If you’re planning on selling products on Amazon, you must choose whether to use Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM). But what’s the difference between the two? And which is best for your business?
The answer isn’t always simple, and it depends on the type of business you have, your current capacity to meet orders, and the amount of time you want to spend working on your business—and that’s just a start.
We’ll go over both of these fulfillment methods in detail so you can decide for yourself what’s best for your business.
If you’re selling your own items to consumers, or even handling your own inventory, you’ll want to look into FBM.
Fulfilled by Merchant (FBM) is a way of selling on Amazon as a third-party seller. You’ll manage your own inventory and shipping, and you’ll need to rely on your own processes for customer service. Amazon will help make sure the logistics work out for you, but the day-to-day management of things is going to be on you.
When you work with FBM, you can customize your shipping options, choose your preferred carriers and shipping speeds, and even offer multiple shipping options to your customers. You’ll also have complete control over when your packages are shipped and when they reach their destination.
Selling through Amazon’s Fulfillment by Merchant option has a few perks, including
- You have control over your stock and can quickly respond to any changes in demand.
- You can provide better customer service and make sure your products are up to spec.
- You can lower your costs.
- Your products will be eligible for Prime shipping.
In addition to Fulfillment by Merchant, there is a new, rapidly growing FBM fulfillment method — Seller Fulfilled Prime (SFP). If your seller account is Professional and you meet the minimum requirements, you can apply for SFP so that your products will display the Amazon Prime badge on orders fulfilled via your own warehouse or third-party logistics providers.
There are some requirements to be eligible for SFP, including:
A Professional Seller account
– A pre-fulfillment cancel rate of less than 1.5%
– Same or one business day shipping
– An on-time delivery rate of at least 92%
-Sellers must work with approved Buy Shipping Service carriers.
Fulfillment by Amazon (FBA)
With FBA, Amazon stores your products in one of their fulfillment centers and then handles the packing and shipping of your product to your customers. This means you don’t have to worry about keeping track of inventory, sourcing packing materials, or dealing with customer service questions. FBA can be a great option for sellers who want to focus on growing their brand instead of managing logistics.
Here’s how the FBA system works:
Shipping Products to Amazon
You have dozens of warehouses at your disposal, you decide which products you want to send and they tell you where they will be sent after creating a shipping plan.
Classification and Storage of the Products
Once Amazon receives the products, it takes care of organizing them and adding them to an inventory. This way your items will be stored safely and in case one is damaged, the marketplace will reimburse you.
A Sale Occurs
When a customer makes a purchase, Amazon handles the entire transaction. They accept payment and update inventory automatically.
Product Delivery
One of the Amazon workers takes your product, packages it in a box, and sends it to the customer.
Customer Service
Once the customer has received their order, Amazon follows up with them to make sure that they have been satisfied. If returns or questions arise, they also handle them. Of course, keep in mind that any comment you receive about the list of products is up to you and you have to be the one to answer it and take the necessary measures.
AmazonFBA sellers know that it comes with a number of fees. If you’re thinking about using the program, you’ll want to make sure you understand exactly what those fees are, and how much they will add up.
AMAZON FBA COSTS
FBA Amazon fees can vary based on a number of factors: type and size of products being stored and shipped, length of time they are stored, seasonality, etc.
SALES FEES
They are charged immediately after the sale of the product. There are two types of fees in this category:
- Fee Referral. Its size depends on the category, but in most cases, it is 15% of the purchase price.
- The fee of Fulfillment (includes delivery of goods to the buyer, payment for order processing, acceptance, and packaging). It depends on the period of the year and the size of the product. Amazon has 8 categories by size, depending on the measurements of the product it falls into one of them. This determines the amount you pay per item for each sale. Rates differ depending on the season. In the pre-holiday months, they are lower.
MONTHLY FEES
- A fee of professional selling plan – $ 39.99
If you have an Individual selling plan, the fee structure is different: Amazon charges $ 0.99 per sale, but you don’t pay anything per month. - FBA monthly storage fee (fee for storing goods in Amazon warehouses) – depends on the size of the goods, their quantity (in cubic feet), and the month.
IRREGULAR FEES
- Long-term storage fee. There are 2 tariffs: if the product is in stock for more than 6 months, or 1 year. The amount depends on the shelf life of the goods, size, and quantity.
- Inventory Placement Service Fees (payment for the distribution of goods between different Amazon warehouses). It is charged after the creation of a shipment if the goods are sent to only one warehouse and Amazon distributes them to other locations (yes, the site itself determines which warehouses to send the goods to and you cannot influence this).
- Fee Removal. There are three ways to get rid of inventory: destroy the item, ship it to any address from the Amazon warehouse, or dispose of it. If you confirm the removal order, you pay for each unit.
- Processing Fee Returns. Applies when a buyer returns an item from a category for which Amazon offers free shipping back to the warehouse (Apparel, Watches, Jewelry, Shoes, Handbags & Sunglasses, Luggage categories.
- Unplanned Service Charges. Charged if the product is improperly packaged or the barcodes are incorrectly pasted.
- FBA Label Service Fee. Every item that is sent to the Amazon warehouse must have a barcode generated in Seller Central. If you don’t want or can’t stick the barcodes yourself, Amazon will do it for you for only $ 0.20 per item.
- Prep & Service Fees. If you want Amazon to pack the item as required, you need to pay a certain amount for each item.
To calculate the revenue per unit of goods, pay attention first of all to the first two types of fees – you definitely cannot avoid them. Irregular fees are charged only in certain cases, but it is better to be forewarned and armed.
FBA vs FBM: Which is better?
Both these Amazon system have their own set of Pros And Cons that can be used to your advantage.
Let’s take a look at some Pros and Cons of these two fulfillment programs so you can make the best decision for your programs:
Pros
FBA | FBM |
Eligible to Amazon Prime Shipping | You don’t need to pay additional Amazon Fees |
Amazon will handle customer support | More control with packaging |
Buy Box advantage | You can provide better customer service and make sure your products are up to spec. |
Amazon will handle returns, shipping labels, and logistics so less stress on your end. | Your products will be eligible for Prime shipping. |
Access to storage space so you don’t have to worry about storing your inventory. | If you meet the minimum requirements for SFP, you can compete for Buy Box with other FBA sellers. |
Greater visibility in the search result | Lower cost |
Supports multi-channel market | Higher Profit Margin as you are not paying monthly FBA fees |
Cons
FBA | FBM |
Higher FBA Fees | More responsibility on the part of seller |
Long-term storage fees | Overhead cost |
Strict packaging requirements | Difficult to join SPF |
Increased return rate with their “easy return” process prioritizing customer’s best shopping experience. | Heavy competition with FBA sellers |
Which method should you use for your Amazon venture? Here’s a quick overview to help you decide:
You should use FBA If… | You should use FBM If… |
You are selling small and lightweight products | You are selling high-end products that are oversized and heavy |
You want Amazon to handle your customer support services | You want to have control over your customers |
You want to have access to sell to Amazon Prime Customers | You want more control with your inventory |
If the costs will much higher if you fulfill your products | If you have your own warehouse and logistic |
Product volume is high | Your product volume is small |
So which program is better?
The answer is it depends on your business and what products you are selling. You need to calculate the costs associated with each program or fulfillment method and compare the profit you’re going to make.
Both have their pros and cons, and you should choose the service that is right for your business.
Final Thoughts
When deciding between the two services, keep these factors in mind. First and foremost, the products you sell will need to be a good fit for Amazon FBA.
If it isn’t, chances are you won’t earn enough profit with Amazon FBA to make it worth your while. And if you’re selling heavy or bulky items, you’re better off with Amazon FBM.
We hope this blog post has helped you make a more informed decision about which service is best for you!
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