Of all the sellers on Amazon, 73 percent use Fulfillment by Amazon (FBA,) and for good reason. FBA enables sellers access to storage space and fulfillment options that can prove difficult for independent sellers. However, it also comes with a variety of costs and fees that can eat into a seller’s bottom line.
There are some instances where FBA is not suitable. In these cases, sellers are better off using the Fulfillment by Merchant (FBM) model. Therefore, sellers need to make sure they understand the two options and when each one is appropriate.
That is why today we’re going to take a look at what FBM is, how it works, and when to use it over FBA.
FBM vs FBA
We often talk about Amazon’s FBA platform as it offers massive benefits to online retailers. From storage to fulfillment to shipping options, Fulfilment by Amazon offers an effective option for most sellers starting their online business.
This is because this program grants sellers access to a virtually limitless storage space through a network of warehouses and Amazon’s customer services to help manage customer concerns.
However, this service does have its drawbacks. There is an array of costs and fees which sellers need to take into consideration to make the most out of the FBA program. Amazon takes about 15% of each sale on top of the fulfillment fee which certainly cuts into profits.
This cost is often worth the utility FBA offers, but how about when it’s not?
When FBA isn’t viable for healthy profit margins, sellers can manage their items via Fulfillment by Merchant, FBM.
FBM is the natural opposite of the FBA platform. Under this fulfillment system, sellers are responsible for their storage, shipping, and customer services. This can be a challenge for sellers without the established logistics to ensure quick fulfillment.
So, let’s take a look at what circumstances this fulfillment option beat out the highly praised FBA.
When and Why FBM is Better for Sellers Than FBA
FBM offers a handful of benefits over FBA that can highly depend on what a seller carries and how they want to manage their inventory.
Large and Oversized Products
The most obvious benefit of FBM is when sellers are looking to move large and oversized products. This is because FBA fees for these products are substantially higher, the bulk of which comes from the cost of storing and shipping such large items.
FBM sellers avoid these costs by handling and storing the product themselves.
Small or Slow-Moving Stock
Are you selling an item that just doesn’t move quickly because of its niche or high value? FBA storage fees could be cutting into your profit margin. Sellers with these items can look to FBM solutions to save money on storage and fulfillment fees.
If you’re looking to connect with your Amazon customers on a more personal level, FBM is a good option. Sellers using fulfillment by merchant solutions have greater control over their product packaging, handling, and shipping. Thus, allowing for more opportunities to engage their customers.
Dealing With Storage Limits When launching
Launches drain inventory fast, and that risks dreaded out-of-stock periods while sellers wait for Amazon to process new inventory.
FBM helps sellers avoid these issues by keeping some of their inventory for the launch at home or another storage location for their launch rather than using their FBA inventory.
The Downsides of FBM
FBM is not without its downsides. We’re going to look at the limitations now so you can make an informed decision when you’re choosing between FBM and FBA.
Lack of Storage Space
Avoiding storage costs is probably the most appealing aspect of FBM as balancing the costs of storage through FBA is dependent on sales. However, there are few independent sellers which can match the storage capacity Amazon offers FBA users.
If you’re going to use the FBM system, you will need to be able to store all of your products in a readily available space.
Sellers typically must fulfill Amazon orders within two days, and that means you will need to ship products almost every day. Even if you’re a small seller whose product sells sporadically, you must prepare to ship high volumes of product and quickly. Which can turn the passive income that attracts many to e-commerce into a much more active endeavor.
Sellers can still opt for third-party fulfillment services from other warehouses to perform the same tasks. However, these should be thoroughly researched and examined before engaging as Amazon often provides the best rates of the available services.
Equipment And Other Costs
As an FBM seller, you will find yourself fronting the costs of packaging supplies such as thermal label printers, labels, containers, and any other packaging needs that arise. This is in contrast to going through FBA where Amazon factors these costs into fulfillment fees.
As we discussed before, FBM calls for a more personal touch to customer service which is a boon for any seller looking to engage their customers. However, this also comes with a drawback.
Through the FBM model, the seller becomes responsible for matching Amazon’s policies for returns, customer satisfaction, and timeliness.
No Prime Badge
Although FBM products can still offer 2-day shipping and free shipping, they’re not listed with the prime sticker that attracts many customers.
There is a rare exception for sellers grandfathered into the old Seller Fulfilled Prime model, but the program has long been “waitlist only.”
How to Set Up for FBM
Armed with the knowledge of the pros and cons of FBM, you’re ready to decide which method is best for you.
So, how do you set up for FBM?
Simply, when listing a product on Amazon, select “I will ship this item myself” under Fulfillment Channel. FBA sellers can do the same by adding a new condition to their listing.
Shipping is where FBM gets a little more complicated.
You essentially have two options for fulfillment.
The first involves using Buy Shipping on your orders. Amazon will then offer the best available rates for your packaging requirements and supply labels. Amazon will then deduct these fees from your Amazon balance.
This is often the best option available for sellers as Amazon has negotiated rates with carriers to provide the cheapest available. Once you’ve obtained one of these labels you can simply apply it to your package and drop it off at the carrier of your choice.
Alternatively, you can use your own shipping accounts with carriers such as FedEx and the USPS. However, you will need to upload tracking information each time you use third-party services. Furthermore, alternative services come with their own shipping fees.
It can be hard to choose between FBM and FBA at times. With the array of fees and costs that come with logistics, it becomes a daunting task to decide which option works best for your business.
Thankfully, Anata is here to provide you with guidance to make the right decision for your business.
Contact us today for help managing your Amazon Marketplace and getting the edge you need to compete. We help with everything from education to the total handling of your Amazon profile. Our goal is to free you from the tedium to focus on important things.
What fulfillment options are you using for your Amazon Marketplace?