Amazon is one of the largest ecommerce platforms in the world, offering numerous opportunities for sellers to make money.
While Amazon is the US's largest ecommerce market, Amazon Europe is just a little behind.
According to Statista, more than half of European consumers shopped on Amazon in 2022.
However, when it comes to fulfilling orders, sellers have two options.
Amazon FBA is the most popular fulfillment method, with 86% of third-party merchants preferring it.
Still, other sellers opt to manage their fulfillment, often known as FBM (Fulfillment by Merchant) or a combination of both.
So, what option is right for you?
In this post, we'll discuss the differences between Amazon FBA and FBM and help you choose the best option for your business.
Fulfillment by Amazon (FBA) is a service that allows you to store products in Amazon's warehouses. Then, when a customer orders a product, Amazon packs and ships the product to the customer on your behalf.
Finally, Amazon also handles returns and customer service for you.
Fulfillment by Merchant (FBM) requires you to fulfill your orders yourself. You can either store products in your warehouses or use a third-party logistics provider (3PL).
When a customer places an order, you are responsible for packing and shipping the product to the customer.
Also, it's your responsibility to handle returns and manage customer service.
To effectively structure your business model for selling and shipping Amazon inventory, you should consider whether FBA (Fulfillment by Amazon) or FBM (Fulfillment by Merchant) is the better option.
Start by asking yourself, "What will work best for me?" and jot down your thoughts.
There are several other factors you should take into account before making a final decision:
Furthermore, having a nearby post office and a good relationship with the staff there can be crucial to your success.
Choosing can be tricky if you do not grasp the benefits and drawbacks of each program.
So let's start with the advantages of each.
FBA-fulfilled items are eligible for Prime delivery. Buyers with an Amazon Prime subscription can receive their goods with free 1 or 2-day shipping.
It enhances your item's sales potential because Prime users are willing to take advantage of the fast delivery times.
Amazon Prime has about 200 million Prime members in 22 countries worldwide.
Nine out of ten people get an Amazon Prime subscription because of its free shipping. So, it is unquestionably advantageous for you over vendors not using Amazon FBA.
For example, Amazon keeps track of your listings, ensures adequate supply, and lets fulfillment handle everything from start to finish.
Amazon provides various fulfillment solutions across Europe, allowing you to select the one that best meets your needs. The most popular and fastest is pan-European FBA, which Amazon stores and delivers from fulfillment centers throughout Europe.
With the European Fulfillment Network, your products are dispatched from central storage in their place of origin. And, with Multi-Place inventory, the stock is held and shipped from fulfillment centers in the countries you designate.
One of the most significant advantages of using Amazon FBA is that you won't have to handle customer inquiries as often. With Amazon addressing all your customer service needs, buyers can reach out to them directly in case of any issues with their orders.
It will save you precious time and reduce stress and frustration levels. Additionally, you won't have to engage with customers directly.
The MCF program offers additional benefits to sellers operating on multiple channels.
It means you can use Amazon's fulfillment centers to ship orders from your website or other marketplaces, serving Amazon customers and customers from other channels.
However, it's important to note that the MCF fees are higher than FBA.
To be successful as a seller, you must secure the Buy Box, the section on a product page where customers can add items to their cart.
Only one seller is awarded the Buy Box for a specific product at any given time, and 82% of all sales are made through it.
Simply put, the faster, cheaper, more convenient, and more reliable your shipping and delivery options are, the better your chances of winning the Buy Box.
So, if you use FBA, your odds of winning the Buy Box can significantly increase.
FBM can be less expensive than FBA since you do not have to pay storage, fulfillment, and other fees.
Additionally, without paying FBA fees, your profit margins should improve if you have accurately estimated your other expenditures and secured the most competitive rates for your inventory and shipping needs.
Especially if you are selling bulky items with low-profit margins, you will save money on fulfillment and storage costs.
Also, Amazon may assess additional storage costs for products that sit in Amazon's warehouses for extended periods if you have a slow-selling product and are using FBA.
Occasionally, it can be advantageous to have complete control over your business rather than relying on a third party to handle everything. It is particularly crucial if you're starting, as it allows you to grasp how your business operates, control inventory, develop better strategies and practices, and maintain a sense of autonomy.
As an FBM seller, you have more flexibility in inventory management and can quickly make necessary changes.
Then, when needed, you can quickly increase your stock without worrying about extra shipping fees or increased storage expenses from Amazon FBA.
While using Amazon FBA might simplify many aspects of managing your Amazon business, it comes with its own rules and regulations that you must follow. With Amazon FBM, you won't encounter these problems because you may set your own rules.
Let’s go over some downsides of both options.
FBA fees can be higher than FBM fees because you need to pay for storage, fulfillment, and other costs.
Depending on the products you sell and the efficiency of your business, this could be an advantage or a disadvantage.
In the FBA program, selling small, light, and quickly-moving items is more cost-effective than large, bulky, and slowly-moving ones.
In addition, there is an annual increase in storage costs between October and December.
But, using the Amazon fee calculator, you can stay within your budget and keep control of your finances.
Customers may return more of your products when you begin using Amazon FBA because of Amazon's "easy returns process."
However, you can minimize the risk by maintaining a steady stream of high-quality products and satisfying your consumers.
Hence, they never need to return their purchases.
However, there will always be customers who make an impulsive purchase, later come to regret it, and make a return. With Amazon FBA, it is much simpler to do so.
But it's also possible that Amazon won't accept a returned item since it's not in a resalable condition.
So you should be aware of this before deciding whether or not to use Amazon FBA.
If you sign up for Amazon FBA, you will get guidelines on preparing and sending your items to their warehouse.
These are very specific, and you must make sure everything is proper.
For example, suppose you fail to label your inventory correctly. In that case, it will be rejected at the warehouse, causing delays, frustration, and additional work.
Therefore, you must adhere to the instructions precisely.
Failing to comply with Amazon's guidelines can also result in fines, penalties, stranded inventory, etc.
One of the most significant disadvantages of FBM is that it can limit your ability as a seller to scale your business.
For example, managing inventory levels, packaging orders, and shipping them out to customers can be time-consuming, especially if you don't have the resources to hire additional staff.
As the volume of orders increases, it can become increasingly challenging to keep up with the demands of fulfilling those orders.
All of it can lead to delays in shipping, errors in orders, and, ultimately, a negative customer experience.
Since you are responsible for handling all customer service inquiries, you must answer questions about the product, manage returns and refunds, and address any issues that may arise with shipping or delivery.
Additionally, since managing all aspects of order fulfillment is your job, it can take time away from other essential parts of your business, such as marketing and product development.
FBM sellers cannot obtain the Amazon Prime badge, which could be a disadvantage since Prime is tied to higher organic rankings.
However, if you meet the requirements for the alternative program, Seller Fulfilled Prime, you are still eligible for Prime benefits.
The Seller Fulfilled Prime program enables you to fulfill domestic Prime orders from your fulfillment center.
By displaying the Prime badge, you agree to fulfill orders through approved Prime delivery providers at no extra cost to Prime customers.
In addition, if you want to provide a Prime-worthy experience for your customers, Amazon provides access to the proper transportation solutions.
The primary advantage of using Amazon FBA over FBM is that it removes fulfillment hassles and ensures high-quality customer service.
As a result, FBA is particularly beneficial for sellers who want to rapidly scale their Amazon business and reach a broad customer base, especially for high-volume sellers or those with limited experience in logistics.
However, it has some drawbacks, such as substantial FBA fees, potentially higher return rates, and strict product preparation guidelines.
In contrast, FBM allows you to deliver products to buyers using your logistics network and handle shipping, customer service, and returns on your own.
FBM also works well for exclusive products, items with slow turnover, or those sold in small volumes.
In conclusion, FBA and FBM have advantages and disadvantages, and the choice ultimately depends on your business needs and priorities.
Still, regardless of your choice, your goal is to increase Amazon sales and retain satisfied customers.
As an Amazon seller, you may experience low months and high-demand seasons.
To help you overcome these obstacles and always have enough stock or additional working capital for ongoing costs, Myos offers different financing solutions.
1. Purchase Financing – Order the needed stock and sell more without Myos contacting suppliers or customers.
2. Stock financing – Use the portion of your inventory as collateral and use the additional capital to grow your business by launching new products or investing in marketing.
Sign up with Myos today and see why we are the trusted partner for more than 1000 sellers worldwide!
Yes, you can use FBA to fulfill orders eligible for Prime shipping while using FBM to fulfill orders that are less time-sensitive or have lower shipping costs. But ultimately, the decision to use FBA, FBM, or a combination of both depends on your business needs and goals.
Amazon FBA fees can include storage, fulfillment, and referral fees. Additional fees for optional services, such as Amazon's multi-channel fulfillment service, may also occur.
Amazon FBM fees can include shipping costs, packaging costs, and the cost of storing inventory in a seller's warehouse or a third-party location.
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