As one of the biggest online marketplaces, Amazon is practically synonymous with “online shopping” today. The ecommerce giant has become a staple, with over 197 million customers around the world browsing the marketplace.
The opportunities on Amazon are nearly endless, making it an understandably popular place for ecommerce professionals to set up shop.
Amazon sellers have two options when it comes to fulfilling their Amazon orders. The first is to fulfill orders themselves with Fulfilled by Merchant (FBM). The second is Fulfillment by Amazon (FBA), wherein the Amazon-owned and operated fulfillment service handles logistics on behalf of third-party sellers.
There are pros and cons of both FBA and FBM, some brands choose to leverage both to create a joint FBA + FBM strategy for their Amazon store.
What is Fulfillment by Amazon?
Fulfillment by Amazon is Amazon’s fulfillment network service, available to sellers for a fee. At its core, FBA uses Amazon’s warehouse, pick, pack, and ship services, in addition to handling returns and providing customer support.
FBA has many perks for sellers. One of the largest is access to Amazon’s extensive network of warehouses and shipping partners. Since Amazon has fulfillment centers around the world, FBA sellers can be sure their products are geographically close to customers to enable fast shipping and happier buyers.
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Pros of Selling via FBA
FBA is an attractive service—it is easy to use and has a hands-off approach to logistics.
Convenience
Fulfilling orders is a time-consuming chore, especially for sellers with high sales volumes and large product lists. Picking, packaging, and shipping items (not to mention handling customer service inquiries or processing returns) takes time away from higher-value activities that help you grow your business.
It’s much more convenient to offload these tasks. You simply need to prep your FBA items, attach appropriate labels, and send them to Amazon’s warehouses to be stored until they’re sold. You then can refocus the energy you would have spent on these sales toward revenue-generating activities.
Prime Badge
The Amazon Prime badge is a sure-fire way to increase engagement with customers, but there are only two ways you can get it: by selling with FBA or through Seller-Fulfilled Prime (SFP). SFP is the next level up from FBM. To be eligible for SFP, sellers must have a 99% track record of distributing products to customers on time and a cancellation rate of less than 1%. Essentially, Amazon needs the confidence that you can deliver amazing customer service and fulfill orders quickly and efficiently.
With FBA, however, Amazon ensures Prime delivery guidelines are observed and applies the Prime badge to all of your Amazon Stock Identification Number (ASIN) products on your behalf. Unlike SFP, FBA guarantees the Amazon Prime badge because Amazon fulfills those Prime responsibilities for you.
Higher Chance to Win the Buy Box and Rank Well
When you have the Prime badge, the likelihood of winning the Buy Box increases, meaning your products will rank higher in searches. In this regard, FBA makes it easier to sell.
The “Buy Box” is a widget visible on many Amazon product listing pages that allows a customer to purchase products they’re searching for quickly. It provides a frictionless buying experience by making it quick and easy to complete checkout—often in as few as two steps.
Cons of Selling via FBA
Even outsourcing your fulfillment has its drawbacks. It’s important to consider all aspects of FBA selling, including the negatives, to understand what problems your business will face.
Less Control
Selling with FBA means submitting to Amazon’s processes and relinquishing control over your products, customer service, and logistics. On the flip side, it can be a relief to know you can remain uninvolved in your logistics and leave customer service to the Amazon team.
Because Amazon handles FBA items, your brand is almost completely removed from the shopping equation. Items are shipped in Amazon’s required packaging, and customer service goes through Amazon reps. This means you have little control over the experience (and little direct engagement with your customers).
Complex and Strict Prepping Requirements
Amazon has strict requirements for FBA items, which can be difficult to navigate and manage. Depending on the items you sell, Amazon may require a myriad of guidelines be observed, such as bagging items separately or bundling with particular packaging.
When items are incorrectly prepared and labeled, additional fees may be applied to your ASINs, which increases the price of FBA. It’s important to note that Amazon FBA fees are dynamic which means they aren’t fixed and can fluctuate based on product type, size, and storage, among other factors.
Fortunately, you can work with third-party logistics (3PL) providers or Amazon specialists who can ensure your products meet FBA requirements while also reducing the workload for you and your team.
Limited Storage Allocation Based on Velocity
At the onset of the Covid-19 pandemic, Amazon made changes to its FBA warehouse limits, which have persisted ever since. Storage allocation is based on velocity of sales, meaning sellers with slow-moving products are given less warehouse space than those whose products move quickly.
You could also find yourself out of inventory if your storage allocation is not enough for your FBA items (this is where a combined approach comes in).
What is Fulfilled by Merchant?
Fulfilled by Merchant (FBM) is the method where merchants fulfill orders themselves using owned warehouses or private 3PL partners. When Amazon sellers use FBM, they’re required to handle the fulfillment of items they’ve sold from their inventory. This means managing or hiring a network of warehouses to support your sales as well as overseeing the entire fulfillment process, from picking to packing and physically moving items to their final destinations.
Pros of Selling via FBM
Selling with FBM is a great option for sellers who prefer more involvement in the overall process of selling, and it can help you lower your Amazon selling fees as well.
More Control
If control is what you seek, FBM is for you. When you sell items and fulfill them yourself, you’re in the driver’s seat. You’re a part of every element of the sale and fulfillment process, from picking, packaging, and shipping your items through to providing customer service support and handling any incoming returns or refunds.
Create Unique, Branded Unboxing Experiences
Because FBA has stringent requirements for how items are packaged for FBA fulfillment, it can be difficult to make shipment and unboxing exciting for your customers. FBM, however, allows you to create unique experiences for buyers, putting your brand at the forefront of their Amazon purchase. For example, you can have specially branded packaging or beautifully boxed products with colorful packaging that supports your overall company branding.
Often Cheaper for Large, Bulky Items or Slow-Moving Products
If you sell large or slow-moving items, FBM is preferable to FBA as it’s more cost efficient. Because Amazon has implemented storage allocation limits, large items or those that move slowly incur higher charges. Storage allocation is based on physical space, not on the number of units, which means oversized pieces like furniture or appliances will quickly eat up your space. Likewise, because storage allocation is based on sales velocity, slow-moving items will be detrimental to your FBA efforts.
Cons of Selling via FBM
Just like FBA, FBM comes with challenges. FBM involves a lot of effort, organization, and dedication to work efficiently.
It’s Your Responsibility
While having full control over your Amazon sales process can be attractive, it’s a lot of work. FBM requires you to pick your products as they sell, package them correctly, and handle the process of shipping them to your buyer.
And, if something goes wrong, you’re on the hook for customer service, accepting and processing returns, and issuing refunds.
Fortunately, you can work with 3PL providers to support your Amazon selling needs. Be sure to look for a fulfillment company that works with Amazon—they’ll know best how to integrate and keep your products moving.
Prime Badge, Buy Box, & Rankings are Harder to Earn
Selling with FBA automatically gives you benefits like the Prime Badge, Buy Box, and better rankings in search results. But if you choose to sell items with FBM, you’ll have to put in hard work to optimize your product listings to win these perks.
As mentioned above, Seller-Fulfilled Prime (SFP) can earn you a Prime Badge, but it requires a 99% rate of getting items to customers within the Prime timelines, and a rate of 1% or lower of canceled items. This can be difficult to achieve on your own, especially if you have high sales volumes.
A Combined Approach is Best
Luckily, selling on Amazon doesn’t require you to choose a single fulfillment method. In fact, the most successful sellers know the best way to operate on Amazon is to take a combined approach order fulfillment, which enables you to maximize the benefits of each method and minimize the challenges of operating an Amazon store.
Enjoy the Best of Both Worlds
A combined approach gives you the best of FBA and FBM without the drawbacks. You gain access to all the benefits of Amazon’s fulfillment for your FBA ASINs along with the perks of managing the process from beginning to end for your FBM listings.
Increase Efficiency
Using both FBA and FBM allows you to build efficiencies that are impossible when you employ only one of them. For example, you can maximize your FBA perks by strategically choosing items for FBA, then use FBM for the products that are more cost-efficient through self-fulfillment.
Reach More Customers
FBA allows you to reach more shoppers. Reaching more shoppers means more opportunities to close sales. More closed sales increases your revenue and a growing base of customers with whom you can engage for future sales.
Reduce Your Team’s Workload
By utilizing FBA, you can reduce the workload for your team as it relates to the fulfillment of orders. This enables you to maximize your FBA return on investment (ROI) and have your team work on revenue-generating activities or those that help you grow your business, like finding new suppliers or discovering new products.
Streamline Your Logistics and Fulfillment
Logistics and fulfillment can be a total nightmare, which is why finding ways to streamline is so important. A combined approach to your sales can make this a reality by strategically assigning FBA products and FBM products.
How to Create a Killer FBA-FBM Strategy
Implementing both FBA and FBM is more than simply splitting your inventory between the two. To establish the most effective strategy, look at your products, take note of your existing processes, and examine your sales data, then determine what products will be FBA versus FBM.
Lead with FBA
It’s wise to lead with FBA. This fulfillment method should be your priority for items, as these product listings will rank higher, have a Prime badge, and win the Buy Box. You especially should select your fastest-selling items for FBA.
Create Mirror FBM Listings
Once you’ve produced your FBA product listings, create mirror listings for them under your FBM strategy. This enables you to keep selling your items even after you’ve sold out of your FBA inventory to ensure you don’t miss out on sales opportunities.
To mirror a listing, you need to log in to your seller account and go to the “Inventory” menu. Then, select “Manage Inventory” and locate the product for which you plan to create a mirror listing. Select “Copy Listing” from that product’s drop-down menu and enter the unique SKU, product identifier, and any other attributes (such as “FBA” or “FBM”), then save.
Be sure to create your mirror listings before you run out of FBA inventory to avoid gaps in sales.
Decide FBA vs. FBM Items
You need to be picky about what items you delegate to FBA versus those you fulfill yourself. An easy guideline is to assign your higher-volume products to FBA and your lower-volume products to FBM.
Your highest-volume, best-selling products should be processed through FBA so you can reduce your workload and, over time, increase your FBA limits by keeping your sales volume high. Review your sales data to understand what items are your best sellers and identify those that make sense for FBA, then build mirror listings (FBM) to support your sales beyond your FBA inventory limits.
Lower-volume products (i.e., those that don’t sell as quickly) shouldn’t take up precious space in your FBA stock limits. Based on your sales data, you can quickly identify items you’re less likely to fulfill orders for and assign those to your FBM strategy. This allows you to maximize your FBA limits.
Understand FBA Limits and Make the Most of Your FBA Sales
Knowing your FBA storage limits and assigning your FBA products are steps one and two of maximizing your FBA strategy.
Once you’ve defined your limits, you can choose the products to sell through FBA accordingly. This requires more than simply looking at your highest-volume products, though you also want to consider the size of the products you’ll fulfill through FBA.
Of course, you can increase your FBA limits by selling more and wowing customers. Keep a close eye on your business analytics and tweak your FBA strategy over time to make the most of your FBA sales.
Partner with a 3PL to Streamline Logistics on Both Sides
Teaming up with a 3PL is one of the most effective ways you can streamline your logistics regardless of whether you sell FBA or FBM.
When you use FBA, a 3PL partner can prep your FBA items to ensure they’re compliant with Amazon’s requirements. This saves you time, avoids penalties, and allows you and your team to focus on other elements of your business.
When you sell via FBM, a 3PL will handle the entire fulfillment process for you and can even support your warehousing needs.
A 3PL partner is an expert in logistics; they’ll ensure you have the most resilient supply chain possible, protect you from hiccups that can arise during peak shipping seasons, and streamline your processes. Their experience and extensive networks act as an insurance policy for your brand.
Bottom Line
Using both FBA and FBM gives you the best of both worlds. The combination helps keep your business defensible and grants access to the worldwide logistics and marketing machine that is Amazon. By leveraging the two fulfillment methods strategically, you can choose the most cost-effective and convenient options for your business as well as your customers.
About the Author
Rachel Go is the marketing director of MyFBAPrep, a global warehouse network of more than 100 warehouses and 85-million-square-feet of operating warehouse space. Powered by its SaaS technology platform Preptopia™, sellers get access to unified billing, analytics, business intelligence reporting tools and real-time inventory views across multiple warehouses in the network. The company provides FBA Prep automation, modern robotics item picking, and a dedicated account management team. MyFBAPrep moves over $1 billion in Gross Merchandise Value (GMV) and processes over 10-million units annually.
Tags: Online Marketplace
