Amazon, and the large number of third-party sellers on Amazon, play a crucial role in the logistics industry. There are a couple different ways for third-party Amazon sellers to fulfill their orders: Fulfilled by Amazon (FBA) or Fulfilled by Merchant (FBM). About 85% of Amazon sellers use FBA, while only a small portion use FBM. Let’s take a look at the primary differences between Amazon FBA and FBM, and which is the best option for you and your business.
Fulfillment by Amazon (FBA)
FBA is a fulfillment method when a seller (or seller’s supplier) sends products directly to Amazon’s fulfillment center. Amazon manages the inventory, picks, packs, and ships all of the orders. They also will handle the customer service for FBA orders.
Pros of FBA
- Hands-off Fulfillment - FBA bears the heavy burden of warehousing, customer service, shipping and product returns for you. Amazon is one of the largest companies in the world and has been in the business long enough to master the trickiest aspects of fulfillment. This should give you the assurance that your business is in good hands.
- Prime Shipping - You gain Amazon Prime’s multiple benefits like their signature next-day shipping. Oh, and customers love checking Prime products.
- Buy Box - You are not the only one selling the same product on Amazon, so winning the Buy Box is essential. The Buy Box is that white box where the “Add to Cart” and “Buy Now” buttons are located. Here’s the catch, a sale made through the Buy Box is awarded to only one seller. This is a big deal because about 85% of all sales are awarded through the Buy Box.
- SEO - Although Amazon is secretive about how their A9 search algorithm works, FBA offers have an apparent advantage against FBM offers.
Cons of FBA
- Prep work - Amazon’s FBA prep guidelines and packaging requirements could be back-breaking. Complying with this includes appropriately prepping your products and labeling your inventory before shipping it to Amazon warehouses. Failure to meet their strict guidelines risks your inbound shipment getting rejected. This could mean additional time and resources being used for retrieving and re-prepping your inventory.
- Loss of Control - This is worth noting if you want to have full control over your inventory and fulfillment process. Amazon won’t let you walk down their facilities and inspect your products. The moment you drop off your inventory, you will need to trust Amazon to do their thing.
- Weak Branding - “I got it from Amazon” — expect your customers to casually say this when asked about your product. Branding matters in a tremendously fast-growing market. But your branding will be under Amazon’s banner when you choose FBA.
Fulfillment by Merchant (FBM)
FBM is a fulfillment method when a seller lists their products on Amazon but manages inventory, picking, packing, shipping, and customer service themselves.
Pros of FBM
- Hands-on Fulfillment - Sellers are directly involved and actively participating in every aspect of their eCommerce business.
- Seller Fulfilled Prime (SFP) - You may forfeit the automatic eligibility for Amazon Prime, but there’s a way around it with SFP. SFP allows you to ship Prime right from your warehouse. It is worth noting that SFP comes with many strict requirements.
- Stronger Branding - Since you have full control over your business, you can pour all your creative juices into developing your unique branding. FBM sellers can go the extra mile in making sure their customers feel their brand, from customer service to unboxing experience and all the details in-between.
- Lower Amazon Fees - You don’t have to pay Amazon for inventory storage fees, returns processing fees, long-term storage fees, stock removal fees, and so on. Merchants whose core competency is in logistics can find feasible ways to do things cheaper than Amazon.
Cons of FBM
- Tough Competition - This is a tight race and FBA sellers already have a head start. FBM sellers will need to have a strong brand identity and even stronger logistics strategy to compete.
- More Responsibility - With FBM, you carry all the weight of fulfillment — customer support, lost packages, returns, and everything else. You also have to make sure you produce quality products and take care of day-to-day business needs. An upside to this is that understanding your customer’s pain points first-hand can help you think of ways to serve them better.
- Lack of Amazon Perks - You won’t get the Amazon SEO perks and will have a lower chance of winning Buy Box.
There are clear pros and cons to both FBA and FBM.
If you are wanting and willing to pay for all of the Amazon perks, then FBA is a great option. Sellers can rest assured knowing that Amazon will handle their fulfillment and just about everything else.
Some sellers want more control over their supply chain, and those sellers should go with FBM. Sellers who use FBM can also seek the services of a third-party logistics provider to help them qualify for SFP.
Ultimately, only a seller can know whether FBA or FBM is best for their business.
Looking for a 3PL to help with FBM or fulfillment in general? Take a look at these key factors to consider when choosing a 3PL.