The Amazon marketplace is the definition of freedom when it comes to e-commerce. This is seen in the array of well-thought-out programs and alternatives that have been made available for sellers on the platform. One of such is the Fulfillment by Amazon (FBA) and the Fulfillment by Merchant (FBM) programs. These are two alternatives that cater to the same need but how do you know which one of these is the best for your company. To answer this, you have to understand the technicalities and pricing that are attached to each of the programs, which will be covered in this article.
It is easy to decide to open an account on Amazon, list your products, set prices, and link your bank to receive the profit from sales. Beyond the sparkling pictures captured by high-definition cameras that are seen on the screen, the bulk of the work actually happens where the public hardly looks. It involves the handling, packaging, and shipping of the items to the customer. In this critical aspect of sales, Amazon has made it possible for merchants to use Amazon’s services, this is FBA. They also have the option to do it themselves or get another third-party company to handle these tasks under the FBM program. Let us look at the differences between these two programs and what it means for your business.
The term Fulfillment by Amazon comes from the idea of fulfilling the order that customers place. Therefore as a seller, if you are opting for this fulfillment to be done by Amazon using their fulfillment centers, this is the right program for you. Aside from the stocking and shipping services, Amazon will also take care of customer support services. It should go without saying that this will cost you a particular fee that is different from the referral fee or other fees applicable to the category of that product. If your business is the kind that has a high influx of orders that are not heavy items, this plan might be suitable for you.
The fulfillment by Merchant (FBM) program is meant for sellers that want to take charge of the process of order fulfillment. Opting for this program will indicate that you have the capacity to handle the logistics and technicalities attached to the process of getting your merchandise to your customer. As it has been mentioned, it could also mean that you would prefer another third party to handle the tasks for you. With this plan, Amazon is uninvolved in the cost of the shipping, stocking, and packaging of the items. This plan is ideal for sellers with large or heavy products.
The choice you eventually make regarding FBA and FBM goes a long way in determining your overhead cost. This is why it is important to weigh both options and consider what they will mean for your business before you decide on the approach to take. Below is a look at the pros and cons of each program.
Saves Time: Think about what it will take to arrange, label, wrap and box a particular product. That is not all. Now add the time it will take to ship that same product. If a company has decided to take that off your hands, it will be a wise way to conserve your time. You also won’t have to bother with tracking delivery with third-party apps as well because Amazon will take care of customer service.
Access to Prime Shipping: Prime Shipping can only be found on Amazon and allowing them to handle the fulfillment of your order gives your customer access to the benefit of this service. If they have an Amazon Prime subscription, they can enjoy 2-day shipping at no extra cost which would have to be expedited in a different scenario. This delivers extra satisfaction to your customers as it affords them to put their subscription to good use
Wider Reach: The best way to explain this is that Amazon has a way of rewarding members of its community that embraces all of its services. So there are clear indications that you are getting community approval in a way if you are using FBA. One of these is winning the coveted Buy Box which will give sales a boost. While there are other factors considered before you can appear in the Buy Box, using FBA will increase your chances. Remember, the whole point of signing up on Amazon is to take advantage of their large customer base. FBA helps you maximize opportunities to stand out from the competition.
Cost: A major disadvantage of the FBA is the cost attached to it. This is especially unhelpful if you deal in products that are heavy or large in size as they can make you cough up about $160 in some instances. Other fees such as monthly storage fees also apply when your product is kept in Amazon Fulfillment centers.
Lack of Control: With Amazon handling every point of the order fulfillment as well as customer service, some sellers that want to stay in touch with their customers might not be able to do so. You can’t decide what happens with the products or feedback at the point of delivery. For companies that are conscious about their brand impression, this could be a hard pill to swallow.
Tricky Guidelines: Before you can forward your product to Amazon facilities, there are guidelines that must be followed in order to facilitate successful delivery. This includes appropriate labeling and packaging. It will totally defeat the purpose of saving time if you have to go back and forth on the transfers of goods to Amazon centers due to unclear instructions about product preparation.
Saves Cost: When you have alternatives to the services Amazon provides with their Fulfillment By Amazon program, picking FBM can save you a couple of bucks that will boost your profit. This can include having an old garage or basement you can use as a warehouse or having access to a third party that is willing to offer shipping and packaging services at a lower price. Most of them are new companies that are trying to break into the market by offering competitive prices.
Gives Control: When your business has developed to a certain stage, your brand identity becomes a big deal that you don't want to compromise on. This involves branding your products with your logo and colors that set you apart from the competition. Choosing the FBM program will allow you to do this as you are fully in charge of the packaging, as well as the shipping. If there are any modifications you need to make that will enhance the customer experience, you can easily get information on this directly because you are in close contact with your customers.
It's Flexible: The prices on Amazon are charged per item and are non-negotiable. However, when you are handling shipping yourself, it is possible to negotiate a discount for items processed in bulk. If you stick with a third party that helps you ship long enough, you can also earn customer loyalty benefits. This can add up to reduce your overhead cost, which will ensure that you are maximizing your profit.
You Can Easily Overwork Yourself: As a business owner, there is always that tendency to be personally involved in every process of the business. If unchecked, this can lead to obsession over every point of sales and that is an easy way to burnout. Deciding to manage the shipping of your merchandise via FBM where you see everything happening to them can further encourage this habit, which is not a good way to spend your time.
Loss of Visibility on Amazon: Amazon is a competitive space with over 3 million sellers and a huge part of that number sell items in the same category. Choosing FBM means you will miss out on opportunities that will help your business stand out amidst the crowd in the marketplace. It's important to note that Amazon prioritizes the satisfaction of the customer so they will rank a merchant using FBA where they know what the delivery experience of the customer looks like compared to FBM.
Loss of Customers Using Amazon Prime: Regardless of its numerous perks, an Amazon Prime subscription comes at a cost. When you also consider the fact that Amazon recently increased both monthly and yearly fees, you can imagine subscribers would love to explore these benefits every chance they get. Unfortunately, when you choose FBM, you are blocking such customers from using the Amazon Prime perk of 2-day shipping. This can be off-putting for some customers leading to low sales.
Fees are a huge factor that differentiate FBA from FBM. While there are basic fees that are common to both programs, sellers that have opted for Amazon to take care of their shipping through the FBA program will incur additional fees.
Sellers on both programs have to pay this if they signed up for the Amazon Professional Account at the point of registration. This is a monthly fee of $39.99. Sellers on an Amazon Individual Account don’t pay this fee. Instead, they pay a $0.99 fee for each item sold.
This is the fee charged for every item sold. Every seller is charged this fee regardless of who is handling the shipping or the type of account. As long as you found the customer through Amazon, you will be charged this fee which usually ranges between 6% to 45% depending on the category of the product.
This is particularly relevant for sellers in the FBA program. A shipping fee is charged per item depending on the category as well as the weight. Other fees applicable to FBA sellers also include the storage fee that is charged for keeping your products safe. If you want to dispose of a particular product or if a particular product was returned by a customer, there is also a fee to be paid for those.
It might appear that FBA is out for money from your profit, but on close observation, certain factors make the program a better choice for sellers. Here are some major considerations to make that will help you decide:
How frequently do you receive orders?
If you have a high volume of orders coming in, it might be overkill to handle the shipping yourself. A better choice would be to allow Amazon to handle this with their larger human resources that will ensure your orders are properly delivered in due time. On the other hand, if you have a low volume of orders, you don’t want to keep your product in Amazon fulfillment centers for too long because of the storage fees. An FBM program might be better for you in that situation.
Do you sell heavy items?
If you do, FBM will be more economical as you try to find means to reduce the cost of shipping such items. If such an item is kept under the FBA program, you will be charged for extra weight as well as the space used by merchandise in Amazon fulfillment centers.
The best option out of the two depends on your type of business and the kind of products you deal in. While some businesses thrive using FBA, some find FBM to be more profitable. Another perspective that might be helpful is to combine both programs if you sell products in varying categories.