Amazon’s marketplace provides many opportunities for sellers. With over 63% of sellers recording profits in their first year.
To join this growing number, every Amazon seller has a decision to make on how they’ll deliver orders to their customers.
You have two options to choose from: Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA).
This means you either manage the whole process on your own or pay Amazon to handle the operation for you.
If you choose to do it by yourself, you will be part of the Fulfillment by Merchant (FBM) program. But if you let Amazon ship your products on your behalf, you will be using the Fulfillment by Amazon (FBA) model.
Both strategies have their pros and cons and can even be combined for different products in your catalog, so let's dive in and learn the differences.
Fundamentals of Fulfillment by Amazon (FBA) program
In this model, Amazon offers to take the burden of storage, packaging, shipping, and assisting with customer service from the seller's shoulders with the Fulfilled by Amazon (FBA) program. That way sellers can focus on what they do best, selling
Globally 65% of the top 10,000 sellers and 73% in the United States, deliver their products through FBA.
Pros of Fulfillment by Amazon (FBA)
- FBA allows you to send your inventory to an Amazon warehouse. This saves you space, time, and operation costs. When a customer makes a purchase Amazon handles the shipping process.
- Amazon will handle the entire fulfillment so you can focus on sales and marketing.
- Amazon FBA also allows sellers to be eligible for Prime Shipping. Since Amazon handles everything, they can provide special delivery terms for their Prime customers. Business owners can leverage this opportunity to reach new customers.
- Winning the Buy Box is another benefit of enrolling in the FBA program. Fulfillment is a core variable for Buy Box competition. When Amazon handles this process, your chances of landing in the Buy Box are also positively affected.
- Amazon slightly favors sellers who use the FBA program on search results and SEO too. It’s not an official statement but products fulfilled through Amazon FBA tend to score higher on Amazon search engines.
- We mentioned it before but, one of the biggest pros of FBA is the customer service provided by Amazon. Customer satisfaction is key in eCommerce; leaving this management to Amazon could positively affect your reputation.
Cons of Fulfillment by Amazon (FBA)
- Amazon charges a fulfillment fee and a monthly inventory storage fee from sellers who use the FBA program.
- Small, widely desired, light products are more suitable for the FBA program than heavy, bulky, or spacious items. And this difference in volume affects your monthly rates. Because Amazon rents inventory spaces in their fulfillment centers.
- Since you give your inventory to Amazon, it will be harder for you to control your inventory and products. You can’t just simply visit your warehouse and make an inspection.
- Packaging and labeling standardization is one of the key things to consider when applying to Amazon FBA because it has strict qualifications on packaging and labeling of the products to accept them to the FBA.
Basics of Fulfillment by Merchant (FBM) program
When sellers decide to manage warehousing and fulfillment processes by themselves or with a 3rd party partner, they should select the Fulfilled By Merchant (FBM) program.
Previously referred to as Merchant Fulfilled Network (MFN), FBM enables sellers to have more control of their inventory. Control of your inventory also means lower fees to Amazon. But it’s always a matter of what suits your business best.
Pros of Fulfillment by Merchant (FBM)
- Since you are handling all the processes after the order is created, you have more control over your products, inventory, and fulfillment process. It is easier for business owners to check their stock, and plan their restocking schedule.
- You will be less affected by policy changes in the FBA program. Amazon could change the process and terms of the FBA program from time to time, but managing your fulfillment operation independently makes you unaffected by this.
- Fulfilled by Amazon program adds an extra fee to your operational costs. If your operational costs with FBM are lower than FBA’s fee, you could save some of your margins by choosing FBM.
Cons of Fulfillment by Merchant (FBM)
- Sellers who chose FBM and take part in Prime can choose the Seller Fulfilled Prime (SFP) program to offer Prime advantages to their customers. But Amazon’s standards are much tighter in SFP. To achieve this, sellers must follow strict requirements, such as 99% of the orders should be on time, the order cancellation rate should be lower than 0.5%, agreeing with Amazon’s Return Policy, and more. But this is not direct or convenient as Prime perks with the FBA program.
- Sellers who use FBM have much less power to get the Buy Box since Amazon prioritizes sellers who are enrolled in FBA. But SFP can slightly help to boost the chances of winning the Buy Box.
- FBM does not give a boost to sellers in their SEO ranking, unlike the FBA program. If you choose the FBM program, you will not be able to get an SEO boost from Amazon.
- With FBA, Amazon also manages customer service and returns by themselves. But with FBM, you need to handle those operations as well. This could be time-consuming for sellers but an opportunity to understand the customers’ pain points and needs. Business owners can gather real insights from this operation.
Which option is best for your eCommerce business?
When you think about everything we summarized above, it really depends on your business model and goals. Because both have their advantages.
If your eCommerce business reaches a certain maturity, you might consider choosing FBM to have more control. Or you might not want to manage warehouse operations and let Amazon do it.
Adding Buy Box competition, Prime eligibility, SEO boost, and other perks into the mix, you’ll be able to select the best model for you. To sum everything up, check out the comparison table below.
|Fulfillment by Amazon (FBA)
|Fulfillment by Merchant (FBM)
|Only available through Seller Fulfilled Prime
|Buy Box advantages
|Amazon handle the operation
|Seller handle the operation
|Refunds and returns
|Amazon handle the operation
|Seller handle the operation
|Performance metrics of the orders
|Amazon is responsible
|Seller is responsible
- Seller pays for storage, fulfillment, and referral fee to Amazon
- Suits better for smaller and lighter items
- Storage fees increase during holiday season
- Seller only pays for a referral fee to Amazon
- A better option for heavy and oversized items.
- Some sellers have lower fulfillment costs than FBA
|Control over inventory
|No control at all
|Total control in every step
|Depth of Customer Experience
|Less control about the experience
|More control about the experience and touch points
|Packaging and labelling
|Strict rules to comply
|Less regulation, more freedom
And when you want to control your whole inventory across channels, Channable is here to help.
You can manage your product inventory across platforms and marketplaces from a single dashboard creating a seamless experience for all your ads.