FBA vs. FBM Overview
When deciding to sell on Amazon you will be faced with many decisions on how to build your business on their platform. You want to make sure you are making the most strategic choice when you begin selling your products. A challenging element when you are new to Amazon can be breaking down their lingo. For instance, the difference between FBA and FBM. It is very important to understand how to distinguish and breakdown what choice will be best for your bottom line. Here, we will help you feel more confident in making the right fulfillment decision for your business.
Let’s start with the basics, what are FBA and FBM?
FBA stands for Fulfillment by Amazon. This means the seller (you) ships the inventory to an Amazon Fulfillment Center. From there Amazon will pick, pack and ship to the end customer.
FBM stands for Fulfillment by Merchant. This means the seller fulfills their orders directly to the customer. When a customer makes a purchase on Amazon, the seller will get a notification in Amazon, and they are then responsible for the shipping process.
What selling fees are associated with FBA vs FBM?
- Amazon Referral Fee: These fees are calculated as a percentage of the total sale price, per unit sold. This is around 8-15% depending on the categories in which are you selling.
- Amazon Fulfillment Fee: These fees are calculated based on the weight and dimensions of a product, so these fees will vary. This covers Amazon picking, packing, shipping and providing customer service and returns.
- Storage fees: These fees are calculated per cubic foot. These costs are incurred if you choose to store your products in one of Amazon’s fulfillment centers.
- Amazon Referral Fee: These fees are calculated as a percentage of the total sale price, per unit sold. This is around 8-15% depending on the category in which are you selling.
- Shipping fees: This is a per unit cost and can be paid additionally by either the customer or the seller.
What are the pros and cons of selling on FBA or FBM?
- Prime Eligibility: Choosing FBA will make your products automatically eligible for Amazon’s 2-day prime shipping. Shoppers trust products that are Prime and are much more likely to make a purchase.
- Bigger wins on the Buy Box: When multiple sellers are selling the same item, one of the sellers will “win” the purchase by having the buy box. There are many factors that go into winning the buy box and a big factor is the fulfillment method that is used. Statistically this results in higher conversion rates.
- No need to worry about the fulfillment process: Amazon fulfills all the orders and manages customer service and returns. This will free up more of a business’s time so they can focus on growth and other critical areas of their business.
- Lower Shipping Rates: The fees associated with FBA are typically less than those associated with standard shipping methods. This is dependent on the size and weight of the product.
- FBA fees: The fulfillment fees, storage fees, and referral fees can be significant if you don’t have the right product and margins for selling.
- Less control over your inventory: Since you don’t have control over the shipping to the end customer, you will not know how it will look when they receive it. You also cannot control the fulfillment center from which Amazon decides to ship.
- Co Mingled SKUs: If you go the stickerless route and don’t use Amazon’s barcode for tracking, Amazon will arrange your products with other sellers product of the same manufacturer barcode. Amazon may fulfill an order to a customer with a product that may not come from your direct inventory, resulting in issues with product quality. This all depends on the category that you are selling in.
- Lower fees and higher margins: The seller is not responsible for FBA fees which can result in lower margins.
- Control over your inventory: Your inventory will never be processed in a fulfillment center, meaning you as the seller have the opportunity to send directly to your customer. This allows you to ensure quality with every order.
- Higher responsibility with shipping: This includes picking, packing, shipping, returns, customer service, and managing your inventory. This can be a huge challenge for both new and seasoned sellers.
- Overhead costs: You will have to worry about paying large storage fees for your inventory and manage shipping prices.
- Not automatically available for Prime: It takes a lot of diligence for FBM sellers to achieve Prime, as the seller metrics are incredible competitivewith fulfillment rates and customer response times.
- Lower Buy Box percentage: FBM sellers can have lower conversion rates for their products.
Determining a fulfillment method can be one of the most challenging decisions a seller can make when deciding to sell on Amazon. Ultimately you will have to decide which is best for your business. Now that we’ve covered some pros and cons of each, hopefully you will be better suited to make that decision. Taking these differences into consideration can help you generate higher profits while selling on Amazon.