FBA vs FBM: Which Method is Best?

FBA or FBM? Many Amazon sellers ask this question, and the answer isn't always clear. In this post, we will break down the concepts and discuss the pros and cons of both options.

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FBA stands for Fulfilled By Amazon

FBM stands for Fulfilled By Merchant

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In short, the difference is who is responsible for sending the products to the customer and also return handling and a little more. But there is much more to go through and unexpected pros and cons of the various options. So let's list them separately and compare.

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FBA – Fulfilled By Amazon

Selling with FBA means that your company creates an account and product listings on Amazon. You then send your products to Amazon, which stores them in its warehouse and ships them to the end customer when an order is placed.

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FBA – Advantages

Shipping Times – Amazon has many warehouses and well-developed systems that streamline the packaging and shipping process. This enables extremely fast shipping times (as fast as 2 hours) and many different delivery methods. This is a significant advantage for those selling through FBA. Fast shipping means more and happier customers.

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Prime – As an Amazon Prime member, you get many benefits. Not only do you have access to Amazon's video and music streaming services, but you also get free one-day delivery, and if you spend over $35, you get free same-day shipping! Amazon can only offer this on products sold through FBA (it can be offered via FBM, but it requires work and is more difficult). This means that conversion rates for those selling through FBA increase significantly and can be crucial. A whole 62% of Amazon customers in the US are Prime members, so consider this carefully when choosing between FBA and FBM.

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‍Amazon Ranking – Appearing high in search results when potential customers search on Amazon is crucial, and selling via FBA can significantly increase these chances. Amazon's algorithms determine which products should appear high in the search results, and two of the parameters that matter most are the number of products sold and conversion rate. Since FBA enables free and fast shipping for Prime members (which 62% are), it leads to more sales and higher conversion rates, which in turn leads to higher ranking. Higher ranking, of course, leads to more sales (but not necessarily better conversion rates), which in turn again leads to higher ranking. A circle of events that strengthens the product's position on Amazon.

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Warehousing – Amazon has many warehouses with high-tech systems that allow you to scale your sales without having to think about storage space. When you sell more products, you just send more products to Amazon, saving you both time and money as you only need to pay for as much space as you actually use.

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Hands Off – FBA allows you as a seller to sell your products without having to package, ship, handle returns, etc. You can send the products directly from the manufacturer to Amazon's warehouse and never actually have to touch the products. This saves time directly and allows you to scale without needing to increase the number of employees helping with packaging and warehousing.

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Shipping and Packaging Costs – A large company like Amazon can push shipping costs down significantly, and if you sell via FBA, you can save a lot of money here. Instead of shipping the products from the manufacturer to your warehouse, unpacking, packaging, and finally shipping to the customer, you can only ship from the manufacturer to Amazon, and they handle the rest. And for really low prices. Example: A standard T-shirt costs, according to Amazon's own example, $3.68 for packaging and shipping to the customer. Imagine being able to offer customers same-day delivery for that price. Click here for exact prices on different package sizes.
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FBA – Disadvantages

FBA Costs – Selling on Amazon costs, and FBA costs more than FBM because you also pay for warehousing, shipping, and potential returns. The costs are reasonably low, especially compared to shipping long distances yourself, and especially if you count the extra sales FBA usually brings. But, it is still costs, and you should keep an eye on these. For example, it can become expensive to have large inventories sitting at Amazon if the products do not sell, especially if the products are of larger size.

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Not Customizable – Once the stock is at Amazon, it is there. You cannot suddenly get a brilliant idea and change the product (e.g., new packaging, combining different products, etc.). Admittedly, you can ship the products home, but it takes time and is costly.

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Packaging – Essentially both an advantage and a disadvantage. When a customer buys your product on Amazon, Amazon packs your product in a larger Amazon box, possibly together with other products the customer bought at the same time. Amazon is a trusted brand, and if a customer shops on Amazon, they might expect to get the product delivered in an Amazon box. However, you as a company lose the opportunity for the personal touch that a self-sent package can provide. But this is always the case with resellers.

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Taxes – Since Amazon has multiple warehouses in different locations, it can be tricky to determine where VAT/sales tax should be paid. This is much simpler when you ship the products from Sweden. Amazon automatically pays sales tax in some of the US states but not in others, which both simplifies and complicates things. TaxJar is a tool that can help here.

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FBM – Fulfilled By Merchant

Selling with FBM means that your company creates an account and product listings on Amazon. When an order is placed, you ship your product directly to the end customer. You are also responsible for returns, customer support (regarding the product and delivery), and setting shipping prices.

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FBM – Advantages

Faster to Start – A significant advantage of FBM, at least initially, is how easy it is to start. No products need to be sent to Amazon's warehouse. It is enough to register on Amazon and get the product listings up. The only thing needed with FBM that FBA does not need is the configuration of shipping options.

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Freedom – Since you as an FBM seller ship the products yourself, you can customize the packaging, include extra surprises for large customers, etc. All things that you cannot do when selling via FBA. There is greater freedom here, but it also requires greater responsibility.

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Lower Amazon Costs – Yes, when you do not sell via FBA, you do not have to pay for it either. But you still have to pay other costs associated with selling on Amazon. And somehow you still have to store the products and ship them to the end customer.

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FBM – Disadvantages

Hands-On – Your company needs to package and ship all products to the end customer. Much more involved than FBA and harder to scale up. But at the same time, a chance to control the process.

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Shipping – Shipping to the end customer can often be expensive depending on where they live and where your warehouse is located. Additionally, it probably takes longer than Amazon's deliveries, which could negatively impact the entire customer experience.

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Lower Conversion Rates – Many Prime members want their fast free shipping, and when they cannot get it, they simply choose one of your competitors instead. Even other customers who buy for over a certain amount on Amazon expect free shipping, which is not applicable when selling FBM, and the customer ordered products from multiple sellers.

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Scaling – Both warehousing, shipping, and product handling are much harder to scale up when selling FBM. Instead of just sending more products to Amazon, which you can do when selling via FBA, you have to be able to expand both warehousing and the workforce that can help with packaging and shipping.

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So, which should you choose, FBA or FBM?

If you are going to sell on Amazon, we definitely recommend using FBA. It allows for smoother growth and, most importantly, increases conversion rates and thus ranking on Amazon. Additionally, customers are likely to be much happier if the product is delivered quickly. 62% of American Amazon customers are Prime members, that's 95 million potential customers!

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However, if you are just starting on Amazon or if you already have a large warehouse and fast delivery times, FBM could be an option. Especially initially, as it is quick and relatively easy to list the products on Amazon without having to ship them there. Then, over time, you can transition from FBM to FBA, maybe with all products or with those that sell best on Amazon.

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Thank you for reading this. Good luck with Amazon, and if you need help, we are always here for you!