Fulfillment by Amazon vs. Fulfillment by Merchant: Advantages & Disadvantages

What eCommerce Sellers Should Know about Amazon FBA

When selling on Amazon, you have two main options for Sales Fulfillment: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). But how do you know which fulfillment path best suits you – and your customers’ needs?

At Algopix, we want to help you make an informed decision about your fulfillment, so we’ve decided to cover the main advantages and disadvantages of these two main fulfillment options.

Differences Between Fulfillment by Amazon & Fulfillment by Merchant

Fulfillment by Amazon (FBA)

In Amazon’s FBA program, sellers pay a fee to store their inventory in Amazon warehouses – and Amazon takes care of all the rest: product selection, packing, shipping and returns, in addition to customer service.

Advantages:

  • Convenience – Amazon does the heavy lifting for you, managing and shipping your inventory, so you can focus on other, more pressing business activities, instead of on technical logistics issues.
  • Access to a highly efficient shipping option – Amazon is a massive enterprise. As such, is shipping operations are streamlined for optimal efficiency. And, the service fees charged can often come out lower that standard shipping costs you’d have to pay if you’d be taking care of fulfillment on your own, so you also save money without ever lifting a finger.
  • Access to Prime customers – Amazon has roughly 95 million Prime customers, which you’ll be able to actively market to as an FBA user. This is particularly beneficial, as Prime customers love taking advantage of their fast shipping perks and therefore tend to buy more and spend more than other shoppers.
  • A better chance at winning the Buy Box over other sellers – Amazon tends to prioritize FBA users as Buy Box winners, even if the products are marketed slightly higher than those sold by the competition.

Disadvantages:

  • Cost – FBA is a paid service, and its cost can change (increase) from time to time. What’s more, inventory that doesn’t move off the shelves within six months is subject to an inventory management “penalty” fee, which may lead some sellers to think twice before signing up for FBA. To find out how much this option will cost you, Algopix has designed an FBA calculator. Click here to run your numbers, right now.
  • Less control over shipping – Selecting FBA as your fulfillment method means placing full trust in Amazon to seamlessly handle your inventory and customer support. This means less control for you, which some sellers are not so keen on.

Fulfillment by Merchant (FBM)

FBM refers to sellers shipping their own products to customers who order their items on Amazon. Shipments are made directly from the seller’s own home, office or warehouse. As such, it is up to the seller to locate all purchased items, pack and ship them, as well as handle any customer service calls and returns.

Advantages:

  • No Amazon fulfillment fees – Pay for what you ship, and nothing else.
  • Enables greater control and personalization – When fulfilling sales on your own, you can custom package your products to protect them – and minimize costs. That means more control over your products and branding, throughout the sales and delivery funnel.
  • Access to new Prime program – Though Amazon does require FBM sellers to adhere to higher Sales Fulfillment standards, they have recently launched a new program enabling third-party FBM sellers to enroll their products in their Seller Fulfilled Prime program, opening the doors to increased revenue streams.
  • Higher turn rates – Amazon has an add-on program that requires a minimum purchase of $25 on FBA items, before an add-on can be shipped. Using FBM is a great way to keep your turn rates up, while skirting Amazon add-on constraints.

Disadvantages:

  • You have to manage your inventory yourself – That means securing your own inventory storage facilities, as well as taking charge of your own shipping, handling, and customer service. These will cost you in time and money, so consider how much of both you have at your disposal.
  • Limited reach/marketing potential – With FBM, you’ll have a harder time winning the Buy Box and securing Prime customers, which means you’ll have to work extra hard on your marketing strategy if you want to reach more customers and entice them to convert.

Conclusion

So, which sales fulfillment option is right for your business? The answer may vary according to your unique business model, the amount of available capital at your disposal, how well you can manage your inventory, and other relevant criteria. The best way to decide whether to select FBA or FBM is to balance the size, scope, needs and means of your business and determine whether investing more money or more manpower is the better business decision for you, right now. And Algopix can help you understand precisely that – and more.

Make The Most of It with Algopix

Whether you decide on FBA or FBM, having access to real-time product and market data is a huge advantage. Subscribe to Algopix for a FREE 7-day trial or one of our plans. Analyze products on a consistent basis, and select only high-demand and high-margin products for your listings.

Algopix provides all product info necessary for you to optimize your listing: descriptions, identifiers, dimensions and more. This will allow buyers to find your listings easier and faster!

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