In 2023, over 60% of Amazon sales were driven by third-party sellers, many of whom are small to medium-sized businesses. As an Amazon seller, you can enhance your ecommerce operations by opting for either Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM).
In this post, we’ll explore each approach's advantages and challenges, helping you decide which strategy might suit your business goals. Whether FBA, FBM, or a hybrid approach is right for you, we'll examine the critical factors to consider, including expertise requirements and potential financial outcomes.
What is Amazon FBA?
Once enrolled in an Amazon seller account, sellers can let Amazon manage all aspects of shipping, including returns and refunds. Amazon also handles product warehousing, order picking, packing, and more.
Now, let’s talk about what everyone wants to know — the cost. While there are fees involved, they don't have to break the bank.
Fulfillment fees cover services like picking, packing, shipping, handling, customer service, and returns. The fees are based on the weight and dimensions of your products. FBA fulfillment fees are divided into two main categories: non-apparel and apparel, with different rates for each.
- Non-apparel: Depending on product size and peak rates, fulfillment costs range from $3.07 per small-standard item to $161.11 per oversized product.
- Apparel: Pricing for apparel is comparable, ranging from $3.43 per item to $161.11 for larger products.
Amazon also charges monthly storage fees based on the average daily space your products occupy in their fulfillment centers.
- January through September: Standard-size items cost $0.75 per cubic foot, while oversized items are $0.48 per cubic foot.
- October through December: Rates increase to $2.40 per cubic foot for standard-size items and $1.20 per cubic foot for oversized products.
If your inventory remains in Amazon’s warehouse for over a year, long-term storage fees will be applied monthly. This fee will either be $6.90 per cubic foot or $0.15 per unit, whichever amount is greater.
Pros and cons of FBA
Let's look at the pros and cons in more detail:
Pros
- Logistics support and scalability: Instead of handling logistics from your home or office, you can delegate it to Amazon’s fulfillment network for a small fee, significantly reducing your workload.
- Access to Amazon Prime benefits: FBA products are automatically eligible for the Prime badge, giving them access to Prime’s free and fast shipping options.
- Winning the Buy Box: With FBA, you can increase your chances of winning the Buy Box, benefiting from increased visibility and sales.
- Discounted shipping rates: Even though FBA has fees, the discounted shipping rates often make it a more cost-effective option than handling your own shipping and fulfillment.
- 24/7 customer support: FBA sellers have access to Amazon’s round-the-clock customer service.
- More storage space: FBA offers sellers access to Amazon’s vast network of warehouses, providing near-unlimited storage space for a fee.
- Multi-channel fulfillment: In addition to selling on Amazon, FBA lets sellers use Amazon’s fulfillment services for orders from other platforms like eBay, BigCommerce, and their own websites.
Cons
- Costly service: While FBA offers convenience, it comes at a price. Some sellers, especially those just starting, might find the fees too high.
- Ongoing inventory management: There are specific requirements that sellers must follow when preparing products for FBA, such as packaging, labeling, and shipping guidelines.
- Limited branding opportunities: Since Amazon handles the packing and shipping of your products, sellers have little control over branding on the packaging.
- Mixing of products: This can sometimes result in your products being mixed with lower-quality items from other sellers, potentially impacting customer perception.
- Increased returns: While Amazon now processes returns directly, meaning they don’t need to be shipped back to the fulfillment center, sellers still have to manage the return process, which may increase operational complexity.
What is Amazon FBM?
This can be done either directly by the seller or through a partnership with a third-party logistics provider. Unlike Fulfilled by Amazon (FBA), where products have Prime status and Amazon manages inventory storage and fulfillment, FBM requires the seller to handle everything—from inventory storage and shipping to returns and customer service.
With FBM, the merchant takes full control of the order process when their products are sold on Amazon. This can involve self-fulfillment or outsourcing the task to a fulfillment service.
Typically, new sellers on Amazon start with FBM, as FBA involves additional approvals and setup time, including requirements around inventory turnover. While smaller sellers may handle fulfillment on their own, larger businesses often rely on external logistics providers to manage the process.
Though FBM products do not carry the Prime badge, it can still be an attractive option for your business. Amazon, being such a massive marketplace, often places merchants in challenging situations by making unilateral decisions that impact sellers.
For example, in response to overwhelming order volumes, Amazon has previously removed Prime badges, delisted products, and even paused merchant support phone services, leaving sellers without assistance.
As a result, some FBA sellers have turned to FBM for more control and consistency in fulfilling their orders. FBM comes with certain fees, including:
- Monthly subscription fee: Sellers who subscribe to the Professional plan avoid additional fees on sold items.
- Referral fees: Depending on the category, referral fees range between 6% and 45%, with a detailed table available on Amazon’s site.
- Other fees: These may include high-volume listing fees, closing fees, rental book service fees, and refund administration fees.
FBM can offer more flexibility and control for sellers, even if it means forgoing the Prime status.
Pros and Cons of FBM
Let's look at the pros and cons in more detail:
Pros
- Lower Fees: Amazon FBA comes with a long list of fees that can add up quickly. In contrast, Fulfilled by Merchant (FBM) offers a more affordable structure, charging a monthly subscription, a small per-order fee, and a referral fee on each sale.
- Bypass rigid FBA requirements: Amazon’s FBA program is notorious for frequently changing its requirements, often with little notice, especially during the busy Q4 period. These changes can be burdensome for merchants to keep up with.
- Maintain more control: Using FBA can dilute your brand’s presence. With FBM, you regain control over fulfillment and customer service, ensuring that you provide the kind of experience and branding you want for your customers.
- Enjoy better support: Amazon’s support system is often difficult to navigate. If you switch to FBM, you have the option of working with a third-party fulfillment company that can offer faster, more personalized support.
Cons
- Learning curve: Amazon has mastered the art of fulfilling orders through FBA, so transitioning away from their seamless process can be challenging.
- No Amazon Prime badge: FBM sellers don’t have the advantage of the Prime badge, which often drives more sales.
- Time-consuming fulfillment: Managing your own FBM orders can become time-intensive, as you’ll be responsible for packing and shipping each order.
- Costs of outsourcing fulfillment: Choosing to outsource fulfillment can be expensive, especially if you have unsold inventory that takes up space in a warehouse.
FBA or FBM: Which is better for your business?
FBA provides benefits like enhanced SEO and better chances of winning the Buy Box, with the added bonus of automatic Prime eligibility. This hands-off approach to fulfillment and customer service is ideal for Amazon-exclusive sellers who want to focus more on selling. Additionally, Amazon’s MCF program allows sellers to fulfill orders from other sales channels for a fee.
While FBA offers valuable perks, it also comes with numerous fees. On the other hand, FBM provides sellers with more control and predictability over their inventory and fulfillment processes.
Merchants with strong logistics skills can use FBM to optimize their margins, and they have the advantage of managing customer service to deliver a more tailored experience. FBM sellers can also use the SFP program to gain Prime status, boosting their sales potential.
Although FBM doesn’t offer the same SEO and Buy Box advantages as FBA, it gives merchants more control—ideal for those willing to handle the extra responsibilities.
How ChannelEngine can help your business grow
Our tools seamlessly integrate with both Amazon FBA and FBM, streamlining operations for your business. Whether you rely on FBA for logistics or manage your own fulfillment with FBM, our platform allows you to oversee both methods effortlessly.
One of its standout features is the ability to manage multiple marketplaces from a single dashboard, syncing inventory in real-time. This ensures your stock levels are always up to date, reducing overselling and improving efficiency across all channels.
In addition, we simplify inventory management, making it easier to expand your online presence. If your brand prefers Amazon’s Multi-Channel Fulfillment (MCF), you'll be glad to know that we also support seamless integration there, further enhancing your ability to scale operations while maintaining control.
