Amazon FBA vs. FBM: Pros and Cons of Each
October 17, 2023
It’s no secret that Amazon has wholly revolutionised the way we think about online shopping, and even for entrepreneurs, a significant part of Amazon’s appeal lies in its efficient fulfilment services for those using the platform to sell. If you are planning on selling on the platform, deciding between Fulfilment by Amazon (FBA) and Fulfilment by Merchant (FBM) can seriously change the way you run your business, and can even impact how many sales you get. But what are the pros and cons of each fulfilment method, and which works best for your business model? Let’s take a look.
Why is it important to choose the right fulfilment option?
In short, selecting the appropriate fulfilment method impacts your profit margins, customer satisfaction, and even your product's visibility on Amazon. While both FBA and FBM come with their unique advantages, they also have distinct challenges, so the key is to identify which model aligns best with your business goals, operational capabilities, and customer expectations.
What is Amazon FBA? (Fulfilment by Amazon)
With FBA, sellers ship their products to Amazon's warehouses, and Amazon handles storage, packaging, shipping, and customer service. Here are the benefits of this method:
Pros of FBA
Customer Trust and Prime Eligibility
Products fulfilled by Amazon are eligible for Prime, which has a vast and loyal customer base. The trust associated with Amazon's fulfilment can lead to higher conversion rates.
FBA allows sellers to focus on other aspects of their business, such as product sourcing and Amazon UK advertising, as Amazon manages inventory, shipping, returns, and customer service.
Using FBA, sellers can effortlessly reach international markets through Amazon's global fulfilment network, leading to greater brand visibility and increased conversion rates.
Cons of FBA
FBA can be more expensive than self-fulfilment due to storage fees, especially during peak seasons, and due to other associated charges.
Sellers have less control over inventory management and handling; this could potentially lead to challenges if there are issues with the product or if inventory is not managed efficiently.
Amazon sometimes pools inventory from multiple sellers if products have the same UPC. This could pose a risk if another seller's product is inauthentic or of lower quality.
What is Amazon FBM? (Fulfilment by Merchant)
In the FBM model, sellers are responsible for storing, packing, and shipping their products, either themselves or through a third-party logistics provider. Just like with FBA, there are a number of benefits (and downsides) to choosing this method.
Pros of FBM
Sellers have complete control over their inventory, packaging, and shipping, allowing for more personalised branding and a tailored customer experience.
Potentially Lower Costs
Without the need to pay Amazon's storage and fulfilment fees, FBM can offer better profit margins for certain products or during specific times of the year.
FBM provides the flexibility to adapt quickly to changes, be it in pricing, promotions, or inventory management, so you, the seller, are always in control.
Cons of FBM
When opting for FBM, sellers handle every aspect of fulfilment, from packaging to shipping, which can be time-consuming and may divert focus from other business areas.
No Prime Eligibility
FBM products aren't automatically eligible for Prime, which may result in reduced visibility and potentially fewer sales due to the large number of Prime members.
Customer Service Demands
Handling returns, exchanges, and addressing customer queries falls squarely on the seller, demanding additional resources and time.
Potentially Slower Shipping
Without the vast logistics network that Amazon offers, FBM sellers might face challenges in ensuring speedy deliveries, especially during peak seasons.
How to Choose Between FBA and FBM
So - if you’re a seller and you’re struggling to make the decision between FBA and FBM, consider the following aspects:
Product Type and Size
If you're selling bulky or oversized items, FBA fees might be substantially high due to storage costs. Conversely, small, fast-moving items might benefit from FBA, thanks to Amazon's efficient distribution.
Analyse the complete cost structure of both models, considering storage fees, shipping charges, and labour costs; don’t forget to factor in the potential sales boost from FBA's Prime eligibility against the potential higher profit margins of FBM.
Shipping and Location
Consider your business's location concerning your primary customer base: if you're located far from your customers, FBA might offer faster shipping. On the other hand, if you're close to your main market, FBM might allow for swift deliveries without the added FBA costs.
The Bottom Line
Ultimately, both FBA and FBM have their merits; FBA offers convenience, potentially higher visibility, and access to Amazon's vast logistics network, but on the flip side, FBM provides sellers with more control, flexibility, and can be more cost-effective under certain circumstances. In making a choice, it's essential to align with your business goals and capabilities - and make sure not to overestimate your own capacities if you opt for FBM.