Customer experience isn’t the only factor to consider when selecting the right shipping method on Amazon. Warehouse storage fees, the shipping cost per parcel, and the challenges associated with overseas fulfillment must also be taken into account in the FBA vs FBM conversation.
FBA or Fulfillment by Amazon is when you outsource the packaging, storage, shipping, and customer support duties to Amazon for a fee. For small-to-medium sized sellers, this service is invaluable, even if it results in extra costs.
FBM or Fulfillment by Merchant is when you decide to handle the logistics yourself or outsource them to a third-party logistics (also known as 3PL) company. FBM frees you from FBA fees but the question is, can you compete with Amazon’s logistics network in terms of shipping costs and delivery times?
Choosing the right delivery method also depends on the type of products you’re offering, the prevalent fulfillment method in your targeted niche, and the state of your logistics network or lack thereof.
Together, in this blog, we’re going to look at how the different fulfillment methods on Amazon work so you choose the right one for your business.
Fulfillment by Amazon (FBA) is a service offered by Amazon to third-party sellers. By enrolling in the FBA program, Amazon will pack and safely store your products in a fulfillment center, ship them to customers when orders come through, and handle customer support related affairs on your behalf. FBA fees are incurred per sale.
Amazon FBA fee—also known as fulfillment fee—isn’t static. It varies depending on product dimensions and category. As a rule of thumb, the bigger your product is, the higher the FBA and storage fees it incurs.
The entire FBA fee structure undergoes annual change making it important to keep up with changes and adjust your product prices accordingly.
For more details, visit Amazon’s official 2022 US FBA fulfillment fee page.
FBA fees generally hover around 15% of a product’s total price plus a small amount to cover for shipping expenses. If you want to find out the FBA fulfillment fee amount you’ll get charged, use the Amazon FBA revenue calculator.
Start by picking out a product from your niche and copy and paste its ASIN inside the FBA revenue calculator search bar.
In the image above, we fed into the Amazon revenue calculator the following information:
In turn, Amazon informed us about:
At the bottom, our net profitability is $5.49 or approximately 30% per unit.
An alternative to the Amazon FBA revenue calculator is ZonGuru’s free to download FBA fee calculator. It’s a nifty little spreadsheet that contains more details than its Amazon counterpart and is easy to use especially if crunching numbers isn’t your strong suit.
With FBA fee calculation now clear, let’s take a look at the pros and cons of this particular fulfillment method.
More sellers fulfill products via FBA than FBM. The following are the main reasons why:
Sellers who opt for Amazon FBA can market their products to prime customers—an opportunity not available to self-fulfilling merchants. A prime membership contains plenty of perks including fast shipping, access to Amazon’s streaming services, reading material, and more.
According to the latest survey, Amazon has more than 200 million prime users all of whom you can market your products to. Also, since buyers expect fast delivery times, your FBA offer seems far more attractive than other FBM listings.
The coveted buy box is the white box on the right-hand side of a product listing. Only one seller controls the buy box at any given moment and has all orders redirected to them until Amazon decides to pass it into another seller’s possession.
Factors which increase the likelihood of winning and retaining the buy box include product price, customer ratings, and the fulfillment method. Sell via FBA and Amazon will let you keep the buy box longer than your competitors.
Storing a dozen or so products at home isn’t a problem for most sellers. However, a warehouse or storage facility becomes a necessity once sales start to pick up and even then, you might have to switch to a bigger warehouse if the existing one doesn’t have enough space.
Fortunately for FBA sellers, Amazon owns and operates enormous storage facilities (commonly referred to as fulfillment centers) around the globe.
It’s worth mentioning that ever since the start of the pandemic, Amazon imposed storage limitations on sellers that vary based on IPI (Inventory Performance Index) scores. In most cases, Amazon restricts new sellers to 200 units (per tier size); however, as IPI scores improve over time, the storage cap increases.
Responding to customer queries on time is a baseline requirement for third-party sellers. As an Amazon seller responsible for handling the A-Z of your business, being able to provide customer support around the clock just isn’t possible.
Sell products via FBA and Amazon’s representatives take care of the customer support end of things on your behalf.
Note: Amazon’s customer support does not respond to direct buyer messages; it’s sellers’ responsibility to respond to such queries within a 24 hour timeframe.
Given the advancements Amazon has made in the last decade, it’s not surprising to know that the company owns and operates one of the best shipping networks on the planet. Even if you already have a reliable team or shipping service provider at your side, it’s unlikely that they can match Amazon's shipping times.
Think about it: Selling online via any digital platform automates half of all business affairs. Go with FBA and you’ve essentially automated your entire store.
Amazon FBA frees you from the logistics and customer support-related hassles and lets you focus on improving brand image, advertising, quality control, and ultimately taking your business to the next level.
Amazon FBM (Fulfilled by Merchant), also referred to as self-fulfillment or MFN (Merchant Fulfilled Network) is when sellers decide to ship and fulfill orders themselves.
By taking Amazon out of the equation, FBM sellers gain complete control over the shipping process and handle customers' concerns directly. It also frees you from shipping, storage, and long-term storage fees.
As is with FBA, FBM also has its pros and cons.
Although fewer sellers prefer to take the self-fulfillment route, FBM does offer the following advantages to Amazon sellers:
The most obvious advantage is the absence of FBA fulfillment fees applied on each sale. Not only that, but sellers also free themselves from storage fees which can rack up when sales are slow or if you’re offering a seasonal product.
Once your inventory reaches a fulfillment center, you relinquish control of your products. This might not be much of a problem until you later discover issues with your product or packaging that need to be resolved. Unfortunately, once your inventory enters an Amazon storage facility, it’s too late to make any changes.
When self-fulfilling orders, you retain control over your inventory until it ends up in the hands of your customers. Any mistakes can be rectified beforehand, protecting your brand image and finances from taking a hit.
Generally speaking, pricier and large-dimensional products tend to have lower sales figures. The larger a product is, the heftier the FBA fees. If you’ve found such a product and are confident in its potential, choosing FBM might be the more logical decision.
Amazon FBA has enabled countless entrepreneurs to set up thriving online businesses. In exchange for a fee, sellers can outsource physically and financially demanding shipping and fulfillment duties to Amazon—which makes FBA so attractive.
But if you’re an established business that has the resources to fulfill orders and handle customer support, do you really need to go the FBA route? Maybe not. The Amazon FBA or FBM questions boil down to the numbers; if it’s more profitable to fulfill orders via your own shipping network, go for it.
Another lesser-known FBM advantage is a program called Seller Fulfilled Prime.
Successfully enrolling in the seller fulfilled prime program lets you market and sell products to Amazon prime customers. Instead of shipping inventory to Amazon fulfillment centers, you:
It’s worth getting into the seller fulfilled prime program for the following reasons:
Given the benefits offered by seller fulfilled prime you would expect to see more FBM sellers enrolling in the program; however, that isn’t the case for two main reasons:
Some of these requirements include:
Amazon has high expectations from its seller fulfilled prime members. If the criteria feels too strict, there’s another solution: shipping through both FBA and FBM.
Under the Manage Inventory tab, you’ll find the option to Edit product listings and switch them from FBA to FBM and vice versa. When selling multiple products, a sound strategy is to use FBA for fast moving and small and light products whereas FBM results in cost savings for bulkier goods.
For seasonal products, you could switch to FBM when your sales velocity takes a dip. There’s nothing in the rulebook that states you have to stick to one fulfillment method; adopt a dynamic approach and switch things up when needed!
You should choose Amazon FBA if:
Amazon FBM makes sense if:
Based on the pros and cons of both fulfillment methods, FBA makes more sense for entrepreneurs who want to earn money online and maybe set up a self-sustaining store in the future. ZonGuru offers an all-in-one Amazon FBA seller toolkit—the ultimate sidekick to anyone looking to earn money by selling products online.
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