FBA is Fulfillment by Amazon. FBM is Fulfillment by Merchant. But what exactly does this mean?
We all want to make money. And most of us would like to do it from the comfort of our home. Or, if you’re like me, from a warm sandy beach. Just look at our Google search suggestions below, and it’s pretty clear that we, as a general population, are looking for a great opportunity to make some extra cash.
While it may not be for everyone, selling on Amazon is a great way to make money. With the right strategy, tools, and mindset, selling on Amazon can be made simple. There are a few different ways to sell on Amazon, including Fulfilled by Merchant (FBM), Fulfilled by Amazon (FBA), Vendor Express, and Vendor Central. Today, we’ll compare FBA vs FBM by going through the pros and cons of each. When we’re finished, you’ll have a good understanding of the differences between Fulfilled by Amazon and Fulfilled by Merchant. Let’s jump into FBA vs FBM.
What is Amazon Fulfillment By Amazon?
FBA means Fulfilled by Amazon. “You sell it. We ship it” in Amazon’s terms. With FBA, the seller stores products in Amazon’s fulfillment centers where Amazon will pick, pack, and ship those products. How does FBA work? As the seller, you’ll set up FBA in your Amazon account. Create your product listings, prepare your products, ship your products to Amazon, and let Amazon pick, pack, and ship your items as customers order your products.
Amazon FBA Pros:
- Prime eligibility. Your products are automatically eligible for Amazon Prime free two-day shipping and other Prime benefits such as free shipping and increased chances of winning the Buy Box. With Prime, you’ll likely sell more inventory, since your product is associated with Amazon. The Reputation Institute named Amazon the #1 most reputable global company among the American general public, so it’s safe to say that shoppers typically trust products fulfilled by Amazon itself.
- Hands-off fulfillment. Focus on important aspects of your business without worrying about fulfilling orders. FBA provides a simplified process of hands-off packing and shipping. Amazon will also store your inventory in its warehouses, so that you’re not stuck with hundreds to thousands of units scattered across your living space.
- Buy Box advantages. The Buy Box is the CTA (Call to Action) that leads Amazon shoppers to purchase the product on the product listing. The Buy Box is found on a product page and contains the price, shipping information, seller, and an “add to cart” button. When multiple sellers are selling the same item, one seller will “win” a purchase made on the Buy Box, while other sellers can be found underneath the Buy Box. When Amazon shoppers buy a product, they do so through the Buy Box 82-83% of the time (as opposed to the “Other Sellers” section). This is why it’s so crucial to win the Buy Box as often as possible. When you’ve got the Buy Box, you’ll likely get the purchase. Many factors determine who wins the Buy Box: from seller rating to order defect rate to customer response time. One of the biggest factors in determining who wins the Buy Box is fulfillment method. Generally, an FBA seller can set a slightly higher price than an FBM seller and still win the Buy Box.
- Multi-channel fulfillment. Access fast, trusted shipping by Amazon for orders made from other sales channels. Amazon will store your inventory in its fulfillment centers and will pick, pack, and ship them to customers when products sell on your own site or other e-commerce sites. This makes integrating FBA into other channels fairly effortless. Amazon handles the details to save you time, so that you can focus on your business.
- Lower shipping rates. Depending on the size and weight of your product, the fees associated with selling FBA will typically be smaller than shipping costs you’d spend fulfilling the orders yourself. Amazon is the largest online retailer in the world, and with that comes pretty drastic shipping discounts. Take advantage of those discounts by fulfilling through Amazon. As an example, to ship a 4 pound toaster from San Francisco to New York City in 2 days with USPS, it’d cost $20.05. Talk about crushing margins! With FBA, you simply ship your products to the Amazon warehouse and let Amazon handle the rest of the fulfillment process.
Amazon FBA Cons:
- Additional fees. FBA fees include fulfillment fees, monthly inventory storage fees, closing fees, and order handling fees. Depending on the product’s category, you may run into a few additional fees, such as a high volume listing fee. You’ll also need to consider the cost to ship the product to Amazon’s fulfillment centers. On top of that, you may run into long-term storage fees and Q4 storage fees.
- Limited access to inventory. Because your inventory is in Amazon’s fulfillment centers, you’ll have limited access to your products. Inventory can also be harder to track without a hand in the process. Further, if inventory issues arise, you must rely on Amazon to resolve the problems or have inventory shipped back to you.
- Tax Obligations. Contrary to what you may think, Amazon does not automatically collect sales tax for the seller. To enable tax collection on purchases, sellers have to provide their state tax registration numbers for each state they want Amazon to collect tax for. Sellers can then enable Amazon sales tax collection within the Tax Settings in Seller Central. Amazon will store the inventory in many warehouses across different states, which will constitute a sales tax nexus (or significant presence) in those states. If a seller has a sales tax nexus in a state, he or she has to collect sales tax from people who buy the product and live in that state. As an FBA seller, It’s important to understand your tax obligations.
- Preparing products. Labeling products can be a tedious process, especially for newbie Amazon sellers. Each unit must be labeled so that the correct item can be picked up from Amazon’s inventory and shipped to the customer. There are two kinds of barcodes that you can use to identify your products: manufacturer barcodes or Amazon barcodes. However, Amazon does provide the option for eligible products to have Amazon apply barcodes for you for a per-item fee, called FBA Label Service. You can also speak to your supplier and have them label for you to help save on these costs.
- Multi-channel fulfillment is pricey. If you choose to use FBA multi-channel fulfillment, you’ll incur some additional, hefty fees
What is Amazon Fulfillment By Merchant?
FBM means Fulfilled by Merchant. With FBM, the seller lists the product on Amazon and handles storage and all aspects of order fulfillment. How does FBM work? As a seller, you’ll set up an Amazon account. Create your product listings and store, pack, and ship the products as customers order them on Amazon. You’ll take responsibility for any late, missing, or damaged arrivals.
Amazon FBM Pros:
- Hands-on fulfillment. With FBM, you have more control over inventory, and some sellers certainly see this as a benefit. You store, pack, and ship products, so you can access your inventory whenever you need it. This allows you to take more ownership of the actual fulfillment process.
- Fewer Amazon fees. Selling FBM, you’ll skip out on paying the fulfillment fees and storage fees associated with selling FBA. You’ll still incur referral fees and closing fees.
- Opportunity for Prime. Seller-Fulfilled Prime allows all Amazon sellers to access FBA benefits without the increased FBA fees. The criteria for approval to Seller Fulfilled Prime is pretty extensive, and includes having good standing with a Professional Account, existing premium shipping order volume and outstanding performance metrics.
- Slightly higher margins. Because you’re paying fewer fees without having Amazon fulfill the orders, you’ll likely make slightly more on each sale (depending on the product). However, you’ll likely drive less sales, especially if you’re not Prime. Over half of Amazon shoppers are Prime, and many times they’ll want Prime products, since they’re paying annually for free two-day shipping.
Amazon FBM Cons:
- More responsibility. When selling FBM, responsibility falls on you. Packaging, shipping, managing inventory… It’s all you. This can be a pro for some sellers, but it gets pretty daunting with high volume products. You’ve got to be on the ball all day, every day, including weekends and holidays. Amazon isn’t there to take the blame if something goes wrong, so be ready to stay on top of everything.
- Not automatically eligible for Prime. While you can be Prime using Seller-Fulfilled Prime, Amazon will make you work for it. And, you’ll have to constantly stay on top of your game to keep your seller metrics clean.
- Buy Box is harder to win. Because fulfillment method is a major factor in determining who gets the buy box, FBM sellers will have a harder time getting and keeping the buy box than FBA sellers. FBM sellers may have to set a lower price to win.
- Overhead costs. – While you won’t pay fulfillment and storage fees selling FBM, you will likely have more overhead costs, including your own storage, fulfillment, and shipment expenses.
- Missing out on Prime members. Because over half of Amazon shoppers are Prime, 2-day free shipping with Prime is often a purchase criteria. Without being Prime, you’re missing out on many customers who many have purchased your product if it were Prime. Again, you can enroll in Seller-Fulfilled Prime, but it’s a sizable task.
Should I use FBA or FBM?
FBA vs FBM: “Which is better for me?” FBA is typically best for high volume, large margin products. This type of fulfillment is for sellers who are ready/willing to drop the selling price to the lowest possible profit point if need be. FBM is generally good for smaller scale, small margins products or one-offs. Fulfilled by Merchant allows sellers to take control of the fulfillment process without crushing small margins.
Ultimately, there’s no perfect formula when it comes to FBA vs FBM, and it’s up to you and your business’ needs. If you’re still not sure which fulfillment method to utilize, reach out to a Amazon Seller Coach, who will be happy to assist you throughout the entire process at no cost to you. So, are you thinking about selling on Amazon? Make sure you do your research, so you don’t get into a bad product market. Check out Viral Launch’s Amazon market research tool, Market Intelligence, for extensive real-time and historical data you’ll need to make informed sourcing decisions.
FBA vs FBM: Infographic
When it comes to FBA vs FBM, which do you prefer? We’d love to hear from you in the comments below.