Amazon FBA vs FBM: Which is Best for Your Business?

Amazon allows two different methods for handling logistics and inventory when you sell on their platform. These are known as FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant). FBA and FBM are simply the logistics solutions you can use on Amazon, each with its own advantages and disadvantages.

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Let's first go through these solutions, and then I'll compare their benefits and drawbacks.

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What is Amazon FBA (Fulfillment by Amazon)?

FBA stands for Fulfillment by Amazon and is a logistics solution where Amazon manages inventory, picking & packing, shipping, and returns for sellers on their platform. They handle all the practical work related to delivering products to customers through Amazon. Additionally, Amazon handles much of the customer support, including returns and late orders.

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Pricing and Margins

This service is not free, but it saves you from managing everything that Amazon handles. All you need to do is send products to their warehouse, and they take care of the rest. Simple, right? The costs are generally quite low and often cheaper than shipping the products yourself. If you want to learn more about the costs, see here: Amazon FBA Costs.

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Conversion, Shipping Times, and Growth

There are more aspects to consider. Using Amazon FBA often leads to higher conversion rates because customers trust Amazon. They also offer very fast deliveries (even within 2 hours). Customers with Amazon Prime always get very favorable shipping terms when Amazon ships the products. This option is also advantageous for growth. Instead of hiring more warehouse staff and changing warehouse locations, you can effortlessly let Amazon handle more and more deliveries.

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Shipping Fees and Shipping Regions

When you sell with Fulfillment by Amazon, you don't have to worry about the end customer's shipping fees. Amazon offers free shipping for many customers, and when they do charge a fee, it's without your involvement.

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You also don't need to worry about the ability to sell to different countries and regions. Amazon automatically offers shipping to all countries they can ship to when you sell via FBA. This is independent of which of their platforms you sell on, maximizing the size of the potential customer group.

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What is Amazon FBM (Fulfillment by Merchant)?

FBM stands for Fulfillment by Merchant and means that you, as the seller, are responsible for inventory, shipping, and any returns. You handle all the logistics work just as you would in your own e-commerce. The only difference is that sales go through Amazon's marketplace. What you need to do on Amazon is confirm shipments, upload tracking numbers, and similar tasks.

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Pricing and Conversion

Since Amazon is not involved in this logistics process, there is no fee from them. However, this can lead to lower conversion rates because you likely cannot offer shipping terms as good as Amazon's. Customers also do not trust third parties as much.

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Shipping Fees and Shipping Regions

With FBM, you as the seller can choose how much to charge for shipping (if anything at all), and decide which countries you want to ship to. The exception is that you must offer shipping to the entire country where the marketplace is located. For example, all of the USA if you sell on Amazon.com and all of Germany if you sell on Amazon.de.

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FBA vs. FBM - Pros and Cons

I've already covered many of the advantages and disadvantages, but I will now summarize them for an easy overview.

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Amazon FBA

• Increases conversion rates.
• Simplifies growth.
• Hands-off approach.
• Often cheaper than handling it yourself.
• Requires managing two inventories (if you also have your own warehouse).
• There is a fee associated with FBA.
• You cannot limit which countries you want to offer shipping to.

Amazon FBM

• No double inventories.
• Easy to use existing processes for shipments.
• No extra fee from Amazon.
• You can limit the countries you want to offer shipping to.
• Lower conversion rates.
• More work for you and your team.
• Not as easy to scale up during growth.
• Often more expensive than FBA.

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Things to Consider

FBA and FBM are not tied to your seller account but are on an SKU level. This means you can choose to handle shipping for some products yourself and let Amazon handle it for others. You can switch logistics solutions at any time. Therefore, many new sellers start with FBM and switch to FBA when they are ready.

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Amazon has quite high requirements for you as a seller if you handle the shipping yourself. You must be able to deliver within certain time frames and respond to support inquiries within a set number of hours. FBA is, as mentioned, more hands-off and simpler, even from that aspect.

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Summary - Should You Choose FBA or FBM?

If I have to answer briefly on what you should choose, I would definitely recommend FBA. The biggest reason is conversion. It's hard to justify choosing FBM if it lowers conversion rates, especially since conversion and SEO are so closely linked on Amazon. Often, FBA can be a bit more challenging to implement, but it's important to go back and analyze why you want to sell on Amazon. Is it for ease, or is it to increase sales? FBA is the general answer and not always the right choice.

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In the end, it always comes down to what's best for the company and the margins. Maybe the resources aren't there to set up the FBA part, and then FBM might be the right choice. But if you can, aim to use FBA. Either from the start or moving forward.

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I hope this was educational and that you can take away something useful from this. If you have colleagues or friends who need to get a handle on FBA and FBM, feel free to share this post. If you and your company want help with Amazon, you are warmly welcome to contact us at SellWave. Good luck with your logistics and Amazon now!