Amazon’s sortable fulfillment centers can accommodate around 1,500 full-time staff and are approximately 800,000 square feet in size. Books, toys, and home goods are among the items that Amazon employees pick, package, and ship from these locations. Due to Amazon Robotics' advancements, employees frequently collaborate with robots, gaining new abilities and assisting in developing more effective procedures to satisfy client demands.
Choosing the right fulfillment strategy on Amazon can significantly impact your business. Amazon offers two primary methods for order fulfillment: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). Each has unique advantages and challenges, making it essential for sellers to understand which strategy best aligns with their business goals.
This blog will explore the key differences, benefits, drawbacks, and considerations involved in selecting between FBA and FBM, with insights into factors influencing these choices and alternatives such as Seller Fulfilled Prime (SFP).
Overview of Amazon Fulfillment Methods
Amazon's fulfillment options, FBA and FBM, offer flexibility for sellers looking to optimize how they manage and ship products to customers. Here’s a closer look at each method:
Fulfillment by Amazon (FBA)
Fulfillment by Amazon (FBA) allows sellers to store their products in Amazon's warehouses. Once an order is placed, Amazon handles picking, packing, and shipping to customers. FBA also includes customer service and returns management, making it a hands-off option for sellers. Additionally, FBA products are eligible for Amazon Prime, allowing faster shipping and improving appeal to Prime members.
Fulfillment by Merchant (FBM)
Fulfillment by Merchant (FBM) places control over fulfillment in the seller's hands. Sellers manage inventory, order processing, packing, and shipping. This method allows businesses to use their infrastructure or third-party services to fulfill orders. While FBM can offer greater control over the customer experience, it may provide a different reach level than FBA, especially for Prime members.
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Key Differences Between FBA and FBM
To understand FBA vs. FBM, we must examine the core differences in how each model operates:
Aspect | Fulfillment by Amazon (FBA) | Fulfillment by Merchant (FBM) |
Definition | Sellers send inventory to Amazon’s fulfillment centers; Amazon handles inventory, order processing, and shipping. | Sellers manage logistics directly or through third parties, including packing and shipping. |
Inventory Management | Managed by Amazon | Managed by the seller |
Shipping and Delivery | Fast shipping through Amazon includes Prime eligibility | The seller manages shipping; delivery depends on their logistics. |
Customer Service | Provided by Amazon | Managed by the seller |
Control Over Fulfillment | Limited, as Amazon manages fulfillment operations | Full control over fulfillment |
Costs | FBA fees for storage and fulfillment can be high for large or slow-moving items. | Potentially lower costs if the seller has their own logistics setup. |
Branding and Packaging | Amazon’s branding is primarily used. | Allows customizable branding and packaging |
Advantages of FBA
The Fulfillment by Amazon (FBA) model offers a suite of advantages that make it highly attractive for sellers aiming to streamline operations and boost product visibility on Amazon. Let’s delve deeper into FBA's advantages to understand how it supports sellers in scaling their business efficiently while enhancing the customer experience.
Prime eligibility and Buy Box: FBA items automatically qualify for Amazon Prime, making them more attractive to Prime members. Additionally, FBA products have a higher chance of winning the Buy Box, a feature that significantly boosts sales potential by increasing product visibility.
Enhanced customer trust: Products handled through Amazon’s fulfillment are often perceived as more trustworthy due to Amazon’s reputation for quick and reliable delivery. Customers may also prefer FBA products because of the streamlined customer service Amazon provides.
Simplified operations: FBA reduces sellers' logistical burden, allowing them to focus on other aspects of their business, such as marketing, product development, and customer engagement.
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Disadvantages of FBA
Costs: FBA fees can accumulate, particularly for storage, especially if products are large, heavy, or slow-moving. Sellers may face long-term storage fees for products that remain unsold for extended periods.
Loss of control over fulfillment: With Amazon controlling the fulfillment process, sellers lose some control over handling, customer interactions, and packaging. This may impact brand identity, especially if sellers want to maintain specific packaging or personalization.
Pros and Cons of Amazon FBM
FBM offers different benefits, primarily around control and cost, but also has its drawbacks. Let’s discuss them further:
Advantages of FBM
Here are the primary advantages of FBM that lead to many sellers choosing it as a fulfillment option:
Increased control over inventory and fulfillment: FBM allows sellers to maintain complete control over their inventory, including storage conditions, packaging, and customer interactions.
Potential cost savings: For businesses with the infrastructure to manage fulfillment, FBM can reduce the fees associated with Amazon’s storage and handling services, especially for bulky or low-turnover products.
Disadvantages of FBM
Given below are the disadvantages of FBM that might hinder some fulfillment operations as compared to FBA:
Limited access to prime and buy box benefits: FBM products automatically are not eligible for Amazon Prime, reducing their appeal to Prime members. They may also face a lower chance of winning the Buy Box, potentially affecting visibility and sales.
Resource-intensive: FBM requires additional resources for fulfillment and customer service management. For smaller businesses without existing logistics infrastructure, managing fulfillment independently can be a challenging task.
Factors Influencing Fulfillment Choice
Selecting the best fulfillment strategy for your Amazon business depends on several factors:
Product size and weight considerations
Product size and weight play a significant role in fulfillment costs. FBA can be costly for larger, heavier items due to storage and shipping fees. In contrast, FBM might be more cost-effective for such products, as sellers can find less expensive storage and shipping solutions.
Control over customer service and inventory
For brands that emphasize brand experience or offer personalized packaging, FBM can be beneficial as it enables sellers to handle orders with a personal touch. However, sellers who prioritize operational efficiency over control may find FBA’s end-to-end service more suitable.
Impact on seller feedback and reviews
Customer satisfaction is essential for Amazon, as it impacts seller feedback and ratings. FBA can enhance the customer experience with fast shipping and Amazon-managed customer support, while FBM gives sellers direct control over customer interactions, potentially fostering a more personal relationship but requiring exceptional service to meet customer expectations.
Alternatives and Challenges
While FBA and FBM are the primary options, Amazon offers an alternative—Seller Fulfilled Prime (SFP)—which combines elements of both. Let’s discuss it in detail:
Seller Fulfilled Prime (SFP) as an alternative
Seller Fulfilled Prime (SFP) is an alternative for sellers who want control of FBM while maintaining Prime eligibility. SFP allows sellers to fulfill orders from their own facilities while still offering Amazon Prime benefits, including the Buy Box. However, SFP requires a high standard of fulfillment speed and accuracy to meet Amazon’s Prime requirements.
Challenges and requirements for maintaining Prime eligibility
To qualify for SFP, sellers must meet strict shipping and service level agreements, such as offering two-day shipping and achieving high customer satisfaction ratings. Failure to meet these requirements can lead to the loss of Prime eligibility, making it crucial for sellers considering SFP to have robust logistics and customer service capabilities.
Which Amazon Fulfillment Method is Perfect for Sellers?
When choosing between FBA and FBM, consider these criteria to make the best decision for your business:
Criteria for choosing between FBA and FBM based on business needs
Based on the below criteria, you can choose either FBA or FBM for your business needs:
FBA: it is Recommended for businesses with high sales volumes, limited logistics capabilities, or products that benefit from fast shipping and Buy Box prominence. FBA is especially suitable for smaller items that are easy to store and ship.
FBM: it is Ideal for sellers with existing fulfillment infrastructure, large or heavy items, or brands that emphasize personalized customer interactions. FBM can also be a better fit for products with slower sales, where long-term storage fees would otherwise add up in FBA.
Suitability of FBA and FBM for Different Types of Products and Sellers
The following criteria decide whether FBA and FBM are suitable for you:
High-demand, low-maintenance products: FBA’s fast delivery and Prime eligibility make it ideal for products with high turnover, such as consumer goods or electronics.
Large or heavy items: FBM can help avoid excessive storage and handling fees for bulkier products that might not sell quickly enough to offset FBA costs.
Personalized or niche brands: FBM offers more flexibility for brands that prioritize branding, custom packaging, or direct customer interaction.
Summing Up
In the debate of FBA vs. FBM, each fulfillment strategy has its unique benefits and challenges. FBA offers convenience, Amazon’s customer service, and Prime eligibility, making it an attractive choice for high-volume sellers or those prioritizing quick shipping. FBM, on the other hand, provides control over fulfillment and may reduce costs, especially for larger or niche items.
Ultimately, the choice between FBA and FBM depends on your specific business needs, product types, and available resources. Consider testing both methods to determine which best suits your fulfillment needs and aligns with your goals. By understanding the strengths and limitations of each option, you can confidently select the strategy that will drive the most value for your Amazon business.
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FAQs
Q1. Is FBA or FBM better for new Amazon sellers?
Ans- FBA can benefit new sellers by simplifying logistics, providing access to Prime customers, and increasing the chance of winning the Buy Box. However, FBM might be a better option if a seller has fulfillment experience or needs more control over their inventory.
Q2. Can I use both FBA and FBM for my Amazon business?
Ans- Many sellers use a hybrid model, using FBA for high-demand products that benefit from fast shipping and Prime eligibility while managing slower-moving or bulky items through FBM to save on fees.
Q3. Does FBA offer any tax advantages over FBM?
Ans- FBA sellers may face additional tax obligations because Amazon stores inventory in multiple warehouses, which could create a tax nexus in different states. FBM sellers only have tax obligations in the states where they operate or store their inventory, which can simplify tax compliance.
Q4. Can I switch from FBA to FBM or vice versa?
Ans- Amazon allows sellers to switch between FBA and FBM. Sellers may shift products based on sales volume, seasonal demand, or changes in inventory storage needs, adjusting their fulfillment strategy as their business evolves.
Q5. What impact does each model have on delivery speed?
Ans- FBA typically offers faster delivery as products are stored closer to customers in Amazon’s fulfillment centers. FBM delivery speed depends on the seller’s logistics capabilities and chosen shipping carriers, which may lead to longer delivery times than FBA.
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