Fundamentally, there are a number of ways which can be used for selling on Amazon. The major ones are FBA vs FBM: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). Other include Vendor Central and Vendor Express. For a beginner, it is imperative to know the difference between the two major ways of selling online products; both having various benefits and drawbacks as well.
What is Fulfilment by Amazon?
In a Fulfilment by Amazon system, the products are stored in various FBA centers. The products are picked, packed, and then shipped by Amazon itself. It is very easy to understand how FBA works. Firstly, a seller has to specifically set up FBA in his account and then create optimized listings of products. After preparing, the products are then shipped to Amazon. Amazon will pick the product, pack it, and then ship it according to the requirements.
FBA vs FBM: Benefits of FBA:
- Eligibility on Amazon Prime – If you choose to ship your products through FBA, your products become automatically eligible and qualified for the Prime benefits on Amazon including the free two-shipping benefit on Amazon Prime, with an increasing chance to win the Buy Box as well. This allows you to associate your products with Amazon and sell off comparatively more inventory.
- Simplified fulfillment – With FBA, one can focus on managing other important business endeavors with out being overly concerned about fulfilling the orders. The overall process is simplified system of Hands-off packing and then shipping to the desired destination. Moreover, the inventory is safely stored in Amazon’s warehouses and you do not need to have thousands of units dispersed in your home or living space.
- Fulfillment by Multi-channels – This is considered to be an all-round service provision by Amazon as FBA can be integrated easily with other channels as well. Whenever products would sell on your website or other eCommerce platforms, Amazon will store your inventory and after picking and packing, it will send them to your customers. This makes FBA a tremendously fast and trusted shipping service, and you can easily save your time and focus on your business growth.
- Buy Box Benefits – Buy Box tool is used in order to lead customers on Amazon to your product listing. With a strong Call to Action (CTA), it includes the price, “Add to Cart” button and shipping information. Amid multiple sellers, one seller would “win” a Buy Box purchase, and the rest of the sellers can be found underneath the Buy Box. It holds massive importance as 82% of the buyers on Amazon prefer to buy through the Buy Box as opposed to the section of “Other Sellers”. Therefore, it is crucial for sellers to win this Buy Box as it greatly increases the likelihood to get the purchases. Various factors such as customer response timing, defect rate, and seller rating etc., play an important role in determining who wins the Buy Box. However, the biggest factor is considered to be the overall method of fulfillment, as the ones selling on FBA have a much greater chance of winning a Buy Box even with relatively higher prices than FBM.
- Lesser rates of Shipping – As Amazon is considered as the world’s biggest online retailer, it provides seller with a plethora of shipping discounts. And the depending on the weight and size, the overall fee related to the FBA selling is also low as compared to fulfilling orders yourself. For example, in order to ship a toaster weighing 4 pounds to New York from San Francisco through the USPS, the cost would be over $20, and it would take 2 day. However, with Amazon, the entire process is taken care off and Amazon handles the shipment from its warehouses at cheap rates.
FBA vs FBM: FBA Disadvantages:
- Additional fees – One of the major drawbacks of FBA is the additional fees for fulfillment that is charged including the closing fee, inventory storage monthly fee, and the fee for handling of orders. However, this imposition of an additional fee depends upon the overall category of the product. Further, one also needs to consider the shipping cost of the product the fulfillment centers of Amazon. Moreover, one can also be charged with a Q4 or long-term fee for storage.
- Less Inventory Access – Another drawback associated with the FBA is the limited access of the seller to his inventory. Furthermore, one can also face issues tracking the inventory as there is almost no stake of the seller in the process. In case of any issues related to inventory, you must be willing to rely on Amazon or wait for it to be shipped backed to you.
- Taxes and Obligations – In order for Amazon to collect the taxes on purchases, the different state tax registration numbers have to provided. It is important to note that this process is not automatic, and sellers have to understand their obligations when it comes to tax collection in an accurate manner. Sellers can first enable the sales tax collection on Amazon through the Seller Central’s Tax Settings. After this, the inventory would be stored in various warehouses in different states, and the seller has to create a sales tax nexus by providing tax registration numbers for each state and then collect tax from the buyers living in that state.
- Preparing and Labelling products – The last major issue faced by sellers using FBA is the process of preparing and labeling products, specially for the ones who are new to the system. It is important for Amazon shipping process that the sellers have correctly labeled the items which are them picked up from the inventory of Amazon to be shipped to the customers. One can also use the Amazon Barcodes to identify their products however this also comes with conditions that only eligible products are allowed to have the barcodes and that to with a per-item fee known as the FBA Label Service.
What is Fulfillment by Merchant on Amazon?
Another major fulfilling method on Amazon is Fulfillment by Merchant (FBM). In this process, the seller has to manage and handle almost everything including the listing of products, storage handling, and all other aspects of fulfillment on Amazon. In order to understand the working of this process, we have carried out a strong analysis for you to read and get a sound understanding of the overall technicalities associated with this process. In simple terms, we can say that FBM requires you to first create listings for your products. Then you have to store the products, pack and ship them to buyers on Amazon. All responsibilities for any damaged arrivals, missing, or late arrivals.
FBM Benefits on Amazon:
- Manual fulfillment – By using the Fulfillment by Merchant process in FBA vs FBM, sellers tend to have more access and control over the inventory, which according to many sellers is a benefit. This allows you to store, pack and then ship the products by yourself, whenever you need to. As a result, more ownership of the fulfillment process is handed over to the sellers.
- Lesser fees on Amazon – Using the process of FBM, you can easily avoid paying the storage and fulfillment fee which was considered to be compulsory on FBA. However, you will still have to pay the various referral fee and the closing fees.
- Slightly higher margins – Another major benefit provided by the FBM process is that sellers can make more from each of their sales as lesser fees have to paid on fulfilling of orders. However, this can lead to less sales, and can further worsen if you’re not on Prime as 50% of the buyers on Amazon are prime and mostly require prime items as they are annually paying for free-of-cost two-day shipping on Amazon.
FBA vs FBM: FBM Disadvantages:
- Increase in responsibility – After choosing FBM, one must be willing to handle all the responsibility which means to exclusively pack, ship, and manage the inventory. Some sellers might consider it as a benefit, but it can become an extremely excruciating task where the seller needs to be attentive to the Amazon account every day, even on holiday and weekdays. If anything goes wrong, the entire blame is on the seller and not on Amazon.
- Difficult to win Buy Box – As the process of fulfillment plays a major role in the determination of winning the buy box; therefore, the sellers using FBM face an immensely difficult time getting the Buy Box and then keeping it. For this purpose, the sellers using FBM would have to set lower prices in order to win the Buy Box.
- You’ll Miss out on Prime members – FBM process can lead to less sales and can further worsen if you’re not on Prime. This is primarily because 50% of the buyers on Amazon are prime and mostly require prime items as they are annually paying for free-of-cost two-day shipping on Amazon. However, one can enroll in the Seller-Fulfilled Prime, which is realistically a very difficult and comprehensive task.
Analysis by WhatSales
In the quest to discover which fulfillment process is the best for the customers, MangoLabz has provided you with an effective overview of both the processes. Further our analysis regarding both these fulfillment processes is that:
- Fulfillment by Amazon is considered to be a good option if you are selling
a high-volume product or a product that has big margins. You can choose this method
if you are a seller willing to lessen, in needed, the selling prices to the
lowest profit points possible.
- Fulfillment by Merchant is suitable for the smaller margin products. For such products, it is better for the sellers to have sufficient access and control over the process of fulfillment in order to save the small margins.
In the end, there is no hard and fast rule that can be used to choose between FBM and FBA, and it’s totally up to the needs of your business. If you are still unsure about the process, you contact our team anytime. We will be happy to help you through the processes without any cost. We have some of the best Amazon market research tools which can determine the suitability of your business with the fulfillment method and generate maximum profits.