February 3, 2019

FBM vs. FBA: A Complete Comparison of Amazon Seller Types

Amazon is no doubt considered as one of the most competitive and complicated marketplaces in the globe. Sellers circumnavigating the marketplace have to find ways to handle their fulfillment procedures. It provides two different Amazon seller types: Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA).

In this post, we’ve gathered the information on how these two seller types on Amazon can make an impact on a seller’s business operations, its pros, and cons when it’s better to use, and a brief outline on its commissions.

Blog image

What is Fulfillment by Merchant (FBM)?

FBM means that you list your items on Amazon but manage your inventory and ship the products yourself. Set up Fulfillment by Merchant in your account, make your listing and as orders roll in, package and deliver everyone. Any damaged, lost, or late orders are your liability.

FBM is ideal to use when:

  • you have exclusive products;
  • you have one-offs or small volume;
  • you have goods with lower margins to save money on storage fees;
  • you have oversized large products.

This is ideal for sellers who prefer to utilize Seller Fulfilled Prime (SFP).

Advantages of FBM

  • Get greater margins.

You tend to get bigger profit margins on every purchase, as you’re not paying Amazon to deliver your orders. But for this you must find effective solutions to ship goods.

  • Fewer costs.

You’ll still experience closing or/and referral fees, but you don’t need to pay Amazon to keep and fulfill your orders.

  • More opportunities of building your brand.

Working with clients directly, it is easier to build your own business, respond to their requests, solve difficulties and increase customer confidence in the brand.

  • Much hands-on.

It’s simple to monitor your inventory, and when there are fulfillment concerns, you’re able to get them without depending on a third party to fix the problem for you.

  • Understanding ongoing processes. 

When you control and implement all processes, it’s easier to track this and improve the business.

Disadvantages of FBM

  • You are responsible for everything. 

You perform all the steps of sending the goods yourself. When there are few orders, there will be no problems. But with the growth of the business, you may simply not to process all incoming orders in time.

  • You depend on your location.

You must physically be in the same place where the warehouse with your goods is located, send the goods and accept returns. Of course, you can hire people to do this. But this will lead to additional costs.

  • Wasted opportunities from Amazon Prime members.

Over half of shoppers on the platform are Amazon Prime Members. The two days shipping qualification is crucial to such buyers. Without the designation, you aren’t likely ever earned their business.

  • Difficult to win Buy Box.

The platform mostly favors FBA sellers regarding Buy Box. That makes it many touches for FBM sellers to earn Buy Box. It might denote radically lowering costs and cutting your profit margins.

  • Additional costs.

You must pay the rent for using the warehouse, and also pay for the delivery of the goods to the buyer.

  • More accountability.

Remember that no matter what’s going on with your shipments and inventory, every single day, there’s no one there to take the blame when something goes wrong.

Commissions

Amazon deducts a referral fee every time a product is sold. The fee is an amount of the overall sales cost and usually is 15 percent in the majority of product categories. It varies in some categories, going as less as 6 percent and high as 45 percent for Amazon Device Accessories.

Amazon FBA, What Is It?

Amazon FBA refers to an Amazon seller type wherein you list a product on the platform and designate to ship your items to every buyer. With this, the seller keeps products in fulfillment centers of Amazon, where Amazon will pick, package, and deliver those items.

As the seller, you will set up your Fulfillment by Amazon in your account. Make your product listings, get your products ready, deliver them to Amazon, and allow Amazon to pick, package, and ship them as clients orders your items.

FBA is ideal to use when:

  • You have high volume of products.
  • You are ready to lower the margin to the lowest possible profit point.
  • You have products that are lightweight and small.
  • You do not have a warehouse for storage, logistics is not established.
  • You are ready to give control of packaging,  delivering and handling returns.

Advantages of FBA

  • Higher chance of Buy Box.

It is no top-secret that Amazon wants presenting the Buy Box to FBA listings. 

  • Amazon keeps your inventory.

You can purchase your item, list everything on Amazon and deliver each of it to the FBA warehouses of the company. In just one day, you could have your items in and out the door.

  • Amazon manages all.

After you ship your items to Amazon, your work is done. If customers purchase your products, they’re the one who will pick, package and deliver your items on behalf of you.

  • Low shipping.

If you prefer FBA, you’re enormously benefiting from the shipping discounts of Amazon. 

  • Prime Eligible.

This option makes your product more appealing for buyers who expect a fast delivery within 2 days.

  • Independent business location.

You can start your business on Amazon no matter where you are actually located. The goods are sent directly to Amazon warehouses, and then Amazon takes care of processing orders, packaging, shipping, returns.

Disadvantages of FBA

  • More expenses.

The Amazon FBA price included in FBA cover handling fees, closing fees, monthly Amazon FBA storage fee, fulfillment Amazon FBA fees and more. Other expenses might come up from time to time depending on the business you have.

  • Sale taxes.

Amazon won’t collect sales taxes automatically on behalf of the seller. So, you should present the state sales tax regulation number in every state you wish the company to get taxes.

  • Problems with delivery to the Amazon warehouse.

For your item to be accepted, it must be properly packaged and labeled. Sometimes it causes difficulties.

  • No quick access to inventory.

If the buyers return the goods and they are damaged, they can be mistakenly sent to another buyers. All this negatively affects your rating and the business as a whole. In order to check the goods, you will need to export it from the Amazon warehouse, but it is not so simple to complete.

  • Restricted access.

You can’t access your products because your inventory is at the Fulfillment Center of Amazon. That makes it hard to monitor them.

Commissions

Your Amazon fulfillment and storage fees are in addition to your commission costs. If you plan to manage to ship on your own, you would still own Amazon a percent of your sale as a commission. That does not go away only because you are utilizing FBA. Currently, the referral fee is from 12% to 15%.

Is It Possible to Change the Type of Amazon Seller?

Of course! To change a listing, here’s what you need to do:

  • On the “Manage Inventory” page, choose the items which you prefer to change to FBA.
  • On the “Action on Selected” list, hit “Change to Fulfilled by Amazon.”

(If you want to alter an FBA listing to a self-fulfilled one, choose “Change to Fulfilled by Merchant.”)

  • On the page “Convert to Fulfilled by Amazon,” hit “Convert” to direct to the page of “Amazon-Fulfilled Inventory” to start making a shipping scheme.

Which is the Best?

The answer to the question which Amazon seller types are the best, there’s no right or wrong answer. After all, you should choose what’s best for your own business. By the way, no one forbids using both models in your business. You and only you decide what is best for you. Keep selling it profitably!