Amazon FBA vs. Amazon FBM - A Full Comparison for Amazon Seller
We all want to make money. And during the pandemic, most of us would like to make money from the comfort of our home. A study state that Global retail eCommerce sales worldwide are expected to reach $4.8 trillion by 2021, a collective $3.914 trillion in eCommerce sales this year.
Selling on Amazon is a great way to start the game, with the right strategy, tools, and mindset, selling on Amazon can be made simple.
There are plenty of ways to sell on Amazon, including Fulfilled by Merchant (FBM) and Fulfilled by Amazon (FBA), Vendor Express, and Vendor Central. Today we'll go over the pros and cons of FBA and FBM, so you'll have a better understanding before you get on the eCommerce game.
What's Amazon FBA
With FBA, the seller stores products in Amazon's Fulfilment centers where Amazon will pick, pack, and ship those products to customers. It's literally " You sell it. We ship it" in Amazon's terms. FBA is already been set up in the seller's account. All you need to do is to create your product listings, prepare your products, build shipments, and ship your products to Amazon. Let Amazon pick, pack, and ship your items per customers’ orders.
1. Prime eligibility
Your products are automatically eligible for Amazon Prime free two-day shipping and other prime benefits such as free shipping and bigger chances to win the Buy Box
2. Hands-off fulfillment
You may now focus on other aspects of your business without worrying about fulfilling orders. Amazon will store your inventory in its warehouses and provides a simplified process of hands-off packing and shipping.
3. Winning Buy Box
The Buy Box is the CTA (Call to Action) that leads shoppers to purchase the product on the product listing. The buy box is found on the right-hand side of the product page, it contains the price, shipping info, seller, and an "add to cart" button. When there are multiple sellers are selling the same item, ONE seller will win a Buy Box. It's very crucial as studies show that Amazon shoppers buy a product through the Buy Box 82% of the time. Many factors are affecting if you can win a Buy Box or box, generally speaking, an FBA seller can set a slightly higher price than an FBM seller and still win the Buy Box.
4. Lower shipping rates
The fees associated with selling FBA will typically be smaller than the shipping cost you'd spend fulfilling the orders yourself. You may calculate the shipping fee via FBA Calculator and estimate the cost.
1. Additional fees
FBA fees include fulfillment fees, monthly inventory storage fees, closing fees, and order handling fees are no joke. They are varied depending on the product's category.
2. Limited access to inventory
As the products are in Amazon fulfillment centers, you'll have limited access to your inventory.
3. Tax obligations
Amazon does not automatically collect sales tax for the seller, to enable tax collection on purchases, you have to provide your state tax registration numbers for each state you want Amazon to collect tax for.
Each unit must be labeled so that the correct item can be picked up from Amazon's inventory and shipped to the customer.
4. Multi-channel fulfillment
If you choose to use FBA multi-channel fulfillment, for example, if you sell items through your own website via Shopify. You can store part or all of your inventory in an Amazon warehouse. Of course, you'll incur some additional, hefty fees.
FBM means Fulfilled by Merchant. With FBM, the seller lists the product on Amazon and handles storage and all aspects of order fulfillment. As a seller, you’ll set up an Amazon account. Create your product listings and store, pack, and ship the products as customers order them on Amazon. You’ll take responsibility for any late, missing, or damaged arrivals.
1. Fewer Amazon Fees
You'll skip out on paying the fulfillment fees and storage fees associated with selling FBA, yet you'll still incur referral fees and closing fees.
2. Hands-on fulfillment
You store, pack and ship products, so you can access your inventory whenever you need it.
3. Slightly higher margins
Because you're paying fewer fees without having Amazon fulfill the orders, you'll likely make slightly more on each sale.
1. Not automatically eligible for Prime
Even you can be Prime using Seller-fulfilled Prime, you'll have to constantly stay on top of your game to keep your seller metric clean.
2. Buy Box is harder to win
Fulfillment method is a major factor in determining who gets the buy box, FBM sellers may have to set a lower price to win the Buy Box.
3. Overhead costs
Including your own storage, fulfillment, and shipment expenses.
Which is better for me?
FBA is typically best for high volume, large margin products. This type of fulfillment is for sellers who are ready/willing to drop the selling price to the lowest possible profit point if need be.
FBM is generally good for smaller scale, small margins products or one-offs. Fulfilled by Merchant allows sellers to take control of the fulfillment process without crushing small margins.
More about FBA
The individual plan costs $0.99 per unit sold, the professional plan costs $39.00 per month no matter how many units you sell.
Amazon charges a referral fee for each item sold. The amount depends on the product category. Most referral fees are between 8% and 15%.
So, are you thinking about selling on Amazon? Make sure you do your research, so you don’t get into a bad product market. Happy selling!