Amazon FBA vs. FBM: Which is the best option for sellers?

As you know, Amazon is an online marketplace that allows buyers to find their desired products from different sellers all over the globe. Thousands of sellers have their products listed on Amazon’s website with nearly 300 million customers and if you're new to selling on Amazon, setting up your inventory is one of the most important parts of getting started. Amazon sellers fulfill millions of orders every day, and a disproportionate number of those orders are fulfilled by Amazon or either by their sellers.

When it comes to Amazon Shipment Plan, there are two main options for sellers. The first is Amazon Fulfillment by Amazon (FBA) and the second is Amazon Fulfillment by Merchant (FBM). When starting on Amazon, most new sellers opt for the FBA route as it’s quick to set up and gives them access to several benefits. However, selling via FBA isn’t the only option available. Many sellers choose to sell using an FBM account instead. In fact, since 2012, Amazon has been actively encouraging sellers to use FBM services over FBA.

In this guide, we'll walk you through which Amazon shipment plan is the best to select for your inventory, so you can start making sales as soon as possible!

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What’s the difference between Amazon FBA and FBM?

Each option has its pros and cons, so let's break them down to see What’s the difference between Amazon FBA and FBM?

• Fulfillment by Amazon (FBA): It is a program that allows sellers to send their products to Amazon warehouses and let Amazon handle the order fulfillment process. It offers sellers the opportunity to ship their products to Amazon warehouse, where Businesses that sell on Amazon may find themselves asking, "How can I fill my inventory more efficiently where they can be stored, managed and shipped with speed and precision?“
• Fulfillment by Merchant (FBM): FBM is the other option of Amazon shipment plan where sellers decide to ship their product directly to their customers. Sellers can handle the tasks of picking, packing, and shipping orders, along with managing inventory storage and processing returns autonomously. Alternatively, they have the option to use third-party logistics providers services instead of relying on the FBA.

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Pros & Cons of Amazon FBA

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Pros of FBA

Let’s begin with the pros of allowing Amazon to ship it for you.

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Easy Shipping

When you use Fulfillment by Amazon (FBA), Amazon takes care of all the shipping tasks for you. This includes picking, packing, and delivering your products to customers. You don't have to worry about finding packaging materials, calculating shipping costs, or making trips to the post office. Amazon's efficient shipping system ensures that your orders are fulfilled quickly and accurately, which can lead to higher customer satisfaction and repeat business.

Additionally, FBA allows you to take advantage of Amazon's extensive network of fulfillment centers. This means your products can be stored in multiple locations across the country, which reduced shipping times and costs for your customers.

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Hassle-Free Returns

Returns are an inevitable part of selling online, but with FBA, Amazon handles the entire returns process for you. If a customer wants to return an item, they can do so through Amazon's website, and the returned item will be sent back to one of Amazon's fulfillment centers. Amazon then inspects the item and either returns it to your inventory or processes it as a refund, depending on its condition.

By outsourcing returns handling to Amazon, you can save time and avoid the headache of dealing with return requests and shipping logistics. This allows you to focus on growing your business and providing excellent customer service, knowing that Amazon has your back when it comes to returns.

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More Sales Potential

One of the biggest benefits of using FBA is the potential for increased sales. Prime-eligible products are more attractive to customers, as they qualify for free two-day shipping with Amazon Prime. This can lead to higher conversion rates and repeat purchases, as customers are more likely to choose products that offer fast and convenient shipping options.

Moreover, Amazon tends to prioritize Prime-eligible products in search results and promotions, giving your products greater visibility and exposure to potential customers. By selling through FBA, you can take advantage of Amazon's Prime program to reach a larger audience and drive more sales for your business.

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Cons of FBA

Some disadvantages to doing Fulfilled by Amazon are:

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Higher Fees

Choosing Amazon FBA means you'll have to pay higher fees. While some sellers are willing to pay this fee to avoid the hassle of packaging and shipping, it's important to consider how it impacts your bottom line. FBA fees can include storage fees, fulfillment fees, and additional charges for optional services like labeling and removal orders.  It's essential to factor in these fees when calculating your FBA profit margins.

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Risk of Loss or Damage

There's a risk that Amazon may lose or damage your items during the fulfillment process. While Amazon typically compensates sellers for the full value of lost or damaged items, it can still be a hassle to deal with these issues. Additionally, the process of filing claims and waiting for reimbursement can result in delays and disruptions to your business operations.

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Inventory Management Challenges

With FBA, it's crucial to stay on top of your inventory levels. If you run out of stock for too long, Amazon may penalize you, causing your sales rank to drop. This means you need to be vigilant about replenishing your inventory to avoid disruptions in sales and maintain your visibility on the platform.

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Pros & Cons of Amazon FBM

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Pros of FBM

Some benefits to doing Fulfilled by Merchants are:

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Cost Savings

One significant advantage of FBM is that you don't have to pay the fees associated with Amazon FBA. While FBA may be worth the cost for some sellers due to the convenience it offers, if you're price-conscious, FBM can save you money. By handling shipping and packing yourself, you avoid the fees charged by Amazon for these services, making it a more economical option.

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Flexibility in Inventory Management

With FBM, you have more flexibility in managing your inventory. Unlike FBA, where you have to send all your products to Amazon's warehouse and estimate sales volumes in advance, FBM allows you to keep your inventory on hand and ship items as needed. This means you can adjust your stock levels more easily based on demand and avoid the risk of overstocking or understocking.

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Customization and Made-to-Order

FBM enables you to offer made-to-order items, which can be a significant advantage for sellers offering customizable or unique products. Instead of pre-creating inventory and sending it to Amazon's warehouse, you can wait until an order is placed before making the item. This allows for greater flexibility in product offerings and reduces the risk of excess inventory.

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Compete for the Amazon Buy Box

If you qualify for Amazon Seller Fulfilled Prime (SFP), you can compete for the Buy Box with FBA sellers even when using FBM. This can help increase your visibility and sales on the platform, as winning the Buy Box often leads to higher conversion rates and more sales. Being able to compete for the Buy Box gives FBM sellers a competitive edge and opens up opportunities for growth on Amazon.

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Cons of FBM

Some disadvantages to doing Fulfilled by Merchants are:

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No Prime Eligibility

One major drawback of Amazon FBM compared to FBA is the lack of Prime-eligible products. Without the Prime badge, your products may not attract customers who value fast, two-day shipping, which is a key benefit of Amazon Prime membership.

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Increased Time Investment

Managing your own FBM orders means you'll likely spend more time packing and shipping boxes. This hands-on approach to fulfillment can be time-consuming, especially as your business grows and order volumes increase. Sellers should be prepared to invest significant time and effort into the logistics of self-fulfillment.

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Warehouse Costs and Outsourcing Expenses

Warehousing costs can add up, whether you're storing inventory yourself or outsourcing to a third-party logistics provider. If your inventory sits for too long without selling, these costs can become burdensome. Additionally, outsourcing fulfillment can be expensive, particularly if you're not careful about inventory management and optimization. Sellers should carefully consider the financial implications of warehousing and outsourcing when deciding between FBM and FBA.

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‍FBA vs FBM, what's the Best Option for you?

Select the appropriate Amazon fulfillment method is a crucial decision for sellers aiming to optimize their operations and maximize their success. Sellers must carefully consider various factors to determine which method best aligns with their business goals, resources, and operational requirements. Let's explore the key considerations that can help sellers make an informed decision about which Amazon fulfillment method to use.

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Factors you need to Consider before Choosing

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Business Size and Scale‍

FBM is a good option if you’re operating in a niche category or have a huge supply of inventory. In this case, you ship out items individually when they’re ordered. In other cases, sellers  have to bear inventory limitations issues when they use FBA services. So FBA is ideal for sellers with small, light products that sell quickly. Amazon's efficient fee structure and shipping system allow sellers to focus on business growth.

We suggest you use the tool Fulfillment by Amazon Revenue Calculator to estimate the costs and compare different fulfillment methods, especially for sellers using FBA.

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Cost

FBM can be a more cost-effective option compared to FBA, especially for sellers who have their own warehouses or established logistics networks. By shipping products directly to customers from their own facilities, sellers can avoid paying Amazon's fulfillment fees.

FBA can put a lot of financial pressure on sellers. To begin with, sellers who choose FBA have to purchase products upfront and send them to Amazon warehouses in advance. This requires a significant amount of capital to ensure there's enough stock available. Additionally, Amazon's warehousing and delivery services aren't free. Sellers have to pay various fees, including storage fees, shipping costs, long-term storage fees, and fees for exceeding storage limits.

So calculate the potential expenses of each method, including storage fees, shipping costs, and labor expenses, to determine the most cost-effective option for your business.

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Control Over Inventory

Some sellers prefer to maintain control over their inventory. With FBM, sellers handle the entire fulfillment process, from storing inventory to shipping orders and handling returns. Sellers have full control over inventory, delivery, and post-sales processes. For sellers engaged in multi-channel sales, FBM enables precise inventory management and refined control. Moreover, sellers retain absolute authority over the packaging of their products. This allows them to showcase their marketing creativity and promote the brands through packaging designs.

For FBA sellers, Amazon takes responsibility for picking, packing, and shipping orders to customers. This relieves sellers of the logistical burden and ensures fast and reliable delivery, often leveraging Amazon's extensive fulfillment network. Amazon also manages returns. Sellers can track return rates and manage customer satisfaction through the Amazon seller dashboard. While sellers don't have direct control over the packaging process after their products reach Amazon, they still play a role in ensuring their items are packaged appropriately before being sent to the fulfillment centers.

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Return and Turnover rates

In FBM, sellers handle returns directly and can instantly see the reasons for returns. This real-time visibility enables sellers to address customer concerns promptly and effectively, improving overall customer satisfaction.

In contrast, in FBA, returns are handled by Amazon. While sellers can see the quantity and types of returns, they do not have direct control over handling returns. Amazon typically processes returns and returns the products to inventory, but sellers may not immediately receive detailed information or be able to take appropriate actions to address specific return reasons.

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Traffic Acquisition

Sellers using FBA often enjoy higher search rankings and find it easier to attract organic traffic. Many customers expect fast delivery, and FBA ensures them timely shipping, which make it easier to secure the buy box. Consequently, FBA products are more likely to be chosen, leading to higher conversion rates and improved rankings. This makes it easier for top-ranking products to continue attracting traffic.

However, sellers using FBM are more passive in this regard. Their products don't meet Prime standards, putting them at a disadvantage when competing for the buy box. All in all, FBM sellers generally attract less traffic.

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Buyer Feedback and Experience

Sellers using FBA provide buyers with amazing logistics experiences, but they have less direct communication with customers. FBA sellers store and ship products through the Amazon platform, and Amazon handles all aspects of customer service, including inquiries, returns, and exchanges. At the end, FBA sellers have minimal direct communication with buyers and rely solely on the platform for buyer feedback.

On the other hand, FBM sellers can engage in direct communication with buyers, discuss various aspects such as product quality, shipping, and after-sales service. Sellers gain insight into buyer preferences and ideas, which can inspire business optimization. Additionally, direct communication allows sellers to better control sellers feedback rates.

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Conclusion

Many factors need to be considered when choosing your shipment plan like which one is the best for your needs or the product type, the market demand, shipping costs, storage facilities, etc. No matter what, you have to select between the two methods. You should count all factors to make the most out of this business as an Amazon seller.

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FAQ

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What is the difference between Amazon FBA and FBM?

Amazon FBA (Fulfillment by Amazon) involves sending your products to Amazon warehouses, where they handle order fulfillment. FBM (Fulfillment by Merchant) allows sellers to ship products directly to customers and manage the entire fulfillment process themselves.

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Can I fulfill multi-channel orders using FBA or FBM?

Yes, sellers can use FBA or FBM to fulfill orders from multiple sales channels, including Amazon, their own website, and other e-commerce platforms. However, coordinating inventory management and shipping logistics across multiple channels may require additional integration and coordination.

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‍Are there any restrictions on the types of products I can sell using FBA or FBM?

While Amazon has policies and guidelines for product listings, there are generally no specific restrictions on the types of products that can be sold using FBA or FBM. However, certain product categories may have additional requirements or restrictions, such as hazardous materials or restricted products.

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How does pricing differ between FBA and FBM?‍

Pricing for FBA and FBM can vary based on factors such as fulfillment fees, storage costs, shipping rates, and handling fees. FBA typically involves higher fees due to Amazon's fulfillment services, while FBM allows sellers to directly manage their fulfillment costs, potentially resulting in lower overall expenses.

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Xuan Xie