Over two billion people used online services or purchased goods online in 2020, pushing e-retail over 4.2 trillion dollars globally. That same year, Amazon alone accounted for 386 billion dollars of this revenue, which increased to 470 billion in 2021 and only continues to grow.
What does this mean for you? It means that you have a lot of opportunities to take advantage of, and some decisions to make to optimize your Amazon-based business plan. Here we'll discuss what Amazon FBM is, how it works, and best practices.
One of the earlier decisions to make, and one you may have to readdress as you continue to advance, is how you are going to sell your merchandise. Amazon essentially gives you two options as a seller. The first is to have Amazon and its vast warehouses ship your orders on your behalf using the Fulfillment by Amazon (FBA) program. The one that we address here is the second option, taking ownership of the shipping process and using the Fulfillment by Merchant (FBM) program.
Most people that use Amazon as their marketplace use the FBA program, while about a third of sellers use the Amazon FBM program. You can also decide to use both methods, swapping methods between the various products in your store. Sometimes this is because it is easier to store certain products while others might need more space or a certain kind of storage facility.
FBM involves sellers listing their products on Amazon and then opting to ship the products once sold to each buyer through their means. They are responsible for the fulfillment of orders, which can give the seller more anonymity but take away from the convenience that comes from FBA shipping management.
Amazon's shipping option of Fulfilled by Merchant features a relatively self-explanatory name. It involves the merchant fulfilling any of their products once they sell on the Amazon platform. They can choose different ways of doing this, however. For example, they can opt for the entirety of the responsibility or you can opt for third party logistics, or 3PL, which involves another entity or company taking care of your fulfillment, neither you nor Amazon.
Typically, once you first begin as a seller on Amazon, the FBM option is the only one available to you. This is because any merchant that chooses to sell on Amazon has to go through a more elongated process to get registered for FBA. It will require a few approval processes, then the capacity to demonstrate a certain amount of inventory turnover. Quite frequently one of the more noticeable differences is the selling size of the merchant. Smaller sellers find it easier to satisfy the orders themselves. In contrast, large sellers require more logistical organization to fulfill orders and therefore often find it easier to use Fulfillment by Amazon.
To get FBM in place, there are only a couple of steps to getting yourself set up and ready to start selling and accurately managing the sales fulfillments.
Start selling products on Amazon by creating an account using Amazon Seller Central. This will be your central hub of control as an Amazon seller. You start by listing your products along with any information that could aid with the sale of each product. It is very valuable to use as much variety as possible, including plenty of imagery, videos if possible, and descriptive text.
Once you have your products listed and they have started to sell, you need to have your fulfillment center set up and ready to process. If you are a very small seller, you might only have a part of your house, shed, or garage dedicated to the storage and shipment of your products. A bigger seller might have multiple fulfillment centers that will allow you to better distribute your products strategically, allowing you to reduce your average shipping zone.
The biggest concern is ensuring that once you receive an order notification, you get the product shipped out on time. You will have established the possible delivery timeframes, so make sure that those are accurate. If you don't modify your own shipping and handling times to accurately manage customer expectations, Amazon will provide an estimated delivery time to customers on the checkout pages. It is then your responsibility to ensure the shipping lands within this timeframe.
The final aspect to ensure you consider is the return policy for your online store. You need to update your Amazon seller's account with the right instructions for the return of any products shipped by the Fulfilled by Merchant option. You need to use a return label with a valid return address in case of a dissatisfied customer.
The choice between FBM and FBA can be a challenging one to make. However, there are positive aspects of using FBM instead. It gives you as the seller more control over the entire fulfillment process. It gives you the freedom should you have the capacity to fulfill your orders promptly. You can decrease the length of your delivery time and have more say over the personalization of the orders should you decide to do so. This can lead to an increase in orders, or at least the avoidance of a drop in orders should something happen at the Amazon fulfillment centers that you don't have control over.
Amazon will always take a certain amount or fee per every order placed, while also charging you a monthly subscription fee and a referral fee on each order. Even though this might sound like quite a few fees, they are nominal compared to the fees charged when you use the FBA option.
The monthly subscription fee is only charged to those who want to use the Professional Seller FBM account on Amazon. It costs a total of $39.99 per month. Should you not want to subscribe, you fall into the 'Individual Seller' category and don't have to pay any subscription. The benefit of paying the monthly subscription? You then get to waive the additional fees once your products are sold, or the per-item selling fee.
For every item you sell on Amazon, you have to pay a $0.99 selling fee. This means that once you get more than 40 sales per month, you will offset the cost of the monthly subscription from the Professional Selling Plan.
The referral fees are charged by Amazon since you are not posting on your own site. Typically, the referral fee depends on the kind of product you sell. They can range anywhere from 6% to 45% of the product sale. There is a referral fee table on Amazon's website should you want to see the fees charged for each of the product types.
Beyond these three fees charged by Amazon, don't forget to factor in the fees involved with maintaining your fulfillment centers. There is also the price of either keeping a team of people working on your fulfillment or the time it will take you to take care of this part of the business.
The choice to take the FBM route is not always a straightforward one. The truth is that there is no 'one size fits all' status quo. Regardless of your size, if you have your own fulfillment strategy or choose instead to go with a 3PL fulfillment option. There are certain reasons that you might decide to go with Amazon FBM instead of FBA.
For the most part, it is better to choose FBM if you sell:
If you have a third-party fulfillment service that charges less than you would have to spend on Amazon FBA then you will almost always want to stay with them. You might also choose FBM if you sell handmade products in your inventory, particularly if they are at all fragile or are better with a personalized touch to the packaging.
There are hundreds of thousands of sellers and each one of them has a slightly different array of products and fulfillment needs. That means some positives and negatives can be quite subjective, so consider how each one of them applies to your specific situation before making the choice. Also, remember that it is not your final choice. You can go back and forth between these to a certain extent should you need to, or if your business changes as you continue to progress.
It comes down to the choice between having more control or more convenience. When you use Amazon FBM, you gain more control and insight over the products you sell. However, it takes extra time and money to store, package, and ship these items. Amazon FBA conveniently takes care of all of this for you, but not without costs and inconveniences should any policies change internally.
There is no cookie-cutter solution to the way the fulfillment portion of your e-commerce business will work. Instead, you need to assess where you are now and compare that to your goals for the future. What kind of products do you sell and what capacity and budget do you have? All these answers will help point you in the right direction and allow you to grow your online business through Amazon's ever-expanding platform.
At ePlaybooks we love to hear how we can grow your business and turbo-charge your revenue. We also offer a free Amazon report to see how much revenue you may be missing. Get in touch today and let us help you create an actionable plan for success.