FBM or Amazon FBA, which is better for my business?
For third party sellers on Amazon there are a handful of choices as to how you can sell and fulfill your products on the marketplace. Amazon FBA, Merchant Fulfilled or a hybrid of the two. Each has its own set of challenges as well as benefits. The goal of this article is to help you better understand each method and know what will be best for your business and bottom line.
Fulfilled by Merchant (FBM)
This is usually the most turn-key opportunity for any ecommerce business to quickly get get products on Amazon and start generating some revenue. Through this model, a product can be added to the Amazon catalog and offered to consumers just like any other item. The catch is that the item is stored and fulfilled in your own warehouse. This requires you to cover the pick, pack and shipment of each item as it comes in. Very similar to any website order. It is a quick and easy way to get access to millions of shoppers on Amazon while eliminating many of the added fees and costs to some of the other models.
What’s the downside?
The biggest downside to this model is that your products do not qualify for the coveted Prime badge or shipping. Because Amazon is not in control of the fulfillment process, they can not and will not allow their Prime badge to be on your products. This leads to significantly less traffic and in turn fewer sales. Consumers will always go for the Prime eligible products first so you are at a disadvantage in both search result placement as well as consumer preference
What is Seller Fulfilled Prime?
This is similar to the merchant fulfilled strategy but with the added bonus of getting the Prime badge on your products. In order to qualify, you have to prove to Amazon that you can fulfill orders fast enough and within the guidelines they set. Specifically, Amazon requires you to fulfill 50 trial orders with an on-time shipment rate of 99% and a cancellation rate no higher than 0.5%. Once that trial is over, you are automatically enrolled in the program.
So what’s the downside?
As a seller you are responsible for storing the items in your own warehouse or a 3 rd party fulfillment center that is not Amazon. These storage costs and overhead can be difficult for many smaller sellers to absorb. The guidelines and rules to maintain your spot in the program are stringent and you can easily lose the Prime badge with just a few bad orders. Most sellers struggle to profitably offer 2-day shipping anywhere in the US and therefore never make it past the trial orders.
What is Amazon FBA?
This is what makes Amazon famous with sellers and consumers. Studies show that customers prefer a product with the Prime badge significantly more. 2-day free shipping and access to millions of customers every day. Fulfillment by Amazon is a program in which sellers send their inventory into an Amazon fulfillment center to be stored, picked, packed and shipped to the end user. Amazon also provides customer service for all the orders and handles returns or replacements. As a member of the FBA program you qualify for optional services and tools that help you expand your reach and grow your business. This is ideal for any size business but has become more and more popular in recent years with small to mid size businesses. This is due to the fact that a company can get by without needing their own warehouse, fulfillment team or even customer support.
So what’s the catch?
Fulfillment by Amazon or FBA has its own set of fees that sellers need to be prepared for. With Amazon handling all the storage, packing and shipping of your goods, they charge an FBA fee that varies based on weight and dimensions of your item. Some sellers find it difficult to fund enough inventory to have products sitting in an Amazon warehouse. Others struggle to understand the complexity of navigating the ever changing rules, regulations and nuances of the marketplace.
In the end it comes down to weighing all the factors and making the right choice for your business and products. In our experience, most everyone is best suited for Amazon FBA simply due to the fact that you will not see as much traffic and revenue without it. Consumers have been programmed to look for and buy items with that Prime badge. If you want to learn more about any of these programs or how you can launch a profitable campaign on Amazon, feel free to reach out to us