Amazon is a platform that online sellers just cannot afford to ignore in the world of eCommerce. Amazon has risen to become the leading ecommerce platform in the United States in the 25 years since its establishment. Needless to say, Amazon is the unquestioned leader in online commerce, and it shows no signs of abating anytime soon. Many sellers are wondering how they might increase their slice of the lucrative Amazon pie.
Amazon has approximately 3 million active sellers, and the number is expanding at a rate of over 3,000 new sellers per day. When it comes to fulfilling orders, each of those Amazon retailers must make a decision: pay Amazon to do it or manage the process themselves. As a merchant, Amazon can ship orders on your behalf via the Fulfillment by Amazon (FBA) program, or you can take complete control of shipping via the Fulfillment by Amazon (FBM) program.
You must thoroughly grasp each of these programs in order to determine which one is ideal for you. Gearment will provide you with both the benefits and drawbacks of each program in this blog. Depending on the size of your business, your orientation, and the product categories that you sell, you can choose which fork is the best for you to grab the biggest piece of the Amazon pie.
What is FBM?
Fulfillment by Merchant, short-form as FBM, is when the seller has full control over the handling and delivering process. Rather than paying a service fee and transferring inventory to Amazon, the seller utilizes their own resources to fulfill the orders and ships them directly to the buyer. A seller chooses FBM that means they completely manage the entire fulfillment process.
Pros of FBM
- Higher revenues
When you choose Fulfillment by Merchant, you will not incur any unexpected costs such as fulfillment fees or monthly inventory fees. You can find the best and most affordable warehouse and shipping carriers so you can save up on your budget. This is especially true for larger items with lower profit margins.
- Brand building
Because you store inventory in your own warehouses, you have complete control over the inventory and may use the same inventory stocks to run an offline retail store as well with no additional expenses and the freedom to manage your business as you desired. FBM sellers have to communicate directly with their customers. Because they are closely associated with their clients, they gain a greater grasp of their needs and complaints. They acquire significant insights, feedback, and ideas for their business from their interaction with customers.
- No FBA requirements
Amazon usually changes its FBA conditions without giving sellers enough time to adjust and this happens more regularly during the sales season when the demand is at its peak. These rules can be inconvenient for merchants who sell on Amazon. While FBM sellers don’t be attached to these harsh requirements as they don’t depend on Amazon for the fulfillment process.
Cons of FBM
- Fewer chances to win Buy Box
Amazon algorithm tends to prefer FBA sellers to FBM sellers as all the other factors are equal, FBA sellers will beat standard FBM sellers for the Buy Box. Because Buy Box accounts for 82% of Amazon sales, winning Buy Box is a real battle for all Amazon sellers. Unlike FBA sellers, FBM sellers must meet all of the requirements to be eligible for the Buy Box. If the Buy Box competition for your product is fierce, FBA may be a better route.
However, FBM sellers can boost their odds of winning Buy Box by offering Seller Fulfilled Prime (SFP). Just keep in mind that, when it comes to Buy Box, FBA will still have a higher chance, but SFP is much higher than standard FBM.
- No Amazon Prime badge
You will not have an Amazon Prime badge for your store or any Prime-eligible products is absolutely the main drawback when using Fulfillment by Merchant. Amazon Prime guarantees that the orders will be shipped within 2 days, but while the Covid-19 pandemic is still complicated, many non-essential products orders have been delayed over months and customers appear to get tired of waiting.
- Customer services and returns responsibilities
FBM sellers will have to manage all customer service, return, and refund problems on their own, which will take a significant amount of time and effort. However, it is not a dreadful thing because when dealing with customer issues, you can learn more about what your buyers are thinking and gain valuable insights and ideas for your store.
What is FBA?
Fulfillment by Amazon, also known as Amazon FBA, is a service provided by Amazon that allows sellers to ship their inventory to Amazon’s warehouses and have their orders handled by Amazon. Amazon will also cover customer service and returns related to that order. Sellers that choose FBA will be charged specific costs to cover all processes.
Pros of FBA
- Easier to win the Buy Box
Fulfillment service is one of the most crucial variables Amazon evaluates when selecting who gets the Buy Box. With FBA, your chances to get this feature are much larger as you are automatically eligible for the Buy Box. Amazon considers FBA to have essentially perfect metrics across these variables. This means using FBA can greatly increase your odds of winning the Buy Box when competing against FBM sellers.
- Prime Day
Prime Day is the second-largest sales event for Amazon sellers in the United States, after only Black Friday, and there are over 200 million Prime members worldwide. This shows how crucial Prime Day is to merchants. Using FBA as your fulfillment method will undoubtedly help you acquire a valuable opportunity to join it. Regardless of your company’s strategy, joining Amazon as an FBA seller automatically qualifies your products for Amazon Prime. Use this chance to greatly increase your sales and brand recognition among this large Prime consumer niche.
- Multi-channel fulfillment
Amazon FBA is used for more than only selling on the Amazon platform. FBA can also be used to gain access to innovative multi-channel fulfillment solutions. MCF is an FBA program that allows you to ship your products to both Amazon customers and customers from other ecommerce platforms while still having Amazon fulfill them. Fulfillment across several channels can be challenging, costly, time-consuming, and unreliable. Allowing Amazon to manage it assures that you are providing the greatest possible experience to your customers.
- Customer services & Return management
As previously stated, when you use FBA, Amazon handles all customer support, returns, and refunds for that order. They hire professionals to ensure that your clients have a great experience at all times. They solve issues 24 hours a day, 7 days a week, saving you the effort and money of needing to recruit certified professionals to manage customer problems. While you will miss out on opportunities for interacting directly with your buyers, it will reduce the support overhead that online retailers experience.
Cons of Amazon FBA
- Expensive costs
One of the most important factors to consider before using Fulfillment by Amazon is expense. Aside from fulfillment and monthly storage fees, you must also pay for some other costs. Prices fluctuate seasonally and rise throughout the sales season. Small, light, and fast-moving items are less expensive to ship through the FBA program than large, bulky, and slow-moving items. If you already have an Amazon Seller Central account, you can compare FBA to your own fulfillment expenses by using Amazon’s free FBA Revenue Calculator.
- Stringent requirements
Amazon has rigorous rules for inventory packaging and labeling before accepting items into their warehouses. If your inventory is not adequately prepared to meet these requirements, Amazon may refuse an inbound shipment. You’ll then have to spend time and money retrieving and re-prepping your items. There is an entire business dedicated to FBA inspection and preparation services that operate as a go-between for Amazon and your supplier. When assessing the program, consider the time and cost of preparing your items for FBA.
- Lack of management
You can’t walk down to the warehouse floor and inspect your own products with FBA. And it’s unlikely that Amazon will allow you to inspect their facilities. You must have faith that Amazon will not damage or mishandle your inventory. Be prepared to do things Amazon’s way if you use FBA. You also can’t communicate directly to your customers, which makes it more difficult to find out their insights about your products. If you wish to be really hands-on with your own inventory and the fulfillment process, FBA might not be for you.
FBM vs FBA – What to choose?
In conclusion, each of the two programs has its own advantages and disadvantages. When deciding whether Fulfillment by Amazon or Fulfillment by Merchant is the best option for your company, you should evaluate the size of your company and its potential for growth, the product categories you sell, and the areas of your business where you want to devote the most resources.
FBA program is most suitable for:
- High-volume sellers or you can just sell FBA with your best-selling products to minimize the risk.
- Sellers that want to focus on selling are not fulfilling.
FBM program is most suitable for:
- Sellers that sell exclusive products.
- Small-volume sellers.