Hey there! As a successful Amazon seller and FBA expert with over 10 years of experience, I know first-hand how crucial the FBA vs FBM decision is for ecommerce businesses on Amazon.
In this comprehensive guide, I‘ll clearly explain the key differences between Fulfillment by Amazon and Fulfillment by Merchant, so you can make the best choice for YOUR business. My goal is to provide tons of insider tips, data, and analysis to help you maximize sales and growth on Amazon.
Let‘s dive in!
FBA vs FBM: The Critical Choice Every Amazon Seller Faces
If you sell products on the Amazon Marketplace, fulfillment is one of the most important strategic decisions you‘ll make.
You have two main options:
Fulfillment by Amazon (FBA) – Amazon handles warehousing, packing, shipping, returns, etc
Fulfillment by Merchant (FBM) – You handle your own fulfillment operations and logistics
This choice will impact your:
- Cost structure
- Day-to-day workload
- Control over branding and customer experience
- Eligibility for Prime shipping
- Opportunities for sales growth
And ultimately, it will determine the scalability and profitability of your Amazon business.
So how do savvy Amazon sellers decide between FBA and FBM? Let‘s explore that now…
How FBA and FBM Work
Before weighing the pros and cons, it helps to clearly understand what each fulfillment method entails:
Fulfillment by Amazon (FBA)
With FBA, you ship your products in bulk to Amazon‘s warehouses (known as Fulfillment Centers). Then Amazon handles the entire order fulfillment process for you including:
- Receiving and storing inventory
- Picking products when orders come in
- Packing orders in Amazon boxes
- Shipping orders to customers via Amazon‘s carrier relationships
- Providing customer service and handling returns
Your responsibilities as the seller are to:
- Prepare and ship products to Amazon (following their strict labeling and packaging rules)
- Monitor inventory levels and restock as needed
- Review daily reports of orders, shipping confirmations, and refunds
- Respond to any feedback from Amazon about products or performance
- Pay Amazon‘s fulfillment fees
It’s a turnkey solution where Amazon serves as your end-to-end fulfillment department.
Fulfillment by Merchant (FBM)
With FBM, you handle the entire fulfillment process yourself including:
- Storing inventory in your own warehouse(s)
- Receiving orders and managing order processing
- Picking, packing, and shipping orders from your facility
- Providing customer service and support
- Accepting, managing, and refunding returns
You have full control over the entire chain from order to delivery.
So which method should you choose for your business? Let’s compare the pros and cons…
FBA Benefits: Why Top Sellers Use Fulfillment by Amazon
FBA offers some powerful benefits that enable rapid growth and operational efficiency for eligible Amazon sellers:
Prime eligibility – FBA products qualify for Prime 2-day shipping. Over 150 million members globally depend on Prime for speed and convenience.
Faster shipping – Amazon can get many products to customers quicker thanks to their extensive fulfillment infrastructure.
Boosted sales – FBA listings have an advantage when it comes to winning the Buy Box, leading to more sales.
Easier scaling – No warehouse space constraints so you can rapidly scale to meet demand without operational limits.
Reduced workload – Outsourcing fulfillment work saves a huge amount of time and effort around shipping, customer communication, returns, etc.
Access to data – Leverage FBA shipment and inventory data to gain insights and improve operations.
Broader reach – FBA enables your products to be sold on Amazon sites worldwide.
Common challenges – Amazon’s expertise helps ease pains like keeping stock in sync across multiple sales channels.
According to Jungle Scout, 96% of the top 1,000 Amazon sellers use FBA, likely for these reasons above.
For high-volume sellers, FBA provides the fulfillment infrastructure and Prime-eligibility needed to profitably scale up sales.
Potential Downsides and Risks of Amazon FBA
However, FBA isn’t necessarily right for every product, seller, or situation. There are some potential downsides to weigh:
Prep and labeling – Must properly prep and label products per Amazon’s requirements or shipments can be rejected.
Little customization – Can’t customize packaging, inserts, or branding since Amazon handles fulfillment.
Commingled inventory – FBA inventory with the same ASIN is commingled unless you apply FNSKU labels.
Long-term storage fees – Charged if products sit too long in FBA warehouses taking up space.
FBA product restrictions – Certain sizes, weights, types (hazmat, etc.) may be prohibited or require approval.
Account suspensions – Violations of Amazon’s terms or issues at fulfillment centers can result in suspensions.
Fees – Amazon charges fees for storage space, shipping, item handling, and more which eat into margins.
Inflexible returns – Can be difficult to prevent fraudulent or unreasonable returns.
Little control – Once shipped to Amazon, no visibility into inventory or ability to adjust fulfillment.
For many sellers, the benefits outweigh the downsides. But it’s smart to go in with eyes wide open to the risks and true costs.
Benefits of Handling Your Own Fulfillment (FBM)
Fulfilling orders yourself does require more work. But for some sellers, the benefits are compelling:
Lower fees – Pay only Amazon referral fees since you handle fulfillment costs.
Custom packaging – Design branded packaging and include customized inserts or marketing materials.
Control – You own the full customer experience including order processing, shipping speed, branding, service, etc.
Fewer restrictions – Can sell wider range of products without Amazon’s limits on size, type, etc.
Tax advantages – Keeping inventory at your own facilities may provide tax benefits.
No prep work – Avoid Amazon‘s strict labeling and prep requirements to simplify processing.
Flexibility – Bundling products, combining orders, or making process adjustments is easier.
Deeper data – Direct access to all customer and order data, not just what Amazon provides.
For sellers of specialty, customized, or fragile items, FBM allows maximum control over the buying experience and logistics.
Potential Pitfalls to Look Out for with FBM
Handling your own fulfilling also comes with a few risks to prepare for:
Prime eligibility – No 2-day Prime shipping unless approved for Amazon Seller Fulfilled Prime.
Slower shipping – Hard to compete with Amazon‘s fast, low-cost shipping through mass volume discounts.
Labor-intensive – Lots of staffing required to handle all fulfillment operations smoothly as you scale.
Customer service – Managing customer issues, complaints and returns yourself can be time-consuming.
Limitedscaling – Your warehouse size and staffing will constrain ability to handle surges in order volume.
No international – FBM limits you to Amazon’s domestic sites only. No international product listings.
Inventory risks – Issues like commingling can still happen if you’re not carefully managing FBM inventory.
Often the added workload, infrastructure requirements, and lack of Prime make effective FBM challenging at scale.
Key Questions to Decide: FBA vs FBM
So how do you determine which is the right fulfillment method for your specific business? Here are some key questions to think through:
What are your sales volumes?
- Lower volumes (<1,000 units/month) – Leaning towards FBM is reasonable to avoid FBA fees eating into margins. You can likely handle fulfillment in-house.
- Medium volumes (1,000-10,000 units/month) – FBA becomes more appealing to enable faster shipping and Prime eligibility. But evaluate fees vs. your FBM costs.
- High volumes (10,000+ units/month) – FBA is almost essential to provide fulfillment capacity and Prime shipping at these sales levels.
What types of products are you selling?
- FBA-friendly products – Small, non-hazmat products that fit Amazon‘s requirements work well with FBA.
- Specialty/customized products – Items requiring special handling or custom packaging are better suited for FBM.
- Oversized/heavy products – Due to size or shipping costs, these often make more sense for merchant fulfillment.
What are your growth ambitions?
- Maximizing sales – If your main goal is to tap into Prime members and boost sales, FBA is likely the best approach.
- Brand control – If you prioritize branded packaging and customized inserts, FBM provides the control needed.
- Global expansion – For multi-channel sellers, FBA enables global opportunities and unified inventory management.
Your strategy here helps determine if FBA‘s benefits outweigh the downsides for your particular situation.
Hybrid Model: The Best of Both Worlds
One popular approach used by many larger sellers is a hybrid FBA/FBM model where:
- High-volume products use FBA – To reduce fees and maximize Prime sales
- Specialized/custom products use FBM – To maintain control over packaging and experience
This allows you to enjoy the size and selection benefits of FBA while also providing customized branded experiences where needed.
According to Jungle Scout, 75% of the top Amazon sellers leverage a hybrid approach.
The keys to hybrid success are:
- Careful upfront planning of which products use FBA vs FBM
- Tight coordination so inventory is synced across fulfillment channels
- Ongoing performance measurement to optimize split over time
Done right, a hybrid approach gives sellers the best of both worlds – sales volume and control.
Changes to Consider as You Scale Up
One tip as you evaluate FBA vs FBM options:
It’s smart to think through how you may need to shift strategies over time as your sales volume increases.
Many sellers start out small using FBM due to lower costs and simplicity. This works well initially.
But as order volumes grow into the thousands per month, lack of Prime eligibility and logistical challenges make FBA more attractive. Plus Amazon incentivizes FBA adoption by top sellers.
The key is to stay flexible and adjust fulfillment strategies over time as your business scales up. Don’t lock yourself into one approach if the context shifts.
Making the Final FBA vs FBM Fulfillment Decision
As you can see, there are compelling benefits to both FBA and FBM fulfillment, along with some limitations.
Every successful seller needs to weigh the pros and cons for their specific situation to land on the right approach.
Here are a few final tips as you evaluate options and make your fulfillment decisions:
- Crunch the numbers – Create projections of both fulfillment cost models using your expected sales, products, and operations.
- Tap seller networks – Ask other experienced sellers about their own reasoning around fulfillment choices to learn from their journeys.
- Start small if needed – Many sellers pilot FBA with a handful of products to test it out before expanding. FBM also allows small-scale starts.
- Build flexibility – Structure processes, inventory, and operations to make adjusting between FBA and FBM easier as you scale.
- Think long-term – Keep the big picture in mind around your growth plans and capabilities when choosing between FBA vs FBM.
With the right strategic fulfillment approach, you can set your Amazon business up for sustained success as you expand your customer base.
I hope this comprehensive guide provides tons of helpful insider context as you evaluate using FBA, FBM, or a hybrid approach! Please reach out if any other fulfillment questions come up. I‘m always happy to help fellow sellers.