The day Amazon overtook Google as the number one place people go for product searches is the day most B2C brands should have considered the question of whether or not to sell products on Amazon answered. No matter your target audience, they’re probably on Amazon and they probably go there first when considering a new product.
But, if you’re new to selling on Amazon, then you have a whole new marketplace and set of best practices to learn. It’s overwhelming. One of the big questions you’ll have to answer for your business is whether to go the Fulfilled by Merchant (FBM) route or opt for Fulfilled by Amazon (FBA).
How FBM Works
Fulfilled by Merchant means you stay in control of your inventory and more of your interactions with the customer. You make sure your listings on the site match the product you have on hand, and you package and ship the products yourself each time a new order comes in.
Benefits of FBM
FBM works well as an extension of the business you already have. You can treat it as one more marketing channel where people can encounter and choose to buy your products, alongside your website or any other seller sites you use.
Easy to Get Started
Setting up an Amazon seller account and listing an item are both simple steps. As long as you have product details and photos, you can start listing items immediately. This makes it a much lower commitment than FBA – if you want to give Amazon a try first before deciding how serious to get, this is the best way to dip your toes in a little and get a feel for it.
Fewer Fees to Amazon
With FBM, you do more of the work, so you keep more of the profits. You’ll still pay a percentage of each sale you make to them through your referral fee (usually 15%, but it varies based on the type of product) and a variable closing fee for any media items you sell, but that’s it (and that’s far fewer fees than FBA).
More Control Over Inventory and Ship Times
With FBM, it’s up to you to stay on top of how much inventory you have and how much is listed. That can be a good thing if you’re usually pretty organized at tracking inventory. It’s easier to know when you’re low and order more or change the listings you have based on the number of items right there in your own store or warehouse.
You also technically have the freedom to choose when the items ship and what ship times to allow. So, if it’s not practical for you to package items and get to the post office within a day after each sale, you can provide longer shipping estimates to give you the extra time you need. That said, Amazon customers are used to fast shipping (especially Prime members). If they’re stuck waiting for items from you for longer than a week, it’s going to affect their satisfaction levels and your reviews, so it’s worth not dallying.
The Downsides of FBM
FBM is harder in many ways and Amazon puts a few notable limitations on FBM sellers.
You’re not eligible for Prime.
If you’re a Prime member yourself, you know how much of a difference that Prime label next to a product makes. Free and fast shipping are big incentives for buyers, and the estimated 63% of Amazon customers that are Prime members have come to take them for granted.
It’s hard to be competitive.
Not being eligible for Prime is a big part of it, but not the only reason you’re less competitive selling as FBM. Amazon has every incentive to prioritize the products being sold through their own system over those of third-party sellers who aren’t using their services. If there’s a similar product being sold by a vendor that is using FBA, they’re going to show up higher in the search and claim the “buy box” once the customer clicks to add it to their cart.
You do more of the work.
While for some sellers, having more control is a benefit, for others, that extra control just looks like more work. If you hate dealing with boxing up items or doing all the shipping work yourself, then having a way to outsource those tasks should be an easy sell.
You swallow the cost of returns.
As of a new policy rolled out in fall of 2017, sellers that use FBM are now required to accept all refund requests without question. You have to pay for return shipping and the cost of the item that was returned both. For Amazon, this means they can promise their customers a better experience. But for FBM sellers, it cuts into profits and increases the risk of doing business on Amazon.
Who FBM Is Good For
FBM is a good option for a few main types of sellers:
- Those with inconsistent inventory – If you sell something like handcrafted items or resell items you get a good deal on here and there, then it probably makes more sense to hang onto your inventory and list it as you go than it does to send a bunch of different products or knick-knacks to Amazon to distribute.
- Those selling items with small profit margins – If a lot of your inventory is inexpensive items that you can’t charge much more for than the price you pay yourself, the fees associated with FBA probably aren’t worth it.
- Those new to selling on Amazon– If you think it’s time to consider Amazon, but you’re not sure how far you want to take it, FBM is an easy way to start while you figure out if FBA might make sense down the line.
How FBA Works
FBA is increasingly what Amazon is nudging its sellers toward. It allows them to provide a more standardized experience for customers that keeps their own brand intact, while also making more money off each sale due to providing more of the associated services. With FBA, you send your inventory to Amazon, and they take on the work of storing it and sending it out whenever there’s an order.
The Benefits of FBA
Amazon is in a powerful position to make it worthwhile for sellers to choose this option and therefore offer some significant benefits for choosing FBA.
You’re eligible for Prime.
This is a biggie. While Amazon doesn’t release numbers on what percentage of sales on the platform are from Prime products, as discussed above, the promise of free, fast shipping is a compelling selling point for many customers. Some products see higher sales rates even with bumped-up prices because of the convenience of getting those products through Prime.
And, Amazon will often opt to show a higher-priced FBA listing for the same product than a cheaper FBM one to customers since they stand to benefit more from the sale. That means your products are more competitive on multiple levels when you opt for FBA.
You do less work.
Amazon does all the storing, packaging, and shipping in their own warehouses under FBA. They also deal with return requests and any customer service needs the customer has. That takes several jobs off your list, so you can focus more on all that other work you do to keep your business running.
You don’t have to worry about storage.
Space costs money, especially for businesses that live in areas with high rental costs. If you take out extra real estate space now in order to store all your inventory, that’s a cost FBA can help you cut.
You (usually) spend less on shipping.
Because Amazon does so much shipping (seriously, so much), they have access to better rates than your average business. You do have to pay to ship them your inventory, but that will typically cost you less than all the smaller shipments you would be making if handling fulfillment yourself.
The Downsides of FBA
While it can make your products a lot more competitive on the site and help you achieve increased sales, there’s always a tradeoff.
Amazon takes a bigger chunk of your profits.
In exchange for more sales and less work, you predictably hand over a larger portion of the profits for each product you sell. This may not be a big deal if you sell products with big profit margins, but it can mean taking a big hit on low-cost items with small profit margins or ones that other Amazon sellers can severely undercut your pricing on.
The logistics can be complicated if you sell a lot of products.
When Amazon runs out of inventory you sent them for a product, you lose money every day it takes to get them more. If you sell a few products on the site, keeping track of when inventory gets low might not be all that difficult. But if you sell dozens or hundreds of different products, staying on top of inventory levels for each one becomes a challenge.
On the other hand, the longer the products you send to Amazon take to sell, the more you spend in storage fees. And if it takes longer than 6 months for some of your inventory to sell, you’ll be charged long-term storage fees on top of monthly ones.
Figuring out how much inventory to send in when can be tricky and if you don’t play it right, you’ll face higher costs or lost profits.
The fees are confusing.
In addition to the referral fee FBM sellers face, you’ll also pay fees for storage, order fulfillment, packaging, and weight handling. In addition to paying more for each sale, it also makes accounting more complicated. It can be hard to figure out how much each fee is supposed to be and whether you’re being charged the right amount. And Amazon does sometimes make mistakes in the fees they charge. If you don’t pay careful attention, you could end up losing money to their mistakes as well as the legitimate fees.
Who It’s Good For
The main types of businesses that will benefit from opting for FBA are:
- Those that prioritize a high volume of sales on Amazon - If you want Amazon to become one of the main places people buy your products and you have a lot of inventory to move, FBA will get your products in front of more people looking to buy.
- Those that sell high-margin products – Because you’re sacrificing some share of your profits in the deal, FBA is only really worth it if you’re making enough profit off each sale that you can afford to let some of it go.
- Those with limited storage space for inventory – If finding space for the inventory you have now is a constant challenge, FBA can be part of the solution.
- Those who have too little time or staff for timely shipping. Packing orders up and shipping them to customers takes time. You’re either using time you could be spending on other tasks needed to run the business or paying someone else to do it already. For some businesses, offloading that work to someone else is a big benefit.
Amazon doesn’t force sellers to make a decision to use one or the other exclusively, so you can choose to use FBM for some of your products and FBA for others. Or you can try out both for a while to see how your sales and profits compare under each before settling on one or the other. One option isn’t automatically better than the other; it’s a matter of figuring out what makes sense for your business and each of your products.