Amazon FBM – How It Works and for Whom It Works the Best
Last updated July 21, 2022
How do you win the trust and loyalty of customers and what does Amazon FBM, which stands for “Fulfillment by Merchant,” have to do with this? Here’s a non-eCommerce example: I always visit the same supermarket, even though there is a discounter in the same vicinity with similar products. I visit the more expensive supermarket because I know where all the products are placed, I can rely on the fact that the inventory is always full and that the grocer working in the beverages department will greet me with a fistbump (actually, due to the pandemic, it is now reduced to a “bro-nod”, but it still makes me feel welcome).
Let’s go ahead and translate this example into the world of eCommerce: The supermarket is your online-store, the groceries are your products, the well-stocked inventory is your listing (and also inventory), and the fistbump-grocer is your customer support. What do you think? If we take away two of these elements (the well-stocked inventory and the grocer), does that heighten my chances of checking out another supermarket? Yes, it does. And I’m sure one or the other online-shopper might do the same.
Especially if your store sells handmade artisan or niche products, customers will also want to identify themselves with the product and your store. In an online setting, this is also facilitated by close customer interaction and the customer experience they receive when they unbox their products. And it is at this point where Amazon FBM comes into play.
Amazon FBM – Meaning and Utility
FBM on Amazon is a fulfillment method where sellers manage their own shipping, returns, warehousing and customer service, as opposed to those using FBA (Fulfillment by Amazon), where these tasks are taken over by the eCommerce behemoth. While the FBM model, which Amazon themselves refer to as “MFN” (Merchant-Fulfilled-Network), is very popular with sellers that already have their own logistics scheme in place, it also grants a lot of advantages for merchants that sell products with emotional value. But who profits exactly and in what way?
FBM vs. FBA – Who Is Amazon FBM for?
Selling over Amazon fulfilled by Merchant means that you retain total control over your fulfillment and therefore also the customer journey your buyers will experience. For whom does this make the most sense?
You Sell Niche Products
Sellers that use Amazon FBM profit from lower fees but also have a decisive disadvantage because Amazon’s algorithm regularly places them behind FBA sellers. If both were to sell the same items, the FBA merchant would constantly be at an advantage. However, sellers that have focussed on a particular niche do not have to worry about this kind of competition and therefore can cut down on the fulfillment costs while at the same time not having to worry about the A9 algorithm ranking them lower than their FBA competitors.
You Are Still Selling at Low Volume
Amazon FBA is a cost factor that is worth the investment at some point, but until then it simply remains a cost factor for sellers. Especially storage fees and all the issues that come with storing your inventory at a warehouse – that you have no direct access to, no less – can cause Amazon sellers a lot of headaches (trust us, we know).
You Have Plenty of Space to Store Your Goods
If you either have your own warehouse or a lot of space in your garage, then Amazon MFN or FBM may make sense for your store, since you can subtract the storage fees from your overhead. This may only be one metric of many, but depending on how many items you are storing (or will store in the future) the costs that you save may make Amazon FBM a viable business model for you.
You Already Handle Customer Service and Returns
When you already are happily in control over your own customer service and return shipping in-house, there are not a lot of reasons to switch to Amazon FBA. Of course it never hurts to look around and see if maybe the online giant can offer a sweeter deal, especially since leveraging Amazon FBM is always correlated with time investment and a hard time when trying to win the Buy Box.
You Sell Products That Fall Into the Shipping Category “Oversized”
If the products that your company sells require special shipping (because of the size or the handling), selling over FBM on Amazon is easier, meaning that you will be flexible when it comes to choosing the shipping company. This can save you money and one or the other headache, knowing that your valuable product is in the hands of a shipping company that is specialized in handling large cargo.
You Sell via Dropshipping
There are many things you have to keep in mind when dropshipping, but storage fees are not one of them. Naturally, you don’t need a warehouse to store your goods, since the product is shipped directly from the manufacturer to the buyer. Amazon FBM for dropshipping is a viable option in this case because it does not include storage fees, as opposed to FBA.
You Have an Alternative Logistics Scheme
While Amazon’s shipping network is very extensive, you might know of an alternative that suits your needs more. Depending on where you ship to and where you ship from, you might have a system in place that is able to offer similar or better services than Amazon. In this case, it would make more sense to leverage FBM on Amazon and apply for the Prime by Seller badge (more info below).
You Sell Products that Require Special Care when Shipping
Many sellers that sell fragile or handmade goods lean towards fulfilling themselves. While Amazon fulfills efficiently and fast, they also fulfill on a scale that is extremely vast, meaning mistakes are bound to happen at some point. While sellers naturally get reimbursed for their loss when mistakes happen in Amazon’s warehouses, handmade articles are not as easily reimbursed because they have to be reproduced and cannot simply be replaced with a few clicks of your mouse or a call with your manufacturer. In this case, Amazon FBM makes more sense, since you are able to ensure that the correct packaging and proper care is applied.
FBM vs. FBA – Who Is Amazon FBA for?
You Have Inventory and No Space to Store It
Not everyone has an empty warehouse or an oversized garage at their disposal and even less have the time that inventory management consumes. If you can relate to this, then Amazon FBA may be the right choice for you.
You Don’t Have Your Own Logistics Scheme
If you have a lot of inventory to move but haven’t had the chance to inform yourself about which shipping service provider can offer you the best deal, leveraging FBA may be a valid choice for you. Especially if you take into consideration that Amazon works with a wide variety of carriers and therefore has a lot more reach than any private person could have at the beginning.
You Have Limited Resources for Customer Support
Providing excellent customer support is a service that a lot of sellers struggle with. Especially the time element needed to provide such a service is constantly underestimated. This is problematic because excellent customer service is vital for your seller ranking and therefore for your visibility on Amazon itself. In this regard, Amazon FBM sellers have to fulfill at least the standard that FBA sellers fulfill if they want to keep their seller ranking high.
Amazon FBA vs FBM – Advantages of Using FBM
More Control Over Your Business
Outsourcing key elements of your business to another company of course comes with a certain degree of handing over of control. The crucial difference between Amazon FBA and FBM is that FBM sellers remain fully in the “driver’s seat”, so to speak. This rings true especially for shipping since FBM sellers can choose their own third-party logistics (3PL) provider that is maybe even specialized in transporting special types of goods (e.g. highly fragile or very bulky). FBM sellers also control their own storage and warehousing and are therefore not at the whim of Amazon’s warehouse regulations.
Less Overhead Costs
No FBA fees mean less overhead and therefore more revenue. Revenue which can be allocated to different areas where it is perhaps needed more. However, sellers should be aware that this calculation can also be deceptive. After all, the provision of storage space and the operation of their own logistics is often more expensive than using FBA for the same product.
Less Red Tape
Amazon runs a tight ship and that is reflected in their requirements for sellers who want to leverage FBA. Apart from the regular requirements, sellers that choose FBM are also free from having to adapt their business to Amazon’s inventory policy. This advantage became very clear to sellers recently before the backdrop of supply chain issues or the changes in regard to long-term storage fees. In other words, the Amazon FBM shipping requirements (if you want to call them that) are much more flexible than with FBA.
Depending on the size or the nature of the products, they might need special packaging and more warehouse space. Two things that come at a high price when selling over Amazon FBA. FBM sellers are not bound to this, although they might have to take into consideration special fees when they employ 3PL providers.
Amazon FBA vs FBM – Disadvantages of Using FBM
More Time Spent on Fulfillment
If you’re still asking yourself: “What is FBM on Amazon good for?” one correct answer is definitely that you have more control over your business. However, with more control comes more time-investment. Choosing to fulfill with Amazon FBM of course means that you must be willing to forego the luxury of having your hands free to do other tasks that may be more fun than packing and shipping a couch, or figuring out how to ship over Amazon FBM altogether.
As we already mentioned, FBA sellers regularly achieve a higher Buy Box share than FBM sellers. The reason for this is that metrics such as customer support and shipping (both covered by FBA) factor into your chances of winning the Buy Box. It also doesn’t help that there are a lot of FBA sellers out there and the number is increasing regularly. This of course does not affect you as much when you don’t sell wholesale – as long as the quality of your service can keep up with FBA. If not, FBA products will beat FBM here, too.
More Time Spent on Customer Service, Returns and Feedback
Once you sell on Amazon FBM, the return policy, the customer service, and the feedback management are in your hands. As an Amazon FBM seller, you will be spending more time answering reviews and communicating with your customers. While this will cost you time and energy it is also vital that you do this, especially if you sell niche and handmade products, where the customer might have very specific questions and may also want to stay in touch with the company itself. This is also often the case with handmade jewelry and products with emotional value.
Loss of the Prime Badge (?)
Many sellers believe that switching from Amazon FBA to FBM will lose them the Prime Badge, which is not necessarily the case, since there is the option of Amazon Seller Fulfilled Prime. Although it must be mentioned at this point that qualifying for this badge and keeping up with Amazon’s requirements for awarding this badge is difficult, since the online giant naturally sees itself (and its extensive logistics network) as the benchmark that sellers (which do not have such an extensive network) have to live up to. Also, an invitation is required to join Prime by Merchant.
How to Use Amazon FBM/MFN in 7 Steps
Step 1: Set up your seller account
You will need access to Amazon Seller Central, your go-to platform for all things related to selling on the marketplaces. For this you will need to create a seller account and choose a selling plan.
Step 2: Create listings and product detail pages
This is the “showroom” where you present your items. Be as descriptive as possible when writing your listings.
A clear and precise product title will also help your customers find your product. High resolution photographs that they can zoom into will often persuade the buyer to click on “Add to cart.”
There’s no need to create a completely new product page if you are selling items that already exist in Amazon stores. In these cases it’s easier to search the Amazon catalog, find the product and list an offer on the product detail page. You can also use Seller Central to add a product offer.
Step 3: Find a suitable warehouse or similar storage space
Whether it’s your own garage or rented space, be sure that it is aligned with your demands and you don’t end up overpaying for storage space you never use. There are many self storage options available in larger cities that also offer good deals if you intend to rent space for a longer period of time.
Step 4: Create shipping templates in Seller Central
Amazon Seller Central enables you to create shipping templates to match your logistic capabilities for both handling time and transit time. What does this mean? In the Seller Central dashboard, you can access the Manage Inventory dropdown menu and assign shipping templates to offers that match your logistics scheme in regard to certain products.
Step 5: Ensure that your packing is on point
Correct picking, packing and shipping ensures that your package arrives safely and decreases your return rate. Also be sure that your packaging and preparation lives up to Amazon’s standard.
Step 6: Install excellent customer service
As a company that has put the customer first ever since it was a book store in a garage, Amazon takes customer service very seriously. Amazon FBM/MFN sellers therefore have their work cut out for them if they want to live up to the standards that Amazon offers with FBA.
Step 7: Automate tedious processes
You will have enough manual tasks to perform as an FBM seller. Be sure to take full advantage of any automation that can benefit your company and save you time and money. A good example is the automation of your pricing strategy.
Amazon FBM Fees
There is no particular Amazon FBM fee as there is for Amazon FBA for example. The reason for this is that the sellers piece their fulfillment framework together individually. If you want to compare whether your logistics are cheaper or more expensive than FBA, you can always do so by accessing the Amazon FBA calculator and checking how your numbers fare against Amazon’s.
However, as with every business model, there are certain fees that you have to take into consideration if you want to sell over Amazon FBM. Not taking into account potential costs for storage space and/or employee wages, here is a breakdown of costs you have to keep an eye on that derive from selling on an Amazon marketplace:
- Monthly subscription fee: 39.99 $ in the professional plan and no fees in the individual plan.
- Per item selling fee: no fees in the professional plan, 0.99 $ in the individual plan.
- Referral fee: Amazon deducts referral fees for all products. These fees vary from 15 % (which is the case most of the time) to 45 % in seldom cases, e.g. baby products and Amazon device accessories.
Here you can find the fees a seller on Amazon needs to consider: Amazon Seller Fees: This Guide Explains The Costs
Frequently Asked Questions
Amazon FBM is a selling method that allows the merchant to retain all control over customer support, shipping, and storage. The merchant naturally has the option to delegate these tasks to other people.
How to ship over Amazon FBA is up to the sellers themselves. As opposed to Amazon FBA, there are no fixed shipping rates and requirements. The overhead you pay depends fully on how you structure your logistics, the so-called “Merchant-fulfilled-network” (MFN).
Sellers that leverage Amazon FBA have to pay Amazon a fixed amount to cover all the expenses associated with picking, packing and shipping the goods to the customer. FBA fees also cover the cost of returns and the handling of customer support by Amazon.
FBM sellers do not have these costs but that does not mean they do not have to consider expenses that might be just as high. Depending on how high your storage, product packing, labor and/or shipping costs are, you might be making a bad deal by choosing the FBM alternative over FBA.
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