Amazon FBA vs. FBM: What’s the Difference?

As an Amazon seller, one of the most crucial decisions you'll make is choosing the right fulfillment method for your products. This choice can significantly impact your business's profitability, efficiency, and growth potential.

In this comprehensive guide, we'll explore the two primary fulfillment options Amazon offers

1. Fulfillment by Amazon (FBA)
2. Fulfillment by Merchant (FBM)

We'll dive deep into their differences, pros and cons, and help you determine which method might be best for your business.

What is Amazon FBA?

Fulfillment by Amazon (FBA) is a service where Amazon takes care of storing, packing, and shipping your products to customers. When you choose FBA, you send your inventory to Amazon's fulfillment centers, and they handle the rest.

How FBA works

1. You send your products to Amazon's fulfillment centers.
2. Amazon stores your inventory in their warehouses.
3. When a customer places an order, Amazon picks, packs, and ships the product.
4. Amazon handles customer service and returns for these orders.

Key features and benefits of FBA

• Automatic Prime eligibility for your products
• Amazon handles storage, shipping, and customer service
• Potential for higher search rankings and increased sales
• Access to Amazon's vast fulfillment network and expertise

What is Amazon FBM?

Fulfillment by Merchant (FBM), also known as Merchant Fulfilled Network (MFN), is when you, the seller, handle all aspects of storage, packing, and shipping orders to customers.

How FBM works

1. You list your products on Amazon's marketplace.
2. When a customer places an order, you receive a notification.
3. You pick, pack, and ship the order directly to the customer.
4. You handle customer service and returns for these orders.

Key features and benefits of FBM

• Complete control over inventory and shipping processes
• No Amazon storage fees
• Ability to offer unique or customized products
• Direct communication with customers

Comparing FBA and FBM

To help you make an informed decision, let's compare FBA and FBM across several key factors:

1. Costs

FBA fees vs. FBM expenses

FBA involves several fees, including fulfillment fees, storage fees, and optional services. These fees can add up, especially for larger or slower-moving items. However, FBA can be cost-effective for small, fast-selling products due to Amazon's economies of scale.

FBM, on the other hand, requires you to cover all shipping and handling costs. While this might seem cheaper at first, you'll need to factor in the time and resources required to manage fulfillment yourself.

Storage fees

FBA charges storage fees based on the space your inventory occupies in Amazon's warehouses. These fees increase during peak seasons (October to December). With FBM, you're responsible for your own storage costs, which can be lower if you have efficient storage solutions.

Shipping costs

FBA leverages Amazon's negotiated shipping rates, which are often lower than what individual sellers can obtain. FBM sellers must negotiate their own shipping rates or use standard carrier pricing, which can be more expensive, especially for expedited shipping.

2. Control and flexibility

Inventory management

FBM offers more control over your inventory. You can easily track stock levels, make quick adjustments, and avoid stockouts. With FBA, while Amazon provides inventory reports, you have less direct control and may face challenges with inventory forecasting.

Shipping options

FBA handles all shipping, including expedited options for Prime members. FBM sellers have more flexibility in choosing shipping carriers and methods but must manage these options themselves.

Customer service

FBA includes Amazon's customer service for your products, which can be a significant time-saver. FBM requires you to handle all customer inquiries, which allows for more personalized service but demands more of your time and resources.

3. Prime eligibility

FBA automatic Prime eligibility

All FBA products are automatically eligible for Amazon Prime, which can significantly boost your visibility and sales potential. Prime members often prefer to purchase Prime-eligible items for fast, free shipping.

Seller Fulfilled Prime for FBM

FBM sellers can qualify for Seller Fulfilled Prime, but it requires meeting strict performance metrics and offering free two-day shipping. This can be challenging and costly for many sellers to maintain.

4. Buy Box advantage

FBA's edge in winning the Buy Box

Amazon's algorithm favors FBA listings when determining Buy Box winners. This is because Amazon can guarantee fast shipping and reliable customer service for FBA products.

Strategies for FBM sellers to compete

FBM sellers can improve their chances of winning the Buy Box by maintaining excellent seller metrics, competitive pricing, and fast shipping times. However, it's generally more challenging for FBM listings to win the Buy Box against FBA competitors.

5. Time investment

FBA's time-saving benefits

FBA can save sellers significant time by handling storage, packing, shipping, and customer service. This allows you to focus on other aspects of your business, such as product sourcing and marketing.

Time required for FBM operations

FBM requires more hands-on time for managing inventory, processing orders, packing and shipping products, and handling customer service. This can be manageable for small operations but becomes more challenging as your business grows.

6. Scalability

FBA's ability to handle growth

FBA is designed to scale with your business. As your sales increase, Amazon can handle higher order volumes without you needing to invest in additional infrastructure or staff.

Challenges of scaling with FBM

Scaling an FBM operation often requires significant investments in warehouse space, staff, and logistics systems. This can be a barrier to growth for some businesses.

Pros and cons

FBA

Pros

• Automatic Prime eligibility
• Hands-off fulfillment process
• Potential for higher search rankings
• Access to Amazon's fulfillment network
• Easier to scale

Cons

• Higher fees, especially for larger items
• Less control over inventory
• Potential for long-term storage fees
• Commingling of inventory (if opted in)

FBM

Pros

• More control over inventory and shipping
• No Amazon storage fees
• Ability to offer unique or customized products
• Direct customer communication
• Potentially higher profit margins on some items

Cons

• More time-intensive
• Harder to compete for the Buy Box
• Challenging to offer Prime-level shipping speeds
• Requires investment in infrastructure as you scale

Which method is best for different types of sellers?

New sellers

FBA can be an excellent choice for new sellers as it simplifies operations and provides access to Prime customers. However, FBM might be better if you're starting with a limited budget or unique products.

Established businesses

Established businesses might benefit from a hybrid approach, using FBA for fast-moving items and FBM for slower-moving or higher-margin products.

Product-specific considerations

• Large, heavy items: Often better suited for FBM due to high FBA fees
• Small, lightweight items: Usually more profitable with FBA
• Seasonal products: Consider FBM or use FBA with careful inventory management
• High-value items: FBM might be preferable to maintain control and reduce fees

Hybrid approach: Using both FBA and FBM

Many successful Amazon sellers use a combination of FBA and FBM to maximize their profits and flexibility.

This approach allows you to:

• Use FBA for fast-moving, Prime-eligible products
• Use FBM for slower-moving, unique, or high-margin items
• Switch between methods based on seasonality or changing market conditions

When to use each method in a hybrid approach

• Use FBA during peak seasons to handle high order volumes
• Use FBM for products with uncertain demand to avoid storage fees
• Test new products with FBM before committing to FBA

How to choose between FBA and FBM

To make the best decision for your business, consider the following factors:

1. Product characteristics (size, weight, price, turnover rate)
2. Your available time and resources
3. Desired profit margins
4. Importance of Prime eligibility for your products
5. Your ability to provide fast, reliable shipping
6. Long-term business goals and scalability needs

Using Amazon's FBA calculator

Amazon provides an FBA calculator that can help you compare the costs of FBA vs. FBM for your specific products. This tool takes into account factors like product dimensions, weight, and price to estimate your potential profits under each fulfillment method.

Future trends in Amazon fulfillment

Evolving FBA policies

Amazon continually updates its FBA policies to optimize its fulfillment network. Recent trends include stricter inventory performance requirements and the introduction of new fee structures. Sellers should stay informed about these changes to adapt their strategies accordingly.

Technological advancements

Advancements in automation and AI are likely to impact both FBA and FBM operations. For FBA, this could mean more efficient warehousing and faster shipping times. FBM sellers might benefit from new tools for inventory management and order processing, making it easier to compete with FBA's efficiency.

The bottom line

Choosing between Amazon FBA and FBM is a crucial decision that can significantly impact your business's success on the platform. FBA offers convenience, Prime eligibility, and scalability but comes with higher fees and less control. FBM provides more control and potentially higher margins but requires more time and resources to manage.

The best choice depends on your specific business needs, products, and goals. Many successful sellers use a hybrid approach, leveraging the strengths of both methods. 

Whichever method you choose, focus on providing excellent customer service, maintaining competitive prices, and continuously optimizing your operations to succeed on Amazon's marketplace. 📦