillment by Amazon
The seller sends his inventory to Amazon warehouse. Amazon stores it in the warehouse. When seller receives the order, Amazon dispatch the order and deliver it to the customer. The interesting side is 73% Amazon sellers uses FBA as a business model to sell on amazon (Source: Seller App).
Fulfillment by Merchant
Here, the merchant (seller) keeps inventory with himself. When the customer orders a product, he delivers the order to the customer through shipping carrier (Fedex, UPS, USPS etc).
Both Fulfillment by Amazon and FBM (fulfillment by merchant) are profitable models for sellers. They have their own pros and cons. If you picks what works the best for you, it would be easier to manage online business and make profit.
Amazon FBA vs FBM (Pros and cons)
Fulfillment Channel
The FBA program allows hassle free selling to sellers. Amazon handles shipping and fulfillment channel for FBA sellers. You put your inventory in the Amazon warehouse and when a customer purchase the product, Amazon ships it. Check the FBA business model.
Amazon charges a standard Amazon FBA fees to sellers on every order to fulfill the order based on product packaging weight.
While FBM sellers needs to handle the shipment process. When a customer order a product, Amazon will display you customer’s personal details for order fulfillment. You need to contact a shipping company to process the order. This gives you the flexibility to compare the shipping prices of shipping carriers and can find an affordable option for order fulfillment. Check the Fulfillment by Merchant model.
Amazon Fees
Amazon charges FBA fees and 15% referral fees on every FBA order to the seller. The FBA fees is based on the ordered unit package weight and its size.
In FBM, the seller needs to pay 15%-65% referral fee (based on product category). If the seller opt for Individual selling plan, Amazon charge additional $0.99 on every order.
Product Launch duration
As stated, Amazon FBA involves sending your goods or inventory to their warehouse. You need to make a listing on Amazon, then need to make an FBA shipment plan. After the creation of shipment plan, Amazon will share you FBA labels, you need to carefully label it on your inventory and send it to the allocated warehouse. This process is little lengthy.
The inventory will be first received by Amazon, the pallets will be unpacked and the items will be manually scanned and arranged to the rack spaces. After the complete process, your listing will be activated to sell on Amazon. The time duration for product launch could be from few days to months.
Merchant fulfilled business does not need to wait for their listing to be active for sale on Amazon. Once you list a product under FBM, you listing go live within few minutes.
Control
An FBM seller has more control on its business than an FBA seller. Suppose, you are doing an FBA business and getting returns because of product damage or other issue. It is impossible for you to reach the Amazon warehouse and manually inspect the rest inventory. It is one of the major Amazon cons for sellers. The seller has to call off its inventory from Amazon warehouse and inspect them. Amazon will bill you for the shipping. Again, after inspection you will send inventory to Amazon. This means you will pay again for inventory shipment to Amazon warehouse.
With FBM, if you are getting complaints of customers regarding damage or any product quality error, you can immediately audit the rest inventory. It is because you have the connectivity and reach to your inventory. Do the necessary corrections and gets things implemented to ensure product quality and customer satisfaction.
Connectivity to the end customers
Amazon fulfilled business never let the FBA sellers to have customer’s email and phone contact number details. This means, you can connect to your customer via seller central email system only.
Merchant fulfilled business involves order processing at the seller’s end. So, Amazon shares customer’s phone contact details and email to the seller. Here, one of the biggest benefits sellers can have is getting rid of negative reviews. FBM seller can reach to a customer who given a negative review and negotiate with them sending a freebies or full refund/replacement to the order directly.
While, FBA sellers needs to communicate with the customer over message system integrated in the seller central. Amazon monitors it. A single mistake or some kind of policy violation can lead to account ban. Though, chances of getting account system for policy violation applies to both selling model. But, FBM sellers have less chances of account suspension unless a customer complain to Amazon regarding negotiation against negative review.
Seller plan
Amazon has two selling plans for both FBA and FBM sellers, Individual and professional seller. The individual seller plan includes free product listing and selling but as obvious has certain limits. You can list as many listing but cannot run sponsored ads. Also, as an FBA seller, it allows you limited product storage to keep your inventory in the Amazon warehouse. In addition, you have to pay $0.99 USD on each order you receive Amazon.
The other plan is professional seller plan. Here, you can go limitless. You will get access to keep unlimited inventory storage in the Amazon warehouse. Your account will be eligible to run PPC ads, throw discounts and deals to Amazon customers on your listing page. Also, you will not be charged $0.99 USD extra on every order.
For FBA seller, it is quite necessary to for professional seller plan to use the full potential of Amazon seller central. While, for FBM seller, once they get buy box on their listing, they should opt for professional plan to ensure running ads and driving more sales.
Customer support
As FBA sellers have kept the inventory on Amazon side, Amazon support team provides free customer support services to Amazon FBA sellers. They handle customers inquiries, complaints, and product return process. It is a time-saving thing for a seller. They are responsible for the complete process.
On the other hand, FBM seller has to handle the customer support. You either need to invest time or hire an eCommerce assistant to provide support, manage complaints and returns.
Prime badge
The biggest advantage for being an Amazon fulfilled seller is prime delivery. Your listing will get a prime badge from the first day as Amazon delivery ensures guaranteed delivery within 48 hours to prime sellers.
Amazon has launched a program SFP (Seller fulfilled prime) for FBM sellers too. But, the sellers has to prove within 30-day trial period that they are capable of fulfilling the delivery within 48-hours to customers. Once you successfully proved it, the prime badge will be visible on your listing. There is always a risk of losing prime badge with a single order fulfillment commitment failed on time.
Inventory and order management
Amazon has high-equipped warehouses to store and manage your products. They charges a fixed monthly storage fee to FBA sellers based on box size and space occupied (per cubic feet) by their inventory.
When a customer order a product, the Amazon team print the order slip and dispatch to the box. Amazon delivery team will process it to the customer’s destination. You do not need to look after it.
In FBM, you are responsible for managing your inventory. If you have a warehouse or space at home, you could save monthly storage fee that Amazon charging to FBA sellers.
When you receive an order, you will need to print the order slip and label it to the box. After that, you will need to make a shipping order on shipping carrier site and process the item to them. The shipping carrier will fulfill it to your customer.
Buy Box
Buy Box is a button appear on the listing “Buy Now”. The customer can directly take the action on your listing and purchase the product.
It is available for FBA seller from the first day you list a new product on Amazon under FBA. As the inventory is available in Amazon warehouse, they are pretty sure of product delivery.
But, a FBM seller cannot expect a buy box from the first day. Though a FBM product priced under $25-30 see a buy box. But, it is not a case for every FBM listing. With time and authority, the listing wins the buy box.
Still, customers can buy your product. They need to click on “Sell all buying options” button to order your product in case, you do not have buy box on your listing page.
Multi-channel order processing
An FBA seller has two options, either sell on Amazon or sell on both Amazon and other stores. This is what multi-channel ofder fulfillment (MCOF) mean. Suppose you receive an order on eBay or other site, you can use Amazon as a fulfillment channel. Amazon will process the order from your existing FBA inventory to your eBay customer. You need to pay FBA fees for the order, no referral fees or any other hidden fees.
Image Source: Mucheco
This option has no relation with the FBM sellers. It is because, you do not have kept your inventory to Amazon warehouse.
Long-term storage fee
As discussed, Amazon charges a fixed monthly storage fee to FBA sellers per unit. This fees is applicable for the first year only. If a seller does not get the stock sold under a year, the Amazon charges long-term storage fees to the remaining units available in the warehouse.
So, one should do planning inventory planning carefully such that the units get sold within the deadline. Else, you need to pay add-on storage fee from the next year.
Amazon FBM seller handles the inventory at their end, so there is no cost incurred to them. It will depend on your warehouse or space you taken on rent.
When to do Fulfillment By Amazon?
- Small and lightweight products
- Fast selling product.
- No space to manage inventory.
- Product shipping fees is more as compared to FBA fees.
- Good profit margin on product (100-300% ROI)
- Less time for managing online business
- Good budget for investment
When to do Merchant fulfilled business?
- Handmade or heavy weight products
- FBA fees is high compared to other shipping carriers.
- Enough space to keep inventory
- Enough time to manage orders and customer complaints
- Need more control on your business
- Less or no money start an Amazon business
FBA or FBM which is best for different business models?
- Private label: FBA
- Online Arbitrage: FBA
- Retail Arbitrage: FBM or FBA (depends on profit margin)
- Dropshipping: FBM
- Wholesale: FBM or FBA
- Handmade goods: FBM
- Used items: FBM
Can I do FBA and FBM business together?
Yes, Amazon does not bound any seller to opt for a single option. You can do FBA and FBM together. List your product under both FBA and FBM channels.