Amazon FBM: These Advantages and Disadvantages of Fulfillment by Merchant!
Currently, there are 9.7 million Amazon sellers worldwide, of which 1.9 million are active sellers. Each year, over one million new sellers register on Amazon. To be precise, in the first quarter of 2021 alone, over 283,000 sellers joined the online retailer.
As an Amazon seller, you need to choose the right shipping method for your products. In addition to the most well-known method, Fulfillment by Amazon (FBA), sellers can also use Fulfillment by Merchant (FBM) and “Prime by Seller.” In this article, we will focus on Amazon FBM – what it is, which products this shipping method is suitable for, where the advantages and disadvantages lie, and how FBM differs from other shipping methods.
What is Amazon FBM?
In simplified terms, Fulfillment by Merchant (FBM) means that the responsibility for storing the goods, shipping, and customer support for the products listed on Amazon lies with the seller. Amazon acts solely as a marketplace where the goods are sold. Sometimes, this is also referred to as “Merchant Fulfilled Network” (Amazon MFN).
Instead of paying a service fee for fulfillment and sending your goods to Amazon distribution centers, as a seller, you rely on your own resources to prepare the products and ship them directly to the buyers. As an FBM seller, you need not only storage space but also a functioning workflow. This includes, among other things, handheld scanners and label printers, software, and well-trained staff.
Fulfillment by Merchant is particularly suitable for items that have longer storage times because they do not sell quickly, for bulky, large items, for luxury goods, and for unique items. These products would primarily incur high storage and shipping costs on Amazon. Additionally, FBM sellers have more opportunities, such as staying in direct contact with customers regarding product inquiries or returns. Furthermore, FBM offers cross-selling opportunities by using packaging inserts during shipping.
Other Shipping Methods
Amazon FBA
Instead of FBM, sellers can also utilize the FBA program. The abbreviation FBA stands for “Fulfillment by Amazon,” meaning that the order is processed by Amazon. Amazon takes care of the entire logistics for you as a seller. This includes storing the goods in Amazon’s logistics centers, shipping, handling returns, and customer service. When you sell through Amazon and use FBA services, you have no physical contact with your products.
Fulfillment by Amazon is suitable for sellers who deal with smaller-sized products. This is because Amazon’s fees for oversized items do not leave you with enough profit margin.
Prime by Seller
“Prime by Seller” is a shipping program that allows sellers to deliver goods directly from their own warehouse to national Prime customers.
Prime by Seller is best suited for seasonal products or products with unpredictable demand, products with many variations, hard-to-sell items, as well as inventory that requires special handling or preparation.
Advantages and Disadvantages of Amazon FBM at a Glance
✅ Advantages of Amazon FBM
Full Control
When you manage your orders yourself, you have an overview of your inventory and stock management. As an FBM seller, you need to keep your inventory management in check and monitor the number of products you have in stock. Since you take control of your inventory, you can quickly correct shipping errors and conduct strict quality control before shipping the products.
You can customize your packaging.
One advantage of FBM over FBA is that you can customize your packaging. You have the opportunity to create a unique design and incorporate special elements and gimmicks for customers to differentiate yourself from the competition.
Custom packaging contributes to brand awareness. For example, if you want to run a sustainable business, you can signal this with your packaging. Sustainable packaging is made from renewable or recyclable materials.
For Amazon customers, different FBA sellers do not distinguish themselves from one another, as the packaging suggests that they are shopping at Amazon. While this is good for brand recognition, it does not make your packaging truly unique. By choosing FBM, you opt to use your own packaging instead of Amazon’s standard option, thus shaping the customer experience regarding packaging and the unboxing process.
This brings us back to the first point: taking full control. It is therefore very important to keep an eye on your packages so that you do not lose customers due to delayed shipments or damaged packaging.
Returns and customer service … are your responsibility.
While some see this as a disadvantage, others view it as an advantage. Although this may seem paradoxical at first glance, it makes sense that you address your customers’ issues directly and may even prevent a return. Identifying and resolving errors early is key to reducing the return rate and improving customer satisfaction.
It is important to note the Amazon return policies, in which the online giant states that FBM sellers must accept returns within Amazon’s 30-day return window. Additionally, all returns are sent back to the address specified in your seller account and not to Amazon. As a seller, you are required to refund the purchase price to the customer within two days of receiving the return.
Not affected by changes to Amazon policies
Another advantage of FBM is that sellers do not have to adapt to every one of Amazon’s policies and new restrictions. Amazon frequently changes its policies for FBA sellers without prior notice, leaving little time for sellers to react. Additionally, FBM sellers are not subjected to the same penalties for non-compliance as FBA sellers.
? Disadvantages of Amazon FBM
FBM is more time-consuming.
As we have already noted, with FBM, you must manage your own inventory and ship your products to customers independently.
This can become time-consuming, especially if you have many orders. Therefore, you should be prepared to invest many hours per week.
FBM is cost-intensive.
Those who handle their own fulfillment must also provide the necessary resources for it. This can mean a significant investment, especially at the beginning. FBM sellers not only need to maintain space to store their products but may also need to hire staff to manage the warehouse, package the items, handle labeling, and ship the orders. All of this costs money, while FBA sellers benefit from Amazon’s fulfillment and pay a service fee per order.
Not automatically qualified for Prime
While FBA sellers gain immediate access to Amazon Prime, this is not the case for FBM sellers. However, since customers are accustomed to fast delivery, it is crucial to find alternatives to express shipping.
But this does not mean that FBM sellers are completely left out. Amazon offers a program called “Prime by Seller” (Seller-Fulfilled Prime), where FBM sellers can deliver directly to domestic Prime users from their own warehouse. To qualify for this program, you must meet certain criteria and complete a trial period. Additionally, participation is only possible by invitation from Amazon – and to receive that, FBM sellers must already provide excellent service.
Once you have completed the trial period, you will be automatically enrolled and can offer your products with the Prime badge. With “Prime by Seller,” you increase your chances of winning the Buy Box and benefit from fast shipping while retaining full control over your packaging and shipping process.
Higher shipping costs
Not only shipping speed but also shipping costs play an extremely important role. A study shows that 59% of buyers abandon their purchase if shipping costs are too high. Therefore, it would be wise to find an alternative shipping method.
Advantages and Disadvantages of Amazon FBA
✅ Advantages of Amazon FBA
Focus on Core Business
For every business, logistics is often the most challenging aspect to scale. Amazon FBA solves this problem. Amazon takes care of storage, packaging, and shipping. This saves you a lot of money in the long run and gives you time to focus on other parts of your business.
More Sales
With FBA, you can often generate more sales, as the Amazon algorithm favors products from FBA sellers. Items shipped by Amazon and those with the Prime branding also appear higher in search results. This is partly because Amazon customers are more likely to purchase these items. This not only improves the visibility of your products but also enhances the conversion rate.
Amazon Prime
Amazon FBA products are eligible for Prime delivery. In Germany alone, this gives you access to a customer base of approximately 34.4 million people. These items are very popular among most Amazon customers, as they promise easy shipping, customer service, and hassle-free returns.
Professional Customer Service
Amazon takes care of customer service, returns, and refunds. You can hire professionals to ensure that your customers always have a positive shopping experience. They handle issues around the clock and save you the trouble and expense of finding qualified professionals to handle customer problems on your own.
Higher Chances of Winning the Buy Box
If you pay closer attention to listings, you will notice that sellers with Prime delivery often control the Buy Box.
This is because Amazon favors sellers who can guarantee fast delivery, and with Amazon FBA, sellers are eligible for Prime delivery. It is important to know that more than 80% of all sales on Amazon are made directly by sellers who control the yellow button. This significantly boosts sales.
Internationalization is easier
Since many processes are covered by the FBA program, internationalization is easier here than with the FBM program, where you would need to establish your own logistics abroad. With Amazon’s Pan-EU program, it is relatively easy to sell across Europe, for example.
? Disadvantages of Amazon FBA
Little control
Limited Control
Cost-Intensive
The costs associated with Amazon FBA can pose a significant disadvantage for sellers when compared to profit margins. The risk lies in not accurately assessing costs such as FBA fees, storage and shipping fees, as well as other expenses. Therefore, sufficient startup capital should be available to handle any issues that arise. On the other hand, sellers save on storage costs and personnel since they do not have to build their own logistics.
Limited Branding
The best way to make money on Amazon is to create an appealing brand. Amazon FBA somewhat limits your branding options. Since Amazon ships the product, the shipping boxes carry Amazon’s logo.
No Own Customers
To put it bluntly: The customers who order products on Amazon are primarily Amazon’s customers. Your company may not have significant brand recognition.
Amazon addresses this issue with the Brand Registry and the Amazon Storefront. Companies can now set up their own storefront on Amazon and use it to promote their business.
Amazon FBA vs. FBM: Cost Overview
What costs should you expect with Amazon FBM?
Although FBM requires its own resources, there are still some costs incurred directly with Amazon:
As an FBM seller with a professional seller account, you will incur a fee of €39 per month. If you use a free basic account, you do not pay any monthly subscription costs, but you must pay €0.99 per sold product to Amazon.
That sounds inexpensive. However, do not underestimate the high costs associated with maintaining your own storage, picking, etc.
What costs should you expect with Amazon FBA?
Often, Amazon FBA costs are only related to shipping costs and storage fees. However, there are also additional costs that may not be immediately obvious:
One-time Costs:
Monthly Costs:
Costs for the FBA Service:
Amazon FBA or FBM? Combination of Both Methods
You can actually successfully use both Amazon FBA and FBM simultaneously, for example, when you offer different products with varying profit margins.
It can also be a good option to list the same product on both FBA and FBM, as long as you can manage the fulfillment and have enough storage space. In this case, you can certainly use the SELLERLOGIC Repricer, as it adapts to the needs of Amazon sellers and allows for a lot of flexibility in making different decisions.
For example, you can offer your product at two different prices in the market to ensure that you have enough products available and that customers do not have to wait for delivery or that you need to change your inventory due to delays. This way, you can offer the FBM option at a slightly lower price than the FBA offer.
Advantages of combining FBM & FBA would be:
Conclusion
In summary, both FBM and FBA have their advantages and disadvantages. The fulfillment method you choose for your business primarily depends on the size and weight of the products you want to sell, as well as all logistical costs, such as picking. Ultimately, sellers can benefit the most by combining both methods.
However, keep in mind that building your own logistics needs to be carefully calculated. Especially having your own warehouse and staff cannot be easily scaled with increasing order volume. You will need these resources for tasks such as picking, labeling, and shipping goods. You will also need to find shipping partners on your own.
Frequently Asked Questions
With Amazon Fulfillment by Merchant, the seller takes full responsibility for storage, packaging, shipping, and returns. Shipping from their own warehouse is often the preferred choice for experienced first-time sellers on Amazon.
The abbreviation FBM stands for “Fulfillment by Merchant” and is sometimes also referred to as “Fulfilled by Merchant” or “Merchant Fulfilled Network.” Essentially, this means that the logistics and handling of goods are carried out by the seller.
For FBM sellers, Amazon acts solely as a marketplace where goods are sold. Sellers rely on their own resources to ship their products to customers.
Yes, absolutely, and it is even a recommended option. By combining FBM and FBA, you can take advantage of the benefits of both methods.
No, because in dropshipping, the seller does not store their goods themselves. The products are only shipped by the manufacturer once an order is placed.
As long as you do not participate in Prime by Merchant, you will lack the Prime logo. Many customers prefer this. Additionally, the algorithm tends to favor FBA listings for the Buy Box.
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