Amazon is not the same company it was back in 1999, when many people weren’t familiar with the e-commerce world and the budding online retailer only sold books.
Today, it is the second-most valuable company globally and ships a mind-blowing number of goods to billions of customers around the world.
With this enormous number of customers, it provides a massive opportunity for businesses and entrepreneurs. So, with the right tools, strategy, and mindset, selling on Amazon can be very rewarding.
There are two ways to sell your products on Amazon:
· Fulfillment by Amazon (FBA)
· Fulfillment by Merchant (FBM)
So, which option is right for your business?
To help you answer the question, we’ll highlight the pros and cons of each.
The Nitty Gritty
First things first, let’s talk about FBA and FBM - what are they?
What is FBA?
FBA is essentially using the services that Amazon provides instead of your own resources. In other words, Amazon handles the picking, packing, shipping, order returns, and customer service on your behalf.
How it works: After setting up FBA on your Amazon account, you create your product listings, prepare the products, ship them to Amazon, and the company will pick, pack, and ship the products as they are ordered by customers.
What is FBM?
With FBM, you (the seller) are responsible for handling, shipping, and customer service. If you opt for FBM option, therefore, you’ll list your products on Amazon and handle the storage and other aspects of order fulfillment.
How it works: After setting up your Amazon account, you create your product listings, pack, store, and ship the products whenever customers order them on Amazon. You bear the responsibility of any late, damaged, or missing arrivals.
What are the Pros and Cons of each?
Let’s dig deeper into both so you can decide on the best fit for your business.
Hands-off Fulfillment: Once you ship your products to Amazon, the company handles all fulfillment and customer service on your behalf. They store your inventory in their warehouses and pack and ship the products to customers. Product returns are shipped backed to Amazon, not you. Any fulfillment related question from buyers are also handled by Amazon.
Eligibility for Prime Shipping: When you opt for FBA, your items are automatically enrolled in the Amazon’s Prime Program, where members enjoy cheap same day or free two days delivery. And according to Business Insider, Amazon boasts of 60-80 million Prime program members who tend to spend more and shop frequently than their non-Prime counterparts. By choosing FBA, you open up to potential 10 million new subscribers who are ready to take advantage of the Prime Program.
Buy Box Perks: The Buy Box is a critical Call to Action add-on that leads Amazon customers to purchase products on the platform’s product listings. Generally, Amazon favors products listed under FBA over those listed under FBM when determining the sellers that get the coveted Buyer Box. One of the main factors behind this move is that FBA products are controlled by Amazon and they know that the customers will get the products cheaply and faster, which boils down to a great user experience.
Lower Shipping Costs: Depending on factors such as weight and size of products, the shipping fees associated with FBA products are typically lower than FBM products. FBA sellers get to take advantage of Amazon's discounted rates to ship their goods to the Amazon fulfillment centers.
Multi-channel Fulfillment: Amazon is ready to handle the shipping and product fulfillment even if you sell them in other e-commerce sites. You can utilize Amazon's massive fulfillment network to store and ship products to customers from any of your e-commerce sites.
Additional Fees: Some of the fees that you are likely to incur with FBA option include fulfillment fees, prep and labeling fees, monthly inventory fees, and long-term storage fees. Depending on your product category, you may also incur high-volume listing fees. In addition, you are responsible for the cost of shipping your products to the Amazon fulfillment centers.
Less Control Over Inventory: You will have limited access to your inventory because they are in Amazon fulfillment centers. This is disadvantageous in three ways. First, it is harder to track your inventory. Secondly, if there is an issue, you must wait for Amazon to resolve the problem or have the inventory shipped back to you. Lastly, if there is an issue with a product, there is a chance that it will be sent to the customer before you have a chance to fix the problem.
Stringent Prep and Labeling Requirements: When sending your products to Amazon’s fulfillment centers, you have to prepare them to meet the strict standards set by Amazon. If you do this incorrectly, your products may be rejected, forcing you to re-label them and go through the process again. You may also need to hire a third-party company to prepare and label the products for you or deliver them to Amazon’s warehouses.
Faster Product Listing on Amazon: Amazon has stringent requirements for accepting products into their fulfillment centers and it can also take time to ship all your products to their warehouses. With FBM, you don’t have to worry about all these processes. Instead, you can get your product listing up and start selling your products immediately.
More Control Over Inventory: With FBM, you pack, store and ship the products to your customers, which means that you can access your inventory whenever you deem necessary.
Less Amazon fees: When selling via FBM you don't have to pay the storage and fulfillment fees that come with FBA. However, you will still incur closing and referral fees.
Personalized Packaging: You have a chance to package the items that you send to your customers, so you can always ensure that the packaging is perfect for the product. If you believe in going the extra mile to give your clients excellent customer service, you have the liberty to include even personalized messages with each shipment—a great way to build relationships with your clients.
New Opportunities for Existing Businesses: If you have a business that already handles shipping and packaging, opting for FBM can quickly open your business up to Amazon sales.
Additional Responsibility: When you decide to go with FBM, packaging, shipping, inventory management, and everything else required to fulfill an item falls on you. Although this can be considered as an advantage to some sellers, it can be a challenge when dealing with high-volume products. You must stay on top of everything—every day. You are responsible for processing returns and customer service.
Limits Your Prime Eligibility: Without the Prime program, you’ll be missing thousands of customers who may have purchased your products if they were prime.
Lower Chance to Win the Buy Box: Since FBA sellers are favored when it comes to who makes it to the Buy Box, as an FBM seller, you’ll have a hard time winning and keeping the Buy Box.
Overhead Costs: Although you won’t pay storage and fulfillment fees, you will still incur certain overhead costs such as your own storage, fulfillment logistics, and shipment expenses.
Lower Selling Price: To increase your chances of winning the Buy Box and compete effectively with other FBA sellers, you may be forced to lower your sales price, which could negatively impact your margins.
Lower Conversation Rates: The combination of the above-highlighted shortcomings leads to lower conversation rates and sales. Amazon also claims that almost half of its customers are not ready to buy from sellers who don’t use the FBA program.
When should you use FBA and FBM?
FBA is best for:
· High-volume sellers
· Products with labor-intensive packaging requirements
· Retailers who don’t have the resources to effectively manage fulfillment and customer service
· Sellers with no warehouses to hold stock
FBM is best for:
· Small volume or one-off products
· Exclusive products
· Sellers with space to hold their inventory
Now that you understand what to expect from the three main Amazon shipping and order fulfillment options, which method should you choose for your business?
Well, as we’ve seen, it depends…
You should consider the type of product your bringing to market, your business fulfillment abilities, and the amount of inventory control you desire.
At Wurawe Trade, we believe that you’ll never find a one-size-fits-all solution when it comes to order fulfillment on Amazon. It all boils down to figuring out what’s right for your business.
As your business’ needs change, you are likely to find that a different fulfillment option is a better choice. The best bet is to constantly review your strategy as your business grows.