In the early days of the online economy, Amazon was just an e-commerce site. Today, it's an e-commerce platform, a cloud hosting provider, a film producer, a games platform, and so much more. It's also a worldwide network of warehouses and a high volume fulfillment service you can plug into.
What is Fulfillment by Amazon (FBA)?
Fulfillment by Amazon is a subscription service Amazon sellers can pay Amazon to use. It covers storage, shipping, customer service, and returns for your sales on the marketplace.
Amazon buyers can directly see whether a product is FBA vs. merchant fulfilled, and most buyers place more trust in Amazon fulfillment.
A key element of FBA is that Amazon holds your inventory. You can choose between FBA vs. seller fulfilled on a product-by-product basis, based on your preference, cost levels, and shipping delays.
Fulfillment by Amazon can make your e-commerce operation easier to manage, but it doesn't make economical sense for all products.
What is Fulfillment by Merchant (FBM)?
Amazon merchants who don't use FBA ship their orders directly to clients, handle customer service, and manage returns themselves. This is referred to as the FBM model: Fulfillment by Merchant.
In the FBM model, Amazon primarily functions as the marketplace, and merchants manage fulfillment on their own.
FBA vs. FBM: What’s the difference?
The three principal differences between FBA vs. merchant fulfilled e-commerce lie in shipping, storage, and customer service. With FBA, Amazon holds your inventory, packs and ships your order, and handles customer service inquiries and returns.
You still manage any product inquiries yourself. With FBM, Amazon only takes the order and handles payment, whereas you store your own goods, ship them, and manage the entire customer relationship.
4 benefits of using Fulfillment by Amazon (FBA)
FBA sellers have a number of advantages over those using FBM. Let's have a look.
1. Great delivery service
Thanks to its high delivery volume and the operational excellence Amazon strives for, delivery by Amazon is a great service.
2. Management of inventory
When you rely on Amazon, you have a better chance of placing your inventory close to your clients in one of Amazon's warehouses around the world. This can shorten delivery times and increase customer satisfaction.
3. No customer service
With FBA, Amazon manages most of your customer service. It provides the same high standard of customer service as it does with its own products. Amazon is known for its obsession with the user experience and will do everything it can to serve your customers well.
Amazon also manages your returns. This is a relief for many merchants, but it also means you won't hold the returned inventory in your hand or decide on the validity of the return. So you never learn from the process.
4. Prime eligibility
Many FBA sellers believe Amazon's algorithm favors them to win the Buy Box. The Buy Box appears when several sellers carry the same product. Only one seller can appear in the Buy Box, the featured seller for the product at that moment. How important is it? According to BigCommerce, 82% of Amazon sales go through the Buy Box.
The algorithm is probably not biased to favor them, but the fact that Amazon has more control of the process gives them better data to evaluate your order performance.
The order page also indicates when products are delivered by Amazon, making clients feel more confident. This can give you a ranking advantage because you sell more and your conversion rate is higher.
3 benefits of using Fulfillment by Merchant (FBM)
Don't underestimate the importance of inventory management. It can make or break your e-commerce business. In the FBM model, you closely manage your stock, but that's not the only benefit, as we shall see below.
1. Direct customer relationship
When you manage customer service yourself, you can establish relationships for the long term. Personalized customer care is something only you can give. Don't count Amazon for this.
Many businesses aim to learn from every customer interaction to improve their products and their customer understanding. This is only possible with FBM.
2. More process control
With FBM, you're in charge of the entire client fulfillment process, allowing you to change or improve it. You can play around with packaging and delivery modes to find the best solution for you and your customers.
3. Less expensive
Your fulfillment process will appear less expensive with FBM. But this may be because you're using your own resources which you pay for anyway: storage space and time spent on customer communication. A more detailed cost analysis may show the opposite. Or it may bring a nuanced picture showing some products more suited for FBA and others for FBM.
FBA vs. FBM: Which is the best choice for sellers?
You may think you need to make a definitive choice between FBA and FBM, but the ideal solution could be a dynamic way of managing your inventory, where some products use the FBA model, and some remain in your own stock for the FBM model. Let's see where one model is preferable over the other.
You should use Fulfillment by Amazon (FBA) if
FBA is an appealing solution, but you should only use it for products that require it. Here are some good reasons to subscribe.
1. You have high volume, high-frequency sales
The ideal case for using FBA is when you have high sales volumes with a high-frequency sale. The stock is permanently renewing, and you have the benefit of a well-organized and fast delivery machine that doesn't put any strain on your own organization.
2. Your fulfillment providers are expensive or not reliable
In the FBM, you are responsible for shipping products to buyers and must rely on external delivery services. If you haven't found reliable providers at a reasonable price, Amazon FBA may be the better option for you.
Remember, your sales will be penalized on the Amazon marketplace if your delivery performance is not good, and if you receive negative reviews and low ratings on the platform.
3. Your clients are far from your warehouse
If you're based in the U.S. but selling to a country in Europe, the FBA model can be used to shorten delivery times.
You should use Fulfillment by Merchant (FBM) if
If you are just starting out with e-commerce, you probably don't have the insights to decide whether FBA is a good deal. But there can be other good reasons to use FBM, as you shall see below.
1. Amazon is out of stock
It's just before Christmas, and you've run out of inventory in your FBA model with Amazon. By the time it takes to restock Amazon and sell via the FBA model, the holiday opportunity has passed. In this case, set up an FBM version of your product so you can take orders straight away and deliver in time.
2. Amazon fulfillment comes out more expensive
Amazon FBA fees include many charges. They can quickly add up, especially for products with a high storage cost or a low inventory turnover.
3. Low sales volume or seasonality
For products with a low sales volume or dedicated to a specific season, it may make economic sense to avoid FBA. Storage charges or the need to return parts of the inventory when a seasonal peak has passed can be prohibitive.
4. Hard to ship products with expiration dates and hazardous materials
Bulky products and anything requiring extra care will incur extra charges. Products with an expiration date and hazardous materials fall in these categories. They're a good case for sticking to the FBM model where you're in complete control.
And if you're happy with FBA, there is also MCF
If you're happy with FBA vs. seller fulfilled, you can push even further and use Amazon fulfillment for orders from your own e-commerce shop. This service is called Multi-Channel Fulfillment (MCF). Amazon acts as your warehouse, handling shipping, customer service, and returns -- not just for your Amazon sales but for your online store as well.
Ease, optimal revenue, and control
FBA is an easy way to manage your storage, shipping, customer service, and returns. In certain cases, the cost of the service isn't competitive. Here, you're better off using FBM.
Managing your own inventory, handling delivery and returns, and providing customer service yourself will give you full control over the entire process.
Don't hesitate to outsource the fulfillment of top-selling products to FBA. It can further accelerate your sales and give you access to Prime members.
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