Amazon FBA vs FBM: Which Best Suits Your Needs as an Amazon Seller?
Amazon is one of the world’s largest online retail platforms, allowing sellers from all over the world to sell their products to Amazon customers. With millions of customers on the platform, it provides an enormous opportunity for businesses and entrepreneurs.
When deciding to sell on Amazon, one of the main choices you will have to make is whether you will sell your products via FBA (Fulfilled By Amazon) or FBM (Fulfilled By Merchant).
With FBA, Amazon will handle the packing and delivery, shipping the products directly to the customer from the Amazon warehouses.
What is Amazon FBM? With FBM, the merchant (ie. you or a 3rd party supply base) will need to handle the receiving, packing and mailing of products to the customer’s home.
FBA probably already sounds much more appealing given that Amazon essentially handles everything for you. However, it’s not as black and white as just those two differences. There are advantages and disadvantages to both methods.
In this article, we’ll look at the differences and which type may be the best fit for your business.
NOTE: If you’re selling in Australia, Amazon Australia only offers FBM at the time of writing.
Let’s start with FBM:
Table of Contents
Advantages and Disadvantages of Amazon FBM
The Advantages of FBM
Lower Fees and Higher Margins
FBA vs FBM fees: When you sell products using FBM, there are less fees paid to Amazon. You don’t have to pay fees for storing products in their warehouses, along with less fees in other areas vs FBA.
Naturally, the less fees your pay the higher your margins on your products will be. This is especially useful for products that have low margins to begin with where each additional fee dramatically cuts into your profit.
Lower fees also doesn’t mean no fees; you will still have to pay Amazon a fee for each product you sell and pay for shipping yourself. So just be aware that there are still costs to Amazon and selling via FBM.
You handle your inventory and fulfilment
While this is also a disadvantage, there are benefits to being able to inspect each item before they’re shipped out and provide that personal touch to the customer.
There are many cases where a customer inevitably receives a faulty or incorrect product. This leads to the customer leaving a negative review even though they were able to return the product and get a refund.
When you ship via FBM, you are able to ensure the quality of each item at the time it is sent to the customer.
You can also provide more personalized packaging such as a ribbon or other personalization compared to just the standard Amazon packaging.
Faster to get started selling on Amazon
When selling via FBM, you don’t need to pay for all your inventory at once and ship it to the Amazon warehouse.
Amazon has strict requirements for accepting products into their warehouses and it can take time to ship all the products to them.
With FBM, there is no requirement to take the time or go through the process of shipping to Amazon’s warehouse. You can get your listing up on Amazon and start selling much faster using FBM.
New customers for existing businesses
If you already have an existing business that handles packaging and shipping, then selling on Amazon using FBM can open your business up to new customers.
If you already have a location that holds inventory along with staff and processes to handle orders and ship products then Amazon FBM could be a good option to get started selling on Amazon quickly and cheaply.
There would be little additional change to your business except perhaps an increase in orders and sales.
The Disadvantages of FBM
You handle everything
From preparing the product and shipping to taking care of your inventory, it’s your task.
When getting started, that doesn’t seem like a big deal. Your sales will be low so it’s not much of an issue to package and ship a few products.
However, how scalable is this if your product becomes popular? Do you have the time to package, label and post 100 products a day?
You will need to get the boxes, labels, print the addresses, ensure the addresses match the products being shipped.
If you send a product to the wrong address, you’ll have to handle getting new products to the customer and the returns.
You’ll still need to manage inventory, so you’ll need a place to store your inventory at your house or business and be able to ship it out to customers each day.
Not location independent
The idea of an Amazon business might appeal to you as a way to generate more income and freedom. You may dream of checking your sales from your phone on a beach in Thailand, living the “digital nomad” dream. 😉
However, if you end up working in the mail room of your own business all day, you don’t have a lot of freedom. If your business starts to take off, you may be spending all day licking stamps and packing boxes just to keep up with orders.
With FBM, you have to handle the inventory and shipping yourself, meaning you have to physically be in a location to pack and send the inventory.
Sure, you could hire someone to do that but that will cost you additional money to hire staff and you will still have to have a location to store the inventory and for them to receive the inventory and fulfil the orders.
You’ll have to battle for the Buy Box
The “battle for the buy box”: sounds like the title of a bad action movie but it’s a daily struggle that Amazon sellers fight.
When a customer goes to buy a product on Amazon, they click the “add to cart” or “buy now” buttons. The product these buttons are linked to is the seller that has control of the “buy box”.
If you don’t have control of the buy box, the customer will have to click a few links to even find your product listed on the page to buy from you.
An example on an Amazon product is below. When viewing the product, you can click the big “Add to Cart” button below:
The seller that controls the buy box will then have their product added to the customers cart and get the sale.
However, if you don’t control the buy box, the customer will have to scroll down the page to find the small section and link under “Other sellers on Amazon”:
The customer will then be presented with a list of other sellers of that product, and if they decide that your shop is the best option, they can then press the “Add to cart” button from that page.
An example is below, as you can see, it’s difficult to get the customer to this page and then you are still competing with other sellers:
Not having the buy box will make it very difficult to get sales for your Amazon product. If your product is unique and you are certain there are no other sellers or you can get the buy box then it may still be worth using FBM.
If not, then the lower fees and higher margins FBM may offer could be erased as you need to offer a lower price to win the buy box, or compete on the multiple seller page to get any customers.
While the idea of saving money and increasing margins using FBM compared to FBA might seem appealing at first, there are still other costs involved.
Sure, you’re saving money by not paying Amazon for storage and shipping fees but you still need to store your inventory somewhere and pay for shipping.
If you’ve got a garage at your house, that might be enough room but if you don’t have room in your house or apartment, you’ll have to rent storage space to store your products somewhere.
Shipping each order will then involve getting those products from your storage space, packaging and labelling them before going to the post office to send them.
What’s the cost of your time waiting in line at the post office or driving to and from your storage space?
The storage space and shipping costs will still be costs you need to pay, you’re just paying them to someone else instead of Amazon, which could be more money and hassle than it’s worth.
You can’t offer Amazon Prime benefits to customers
Consumer Intelligence Research Partners (CIRP) estimates that there are more Amazon prime customers then non-prime customers.
This means more than half the customers searching for your products get the benefits of fast free shipping of any eligible prime product in less than 2 days. These customers generally will only buy from sellers that offer Amazon prime.
Customers buying from non-prime FBM sellers will have to pay additional shipping charges and will receive slower shipping.
If you’re an FBM seller then more than half the customers on Amazon may overlook your product and buy from a competitor.
Having said that, it is possible to be accepted by Amazon as a Prime seller even using FBM, however it is generally reserved for established businesses on Amazon with a track record of fast shipping and positive customer reviews. Don’t expect to get accepted anytime soon as a Prime seller if you’re using FBM.
Lower Conversion Rates and Sales
The combination of any or all of the above disadvantages also leads to lower conversion rates and sales.
The disadvantages of selling via FBM compared to FBA leads to lower conversion rates for each customer looking to buy your product which leads to lower sales.
Amazon is a competitive platform and customers have an enormous amount of choice for any product they want. If you’re not offering the best price, best quality, fastest free shipping or best customer service for a product they are searching for then they will buy from a competitor.
Now, let’s take a close look at Amazon FBA:
Advantages and Disadvantages of Amazon FBA
The Advantages of FBA
Amazon handles all the packaging, shipping and returns
One of the biggest advantages of FBA is in the name: your orders are fulfilled by Amazon. They handle everything for you with their thousands of employees and machines doing all the heavy lifting.
Every time a customer places an order, it is shipped out from Amazon’s warehouses directly to the customer.
With Amazon Fulfilled vs Seller Fulfilled, you don’t have to spend time packaging items and taking trips down to the post office to mail them.
Amazon handles the storage of inventory
With FBM, you need to store your inventory in your house or a storage space. During busy shopping periods, this could lead to your house being full of boxes and products, taking up significant space in your home.
With FBA, you send the inventory to Amazon’s warehouse and they store it all for you. When a customer places an order, Amazon takes it from the existing inventory and sends it to the customer.
Imagine what you could do with all that extra space in your house when it’s not packed to the ceiling with boxes.
The only thing you need to manage is ensuring that you restock your inventory in Amazon’s warehouse before they run out of your products.
As mentioned earlier, over half of the customers on Amazon are prime customers. When you sell using FBA, your products are eligible for Prime shipping.
This makes your product more appealing to the majority of the Amazon customer base as they can get free two day or cheap same day delivery of prime products.
This is a big benefit of FBA, which is not available to FBM sellers.
Higher Chance of Getting the Buy Box
Prime shipping is also a big factor of whether a seller gets the buy box. Amazon favors FBA products over FBM products when determining the seller on the buy box.
This is because Amazon controls the shipping of FBA products and knows the customer will get the products as quickly and cheaply as possible, which provides the best user experience.
If your product is newly launched, you don’t automatically get the buy box. Even if you are the only seller of a product, you often need to make a few sales before you automatically have a buy box in some cases. However, FBA gives you the best chance of getting (and keeping) the buy box quickly and easily.
You can refer back to the disadvantages of FBM above, to see how difficult it can be to make a sale if you don’t have the buy box for a product.
Multi-channel fulfillment allows you to sell your products outside of Amazon but still have Amazon handle the shipping and fulfillment of the order.
This means you can build a brand off Amazon by selling products from your own website.
You can create a website using a service like Shopify, building a brand on social media and through content marketing. You can collect customer email addresses when they place an order, helping you build up your mailing list.
Then when the order is placed by a customer, Amazon ships it out the same way they would if the customer placed the order on Amazon.
This allows you to do more advanced marketing strategies, use different eCommerce channels to sell your products and build a brand that isn’t as reliant on Amazon for sales, all while still benefiting from Amazon handling all the logistics of the sale.
Many Amazon sellers worry that their sales are entirely dependent on Amazon’s customer base and the ranking of their product in the Amazon search results. Using multichannel fulfillment can help your brand and product become less dependent on Amazon’s search algorithm for all your sales.
With FBA, you can essentially run your business from anywhere in the world where you have internet access.
This has led to Amazon FBA becoming one of the most popular methods alongside drop shipping within the “digital nomad” community for generating an income while traveling the world. In fact, we have a comparison of FBA vs drop shipping you should check out.
You can communicate with your suppliers using email, skype or Alibaba. The suppliers can then ship the products to Amazon and all of your sales and order fulfillment is handled by Amazon.
There is no part of the process that can’t be done remotely from anywhere in the world with internet access.
If you’re looking to sell on Amazon to gain more freedom, then FBA provides one of the best options for achieving a truly location independent business with minimal work to run it.
The Disadvantages of FBA
You must prepare the products
When you first send products to Amazon’s warehouse, you will need to prepare them correctly to ensure they are accepted. This involves correctly labelling them and other requirements.
If you do this incorrectly, Amazon can reject your products and you will have to relabel them and go through the process again.
You may also need to use a third-party company that will label the products and handle the delivery to Amazon’s warehouse which can add additional costs to your products.
You’ll pay storage fees to Amazon
While you don’t need to worry about storing products in your house or a storage space with Amazon FBA vs Merchant Fulfilled, you will still need to pay Amazon for storing products in their warehouse.
This can be a delicate balance of ensuring there is enough products to fill the orders but not sending too much inventory and paying too much in storage fees.
If you sell your products too quickly before you can restock them, you’ll run out of inventory and lose you product’s ranking on Amazon.
If it takes you a long time to sell your inventory you will end up paying more on storage fees for the time they remain in Amazon’s warehouses.
You pay a fee for each order
Whenever an order is placed, Amazon will take care of it from A to Z. Yes, it’s fantastic and all of that, but you pay a fee for that convenience. Each order placed on Amazon will take a certain amount of money out of your pocket.
On low margin products, the fee per order combined with the storage fees may mean your profit per item is much lower than you predicted.
It’s important to understand each fee involved with selling via Amazon FBA so you know exactly what your margins and profits will be.
You don’t have immediate access to your own inventory
If you look at the reviews of any products on Amazon, you’ll see negative reviews about the quality or condition of an item when it arrived.
Despite having free return policies or offering refunds, many customers are quick to complain by leaving a negative review on your product.
Once your products are in the Amazon warehouses, there’s no way for you to check them. If there is a problem with a product, the defective product will be sent out to a customer without you being able to fix the issue before it is sent.
With FBM, you are able to personally check the quality of each product before it is sent to ensure the quality of each product sent to customers; not so with FBA.
Restocking inventory can take time
You can fail by succeeding on Amazon if you don’t manage your inventory levels correctly. You may be expecting 1 sale a day, so you stock your inventory levels for that expected demand.
However, your product might reach the first page for a popular keyword and start getting 10 sales a day. Suddenly you are running out of inventory 10 times faster than expected.
You contact your supplier to order more products, but inventory can take 4 to 6 weeks to reach Amazon’s warehouse.
Your new inventory doesn’t reach Amazon’s warehouse in time and you run out of stock. Amazon won’t put your product on the first page if you run out of inventory so the longer you are out of stock the further you will fall in the search rankings.
By the time your inventory is back in the warehouse, you are essentially starting from scratch again as your ranking has dropped and you are only getting 1 sale a day.
You now have an excess of inventory in the warehouse that you are paying storage fees on and aren’t selling fast enough to clear out.
This is a common situation that occurs for Amazon sellers. It is important to have enough inventory in the warehouse at all times and restock before you run out.
Multi-channel shipping will cost you
While multi-channel shipping does have benefits, it also comes with additional costs.
Those additional costs of selling on multiple channels such as your own website will further eat into your margins.
The benefits of building your brand and getting sales on other channels other than Amazon may be worth the additional cost, however it’s important to add up the costs first to ensure you’ll actually make a profit on each sale.
The Bottom Line
We’ve covered the pros and cons of both FBA and FBM, so hopefully you now have an idea which one might be better for you.
If you are drop shipping products, then Amazon FBM is a clear winner as you don’t need to stock the warehouse before selling on Amazon. You can list your products on Amazon and only order them from the supplier when you get an order.
What’s worth stressing it that the benefits of Amazon Prime can’t be understated. The majority of Amazon customers are already Prime members and that trend is only set to increase over the coming years. FBM sellers can’t easily offer Prime benefits which gives some advantage to FBA sellers.
FBM may be a better option for small businesses, retail shops or companies that already have the shipping and fulfilment process established.
In terms of which is better, FBA is a clear standout in terms of convenience; you ship your products to Amazon’s warehouses and they handle everything. The benefits of FBA do come with additional costs with ongoing storage fees and other expenses, however.
It’s important to be aware of all the costs involved with both FBA and FBM at each part of the process to ensure you can actually make a profit selling on Amazon.
Is it possible to do both FBA and FBM at the same time thus using FBM as a possible back-up for FBA if product runs short? Also does Amazon allow small deliveries to its fulfilment centers?