A key decision for Amazon sellers is whether to use Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM). This comprehensive guide examines the pros and cons of each approach to help businesses determine if FBA or FBM is better suited for their products and operations.
Table of Contents
What is Fulfillment by Amazon (FBA)?
With Fulfillment by Amazon (FBA), sellers ship inventory to Amazon’s fulfillment centers. Amazon handles storage, picking, packing, shipping, customer service, and returns when products sell.
Benefits of FBA:
- Access to Prime customers and faster shipping
- Reduced fulfillment workload for sellers
- Amazon’s logistics expertise powers efficient delivery
- Customer service and returns handled by Amazon
- Opportunity to scale easily using Amazon infrastructure
FBA offers significant fulfillment advantages but does come with fees and less control. We’ll break down costs and considerations in depth throughout this guide.
What is Fulfillment by Merchant (FBM)?
With Fulfillment by Merchant (FBM), the seller handles fulfillment themselves from their own facility.
Benefits of FBM:
- Seller maintains control over order process
- Potentially reduced costs by leveraging seller’s existing warehouse and staff
- Greater flexibility customizing packaging and inserts
- Items purchased from other channels can be integrated
- Ability to build delivery into branding
FBM places more workload on the seller but provides greater oversight and customization. We’ll explore the relative pros and cons ahead.
FBA vs FBM Key Differences
The two main approaches differ significantly:
| Factor | FBA | FBM |
|---|---|---|
| Fulfillment Work | Amazon handles | Seller responsibility |
| Shipping | Amazon ships | Seller ships directly |
| Warehousing | Amazon stores inventory | Seller stores in own facility |
| Prime Eligibility | Automatic | Only if meeting standards |
| Cost of Fulfillment | Amazon FBA fees | Internal warehouse and staff costs |
| Customer Service | Amazon CS handles issues | Seller responsible for support |
| Returns | Amazon processes | Seller processes themselves |
| Scaling Fulfillment | Easier to scale using Amazon’s infrastructure | Capacity limited to seller’s own facility and staff |
| Control and Customization | Less ability to customize processes | Full control and customization |
Weighing the tradeoffs requires fully understanding Amazon’s FBA fees compared to your own fulfillment costs and capabilities.
FBA Fees Overview
These are the main fees charged for Fulfillment by Amazon:
Order Fulfillment Fees
Pick and pack fees based on item size and weight. Typically $1 – $5 per unit.
Weight Handling Fees
For heavier products, fees range from $0.40-$1 per pound.
Storage Fees
Monthly fees based on cubic feet of inventory stored at Amazon fulfillment centers. Ranges from $0.69 – $2.40 per cubic foot.
Unplanned Service Fees
Issues like incorrect shipment prep, labeling problems etc incur unplanned service fees.
Other Possible Fees
Removal order, hazmat item, product disposal and return processing fees may apply case-by-case.
Amazon charges for each step in their fulfillment process. Planning inventory send-in strategically helps minimize costs.
FBA Fees Example Breakdown
Let’s break down FBA fees for a sample product:
- Nike Running Shoes
- 1 lb item
- Standard size tier
- Sells for $60
- Shipped to Amazon in batches of 200 pairs
Referral Fee (15% of $60) = $9 per sale
FBA Pick & Pack Fee = $1.50 per unit
FBA Weight Handling Fee = $0.60 per lb
Monthly Storage Fee = $0.69 per cubic foot
Calculations:
200 pairs x $9 referral fee = $1800
200 units x $1.50 pick & pack fee = $300
200 lbs x $0.60 per lb = $120
200 units x 0.2 cu ft per unit = 40 cu ft
40 cu ft x $0.69 per cu ft = $27.60 monthly storage fee
Total Sample FBA Fees: $2247.60
Plus any additional variable or promotional fees. Always calculate numbers precisely for your specific products.
Pros of Using FBA
Access to Prime Customers
FBA inventory is eligible for Prime shipping. Over 80% of Amazon customers are Prime members.
Faster Shipping
Amazon can get products to customers quicker using their fulfillment network.
Easier Scaling
No need to add own staff, facilities and equipment to support sales growth.
Lower Return Rates
Amazon handles returns – customers seem to return less when items shipped from Amazon fulfillment centers.
Better Customer Service
Amazon provides customer support based on detailed seller metrics.
More Sales Opportunities
Eligibility for “Buy Box”, sponsored product ads, Amazon business purchases.
Time Savings
Outsourcing fulfillment to Amazon saves significant time and overhead.
For high-volume sellers, FBA provides major advantages around Prime access, logistics and support.
Cons of Using FBA
Higher Referral Fees
Amazon charges an extra fulfillment fee for FBA on top of referral fees.
Loss of Control
Amazon controls shipping details, insertions, inconsistencies in service.
Costs Add Up
FBA fees for pick/pack, shipping, storage, returns eat into margins.
Commingling Risk
Inventory pooled with other sellers opens door for counterfeits or condition issues.
Simplified Packaging
Less control over unboxing experience and packaging design.
Complicated Returns
Amazon processes returns but seller notifies if discrepancies found.
Preparation Work
Proper labeling and prep for FBA takes considerable time.
While FBA solves fulfillment, sellers surrender control and pay extra fees.
Pros of Fulfillment by Merchant (FBM)
Lower Fees
Avoid FBA pick, pack, storage fees. Just pay referral fees.
Control over Packaging and Shipping
Customize boxes, inserts, shipping methods.
Inventory Flexibility
Mix Amazon and other channel inventory easily in your warehouse.
Keep Excess Inventory
Avoid FBA long-term storage fees. Keep at own facilities.
Complex Products
Fulfill challenging products yourself that FBA won’t handle.
Greater Oversight
Handle returns and issues personally with better understanding of reasons.
Personalization
Include thank you notes, contact info, branding to build connection.
FBM provides sellers more oversight and customization over customer experience.
Cons of Fulfillment by Merchant
Increased Workload
Managing entire fulfillment process requires resources and staff.
Slower Shipping
From own facility can’t match Amazon fulfillment speed.
Lower Prime Eligibility
Must meet performance standards for Prime qualification.
Harder Returns
Seller responsible for providing return labels and handling.
Reduced Sales Opportunities
No Buy Box, Amazon coupons or business purchasing without FBA.
More Issues
Owning entire customer experience opens more potential problems.
Greater Costs at Scale
Requiring more facilities and staff as sales grow.
Operating standalone logistics and support gets challenging with greater volume.
How to Decide Between FBA vs FBM
Choosing between FBA and FBM depends on:
Product characteristics – Size, weight, shelf life, value etc. Some categories like groceries perform better with FBM.
Sales volume – Once consistently selling over 100+ units daily, FBA advantages multiply.
Order processing workload – As order volume spikes, FBA efficiencies help avoid bottlenecks.
Seasonal fluctuations – FBA supports handling holiday or sales spikes seamlessly.
Amazon promotion plans – Getting ‘Buy Box’ and tapping Prime requires FBA.
Customer experience – If unboxing and customization are branding priorities, favor FBM.
Analyze your specific products, fulfillment capabilities, and business objectives to pick the best approach. Also consider combining both.
FBA vs FBM Cost Comparison
Price out fulfillment models by calculating:
FBA Costs
- FBA fees – storage, pick & pack, shipping
- Unplanned service fees
- Cost of acquiring shipment materials
- Labor for prep and shipment tasks
FBM Costs
- Warehouse space fees
- Staffing costs
- Fulfillment equipment and software
- Packaging materials and design
- Shipping labels and postage
Factor both direct fees and indirect labor and materials costs for a true comparison. Typically FBA scales cheaper while FBM offers greater control.
Hybrid FBA/FBM Approach
Rather than choosing one single model, many sellers effectively utilize a hybrid approach:
- Use FBM for heavier or more complex products where FBA fees would be prohibitive.
- Leverage FBA for fastest-moving products and times of peak demand.
- Shift inventory between FBA and own warehouse based on seasonality or promotions.
- Fulfill B2B or wholesale orders from own warehouse separately from Amazon consumer orders.
- Use own branding and unboxing for website sales while simpler packaging for Amazon.
Look for ways to strategically incorporate both models to capitalize on the advantages each offers.
Best Practices for New Amazon Sellers
For sellers just starting out on Amazon, focusing first on FBM can make sense:
- Lets you learn ropes of fulfillment without added complexities of FBA.
- Provides opportunity to establish branding and packaging.
- Minimizes upfront costs before validating sales.
- Lower volume makes doing everything in-house feasible.
Once sales grow consistently and fulfillment workload expands, transitioning to FBA or a hybrid model is advisable for most sellers.
Managing Shipping Costs on Amazon
Careful shipping cost management saves significantly:
Leverage Amazon discounted shipping
Use Amazon Partnered Carrier Program for rate discounts with UPS, FedEx, USPS.
Automate rate comparison
Tools like ShipStation automatically present least cost shipping option.
Optimize packaging
Fit items into smallest/lightest Amazon FBA categories.
Ship strategically
Send inventory to closest fulfillment center to minimize inbound costs.
Let Amazon handle returns
FBA items get heavily discounted return shipment rates.
Ship partial order separately
If item out of stock, ship balance separately to avoid oversized parcel fees.
Consolidate orders
Combine multiple orders going to the same address before shipment.
Careful attention to packaging strategies, fulfillment patterns and leveraging discounts reduces overall shipping costs.
Getting Approved for Amazon Prime
Merchant fulfilled items don’t automatically get Prime. To qualify:
- Maintain 1-day handling time
- Achieve on-time shipment rate above 98%
- Use Amazon partnered carriers
- Have low order defect and cancellation rates
- Provide Amazon shipping estimates
Monitor performance closely once enrolled to avoid Prime suspension. FBA items automatically qualify provided Amazon has inventory.
Prime eligibility opens faster shipping options that customers prefer.
Inventory Management for Amazon Sellers
Tight inventory control saves costs for both FBA and FBM:
- Use inventory management software to track multi-channel stock accurately.
- Set ideal reorder points and safety stock levels based on sales velocity and lead time.
- Review storage fee reports and long-term storage fees. Return slow sellers before fees accrue.
- Ship FBA inventory in waves aligning with promotions and forecasted demand.
- Eliminate excess stock through clearance sales or removal orders.
- Block overselling out-of-stock items to avoid refunds.
- Avoid stranded inventory trapped at Amazon if sales decrease.
Managing inventory strategically tailored to demand minimizes waste, storage fees and maximizes sales.
Customer Service for Amazon Sellers
Providing quality support is essential:
For FBM:
- Monitor emails and messages daily and respond promptly
- Resolve issues and take returns gracefully
- Seek feedback for improvement
For FBA:
- Amazon handles support but watch for product complaints
- Follow up if Amazon needs you to address issues
- Review seller ratings and feedback periodically
For both:
- Clearly display contact info in listings and packaging
- Provide self-service resources like FAQs
- Automate when possible to improve consistency
Despite whether FBA or FBM, customer service heavily impacts brand experience and loyalty.
Sales Tax Requirements for Amazon Sellers
Understanding sales tax obligations is important:
- Research nexus laws – physical or economic presence in states
- Register to collect sales tax wherever you have nexus
- Use tax calculation software to accurately charge rates
- File and remit collected sales tax to each state
- If FBA, Amazon collects and remits sales tax in participating states
- If FBM, seller responsible for all tax collection and remittance
Keeping up with evolving economic nexus and sales tax laws prevents non-compliance. FBA simplifies multi-state remittances.
Amazon Advertising for FBA vs FBM
Both FBA and FBM sellers can benefit from Amazon advertising:
FBA Specific Opportunities
- Advertise to top of search results for relevant keywords
- Bid on Buy Box placement for high visibility
- Sponsored Brand ads gain additional brand exposure
- Higher performing on relevance algorithms
FBM Considerations
- Ensure targets and budgets align to fulfillment capacity
- Increase bid amounts to overcome non-Prime placement
- Maximize on-site optimization for conversions from ads
- Supplement with external traffic sources
The extra visibility of FBA provides a boost for Amazon PPC. FBM sellers may have to work harder to convert ad traffic.
Pros and Cons of Multi-Channel Selling
In addition to Amazon, expanding sales to other channels has advantages:
Pros
- Diversify away from dependence on Amazon
- Expand customer reach through new audiences
- Own customer data and relationships
- Additional marketing capabilities like content, communities
- Higher profit margins selling direct
Cons
- Operational challenges managing multiple sales channels
- Increased costs maintaining separate infrastructure
- Difficult to match Amazon’s discovery and convenience
Evaluate if investment into multi-channel capabilities makes sense for long-term business goals.
Top Tips for New Amazon Sellers
Follow this checklist getting started on Amazon:
- Research optimal listing strategies for keywords, titles, branding
- Familiarize yourself with Amazon rules, restricted categories
- Organize accounting, inventory and shipping workflows
- Optimize packaging for cost-efficiency and branded unboxing
- Provide exceptional customer service exceeding expectations
- Leverage FBA for holiday sales then evaluate expanding usage
- Analyze reports frequently and respond to trends
- Promote listings through external channels to accelerate sales
- Focus on customer delight, reviews, and community for sustained growth
Laying the operational groundwork and emphasizing customer experience from day one positions new sellers for success on Amazon.
Key Takeaways: Amazon FBA vs FBM
- FBA optimizes for growth by leveraging Amazon’s infrastructure
- FBM maximizes control over customer experience
- Hybrid model balances pros and cons of both approaches
- Compare precise fulfillment costs before choosing approach
- Factor long-term business goals into decision criteria
- Tight inventory management and shipping optimization critical for both
- Provide stellar support and branded presentation regardless of approach
Analyze product characteristics, stage of business, and resources when selecting between the two fulfillment models.
Amazon FBA vs FBM FAQs
Does FBM affect your Amazon seller ranking?
Yes. Meeting Prime shipping standards and maintaining low defect rates affects metrics that factor into internal seller rating used for search visibility and feature eligibility.
Can you switch between FBA and FBM seasonally?
Yes. Many sellers use FBM for low seasons or mature products, then ramp up FBA for new releases or peak volume periods like holidays.
Do you pay FBA fees if an item doesn’t sell?
Yes. FBA charges monthly storage fees on unsold inventory. Long-term storage fees kick in after 6 months. Good inventory planning is key.
Can FBM items qualify for Amazon coupons and lightning deals?
No. Only FBA inventory is eligible to participate in coupons, business pricing and Amazon marketing promotions.
Does FBA or FBM have higher return rates?
FBA historically has lower return rates, likely because customers perceive items fulfilled by Amazon as less likely to have issues. Convenient returns also play a role.
What sells better on FBA vs FBM?
Top FBA categories are consumables, smaller items, quicker shipping items, and products benefitting from Prime eligibility. FBM suits heavier or more customized products.
Summary
Selling on Amazon forces many decisions, not least fulfillment methods. Use this comprehensive guide to weigh the tradeoffs of FBA versus FBM for your specific products and business needs. Implementing an optimal logistics strategy underpins health and growth on Amazon.
