When selling on Amazon, choosing the right fulfillment method is crucial for success. Two primary options are Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). This guide will delve into both methods, their advantages and disadvantages, relevant statistics, and considerations to help sellers make informed decisions.
Overview of FBA and FBM
Fulfillment by Amazon (FBA) allows sellers to send their products directly to Amazon’s fulfillment centers. Amazon then takes care of storage, packing, shipping, and customer service. In contrast, Fulfillment by Merchant (FBM) requires sellers to manage all aspects of order fulfillment themselves, including storage, shipping, and customer service.
Key Statistics
- Market Share: Over 60% of sales on Amazon come from third-party sellers, with a significant portion utilizing FBA
- Usage: Approximately 82% of Amazon sellers use FBA, while 34% utilize FBM. The breakdown is as follows:
- FBA only: 64%
- FBA and FBM: 14%
- FBM only: 22%
- Prime Membership: There are over 200 million Amazon Prime members, making Prime eligibility a significant advantage for FBA sellers
Understanding Amazon FBA (Fulfilment by Amazon)
Fulfillment by Amazon (FBA) is a service that allows sellers to store their products in Amazon’s warehouses. When a customer orders a product, Amazon takes care of packing, shipping, and customer service. This method simplifies the selling process for many merchants, making it easier to reach a larger audience. Here’s a detailed look at how FBA works, its benefits, and considerations for sellers.
How FBA Works
Setting Up an Account
To start with Fulfillment by Amazon (FBA), create an Amazon seller account by choosing either an Individual or Professional plan. Individual accounts suit low-volume sellers, while Professional plans are ideal for larger sales, offering more features and lower per-item fees.
Listing Your Products
Once your account is set up, list the products you intend to sell on Amazon. During this process, you can enroll each item in the FBA program, which allows Amazon to manage inventory, shipping, and customer service on your behalf.
Shipping Inventory to Amazon
After listing products, send your inventory to Amazon’s fulfillment centers. Follow Amazon’s detailed guidelines for packaging and labeling each item properly to ensure smooth processing and minimize delays once your products arrive at their facilities.
Order Fulfillment
When a customer places an order, Amazon’s team picks, packs, and ships the item directly. They handle customer service and returns for these orders, providing efficient support to enhance the buying experience and reduce your involvement in post-sale activities.
Payment
Once an item is sold, Amazon deducts applicable storage and fulfillment fees, then transfers the remaining balance to you. Payments are typically processed on a bi-weekly schedule, ensuring you receive timely compensation for your products.
Benefits of Using FBA
Prime Eligibility
Products fulfilled by Amazon automatically qualify for Amazon Prime, providing customers with fast, often two-day shipping. This benefit makes your listings more attractive to Prime members, increasing visibility and the likelihood of purchases. With Prime eligibility, you tap into a large customer base that values quick, reliable delivery, boosting your sales potential.
Time Savings
FBA allows you to outsource fulfillment, freeing up valuable time for other business activities like marketing, inventory management, and product development. By letting Amazon handle logistics, you can dedicate resources to growth strategies rather than order processing, improving your business’s efficiency and productivity.
Customer Service Support
Amazon manages all customer inquiries, returns, and issues for FBA orders, handling customer service on your behalf. This support enhances buyer satisfaction by ensuring prompt, professional assistance and minimizes your need to manage customer interactions, reducing stress and providing a more seamless shopping experience.
Global Reach
With FBA, you can reach international customers without handling complex cross-border logistics yourself. Amazon’s extensive global network makes it easier to expand your business into new markets, allowing you to cater to a worldwide audience and grow your brand with minimal hassle related to international fulfillment.
Costs Associated with Amazon FBA (Fulfillment by Amazon)
While Fulfillment by Amazon (FBA) offers numerous advantages for sellers, it is crucial to understand the various costs involved.
Here’s a detailed breakdown of the primary fees associated with using FBA:
Fulfillment Fees
Fulfillment fees are charged per unit sold and cover the costs of picking, packing, and shipping products to customers. These fees vary based on the size and weight of the items being sold. As of 2024, fulfillment fees for standard-sized products typically range from $2.29 to $7.25 per unit, depending on the weight category. For larger or bulky items, fees can go up significantly, sometimes exceeding $200 for oversized products
- Standard Size (up to 20 lbs): Fees start around $3.22 and can increase based on weight.
- Large Bulky Size: Fees can range from $8.84 to $19.05, depending on weight and dimensions.
These fulfillment fees are essential for covering the logistics of handling customer orders.
Monthly Storage Fees
Sellers are charged monthly storage fees based on the volume of space their inventory occupies in Amazon’s warehouses. These fees vary seasonally:
- January to September: Typically, around $0.75 per cubic foot.
- October to December: Increased rates of about $2.40 per cubic foot apply during the holiday season due to higher demand. It’s important for sellers to monitor their inventory levels closely to avoid excessive storage fees.
Additional Fees
In addition to fulfillment and storage fees, there may be other costs that sellers need to consider:
- Long-Term Storage Fees: Items stored in Amazon’s warehouses for more than six months may incur long-term storage fees, which can be around $6.90 per cubic foot.
- Removal Fees: If sellers want to retrieve unsold inventory from Amazon’s warehouses, they may incur removal fees, typically around $0.50 per item. These additional fees can impact overall profitability, making it essential for sellers to plan their inventory management strategies effectively.
Understanding Amazon FBM (Fulfilment by Marchant)
Fulfillment by Merchant (FBM) is an alternative to Fulfillment by Amazon (FBA), where the seller is responsible for storing, packing, and shipping the products directly to customers. Instead of relying on Amazon’s fulfillment centers, FBM allows sellers to manage all aspects of the order fulfillment process themselves. Here’s a detailed look at how FBM works, its benefits, and considerations for sellers.
How FBM Works
Setting Up an Account To start with Fulfillment by Merchant (FBM), sellers must create an Amazon seller account, which can either be an Individual or Professional plan. The Individual plan is suited for sellers with low-volume sales, while the Professional plan offers more features, including access to advanced tools and better fee structures, making it ideal for higher-volume sellers.
Listing Your Products Once the account is set up, sellers can list the products they want to sell on Amazon. Unlike FBA, with FBM, sellers manage the inventory, storage, and shipping themselves. While listing items, sellers need to specify that they will be fulfilling the orders themselves.
Storage and Inventory Management In FBM, sellers are responsible for storing their inventory. Whether it’s in their own warehouse, a third-party warehouse, or even at home, sellers must ensure their stock is available and ready to ship when an order comes in. Proper inventory management is essential to avoid stockouts and overstocking, both of which can impact customer satisfaction.
Order Fulfillment When a customer places an order, the seller must pick, pack, and ship the product directly to the customer. Unlike FBA, where Amazon handles all logistics, FBM requires the seller to handle everything from order processing to customer service and returns management.
Payment Once an item is sold, Amazon charges a referral fee based on the product’s category, but there are no storage or fulfillment fees like in FBA. Sellers receive payment after Amazon deducts its referral fee, and the remaining balance is transferred to the seller’s account. Payments are usually processed every two weeks.
Benefits of Using FBM
Full Control Over Inventory and Shipping With FBM, sellers maintain full control over their inventory and the entire fulfillment process. This control allows for more flexibility in managing stock levels, packing methods, and shipping carriers. It’s especially beneficial for businesses that have unique or customized products.
Lower Fees FBM generally has lower fees compared to FBA, as sellers do not incur storage or fulfillment fees. Instead, sellers only pay Amazon’s referral fee, which is a percentage of the sale price, depending on the product category. This can help sellers save money, especially if they are selling low-margin products.
Customizable Branding Since FBM sellers handle packaging and shipping, they have the opportunity to include branded packaging, inserts, or promotional materials in the shipments. This helps build brand recognition and customer loyalty, creating a more personalized shopping experience.
No Long-Term Storage Fees Unlike FBA, where long-term storage fees apply to products stored in Amazon’s warehouses for more than six months, FBM sellers avoid these fees. Sellers have more flexibility in terms of inventory management and storage space.
Costs Associated with Amazon FBM
While FBM offers several advantages, it comes with its own set of costs that sellers need to be aware of:
Referral Fees Amazon charges a referral fee on each sale, which varies by product category. This fee is typically between 6% and 45% of the product price. The exact fee depends on the type of product being sold.
Shipping Costs Since the seller is responsible for shipping products directly to customers, they must pay for shipping. The cost of shipping depends on the shipping method, packaging, and the destination. Sellers should factor these costs into their pricing strategy to maintain profitability.
Storage Costs While FBM sellers don’t pay Amazon for storage, they are responsible for managing and storing their own inventory. If using a third-party warehouse, sellers will incur storage fees. The cost of maintaining inventory in-house or at a warehouse can vary based on location and storage space.
Returns Management FBM sellers handle returns themselves. Amazon does not provide support for returns or exchanges in FBM, so sellers must manage this process independently, which can add to their operational costs and workload.
Important Factors to Consider When Choosing Between Amazon FBA and FBM
When deciding between Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM), several critical factors can influence your choice. Each method has its unique advantages and challenges, making it essential to evaluate them based on your specific business needs, product types, and operational capabilities. Here’s a detailed look at the most important factors to consider:
Sales Volume and Product Type
High Sales Volume: If you have products that sell quickly and in large quantities such as earbuds or fitness trackers, FBA is often the better option. Amazon’s fulfillment process is designed for efficiency, allowing you to handle a high volume of orders without the logistical burden on your end. Sellers with fast-moving products benefit from Amazon’s robust infrastructure, which can handle the picking, packing, and shipping of items swiftly.
Low Sales Volume: For sellers with lower sales volumes or niche products like handmade jewelry, FBM may be more cost-effective. Since FBA incurs storage fees that can add up for slow-moving items, managing fulfillment yourself can help avoid unnecessary costs.
Product Size and Weight: Bulky or heavy items often incur higher fulfillment fees under FBA. If your products are large or require special handling, FBM may provide more flexibility in managing shipping costs and logistics.
Cost Considerations
Fulfillment Fees: FBA charges fulfillment fees based on the size and weight of your products. These fees can be significant for larger items. Conversely, FBM allows you to control shipping costs directly but requires you to negotiate rates with carriers.
Storage Fees: FBA sellers incur monthly storage fees based on the volume of inventory stored in Amazon’s warehouses. If you have a slow-moving product line, these fees can accumulate quickly. FBM offers more predictable storage costs since you manage your own inventory.
Overall Profit Margins: Evaluate your profit margins carefully. If your margins are tight, FBM might allow for greater flexibility in managing costs compared to the fixed fees associated with FBA.
Control Over Fulfillment and Customer Experience
Inventory Control: FBM gives you complete control over your inventory management processes. You can decide how much stock to keep on hand and how to package your products. This control is beneficial for businesses that require specific packaging or branding strategies.
Customer Service: With FBA, Amazon handles customer service inquiries and returns, which can significantly reduce your workload. However, if you prefer direct interaction with customers or want to provide personalized service, FBM allows you to manage all customer interactions directly.
Branding Opportunities: FBM enables sellers to use branded packaging and include marketing materials in their shipments, enhancing brand visibility and customer engagement.
Logistics Capabilities
Logistics Expertise: If you have experience in logistics or already have a reliable shipping network in place, FBM might be advantageous. Sellers who are adept at managing their own logistics can potentially save money compared to paying FBA fees.
Time Commitment: Managing fulfillment through FBM requires a significant time investment for packing orders and handling customer service inquiries. If you prefer a hands-off approach that allows you to focus on other aspects of your business (like marketing or product development), FBA may be the better choice.
Access to Amazon Prime Customers
Prime Eligibility: Products fulfilled through FBA automatically qualify for Amazon Prime, which can significantly increase visibility and sales potential. Prime members tend to spend more than non-members and often filter their searches for Prime-eligible items.
Seller Fulfilled Prime (SFP): If you want the benefits of Prime without using FBA, consider SFP, which allows you to fulfill orders yourself while still offering Prime shipping options. However, this program has strict requirements that must be met consistently.
Market Competition and Visibility
Buy Box Advantage: FBA listings often have an advantage when it comes to winning the Buy Box due to Amazon’s preference for fulfilling orders through its own services. This can lead to higher sales volumes for FBA sellers compared to FBM sellers.
SEO Benefits: FBA listings may rank higher in search results on Amazon due to their association with Prime eligibility and faster shipping options. This visibility can be crucial for new sellers trying to establish themselves in competitive markets.
Choosing between Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM) depends on your business needs, product types, and available resources. FBA offers a streamlined, hands-off approach with access to Amazon’s vast infrastructure, Prime eligibility, and customer service support, making it ideal for high-volume sellers. However, the fees associated with FBA, including storage and fulfillment charges, can add up. On the other hand, FBM provides more control over inventory, fulfillment, and branding but requires more time, effort, and management, particularly for shipping and customer service. By weighing your sales volume, product type, and cost considerations, you can choose the fulfillment method that best aligns with your goals.
Frequently Asked Questions
What is the main difference between FBA and FBM?
FBA allows Amazon to handle storage, packing, shipping, and customer service, while FBM means the seller takes care of all these tasks themselves.
Can I use both FBA and FBM for the same products?
Yes, you can use both fulfillment methods for different products or for the same product, depending on the strategy you prefer.
Which fulfillment method is better for new sellers?
FBA is often recommended for new sellers, as it simplifies logistics, helps you tap into Amazon’s customer base, and offers Prime eligibility.
Are there any hidden fees with FBA?
Yes, FBA charges for storage, fulfillment, and additional services like labeling and removals, so it’s important to factor these costs into your pricing.
How does FBM impact branding?
With FBM, you have more control over packaging and customer communication, allowing you to maintain a personalized brand experience.
Which fulfillment method is more cost-effective for low-volume sellers?
FBM may be more cost-effective for low-volume sellers since you won’t incur the storage and fulfillment fees that come with FBA.
