Amazon FBA vs FBM: Which is Right for Your Ecommerce Business?

For many prospective ecommerce business owners, Amazon has become one of the most popular platforms for starting an online business. This is mostly due to their well-known “FBA” and “FBM” programs, which allows small business owners to grow their brands with a helping hand.

Because Atomix is in the business of helping ecommerce brands scale at blazing fast speeds, we’ve put together a comparison on Amazon’s FBM and FBA services to help you determine what’s best for the future of your brand. Follow along below and learn everything you need to know about Amazon’s most popular services!

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Understanding FBA

Amazon’s FBA (Fulfilled by Amazon) service operates as a sort of “All-in-one” solution for ecommerce sellers. A seller lists their product(s) on Amazon’s marketplace, then ships all of their inventory to Amazon for handling the order fulfillment side of their operations. Everything from storage, shipping, and returns are all handled by Amazon’s staff - albeit at varying cost depending on order volume, profitability, and other key factors. 

Pros of FBA
-Focusing on Sales: When Amazon handles all of a brand’s order fulfillment operations, business owners can use the extra time to put more effort into advertising, marketing, and building their brand’s reputation.

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-Amazon Prime Benefits: Through their FBA program, sellers can leverage Amazon’s Prime capabilities such as faster shipping times (as few as 1-2 days!) and higher-ranking products on product list pages.

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-Higher Chance of Winning the Buy Box: First; a “Buy Box” on Amazon refers to the box on the right side of any specific product’s page, showing the price and listing a specific seller for the product. “Winning” a Buy Box means that a lucky merchant or seller is selected to be the “go-to” supplier for a specific product (for a limited amount of time). This provides 2 main benefits; 1) your brand will receive significantly higher sales for the duration of a Buy Box, and 2) customers will associate your brand with Amazon, creating much more trustworthiness than brand building alone would provide. 

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Cons of FBA
-High Costs: When choosing to use Amazon’s FBA services, it’s vital to remember they charge a vast range of fees for their vast range of services. All of their various fees from storage to using their store platform eat into profit margins, making it hard to justify using for products with lower profit margins. As a rule of thumb, FBA’s value is best when a brand sells small, lightweight products in high volumes. 

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-Limited Control over Order Fulfillment: While using FBA is a very efficient way to handle your end-to-end order fulfillment, shipping all of your inventory off to Amazon means you can’t walk down to the warehouse floor and inspect any products in the case of order errors. A seller is forced to trust Amazon with storing, handling, and delivering their products from start to finish. For ecommerce business owners who prefer a hands-on approach to selling, FBA might not be the best choice. 

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-Dependency on Amazon: In addition to entrusting Amazon with handling all of a brand’s products, all sellers are required to adhere to Amazon’s strict policies for selling through their marketplace. For example; sellers who use FBA are confined to using Amazon’s packaging exclusively, and items that don’t follow these guidelines are flat-out rejected - meaning business owners need to spend additional time and money trying to retrieve their rejected products.

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Understanding FBM

While FBA services are extremely helpful, some ecommerce business structures simply do not fit well with FBA and require some sort of alternative. Luckily, Amazon also offers their FBM (Fulfilled by Merchant) services to any business owner looking for access to their vast marketplace - without the associated fees expected from FBA. 

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FBM services allow ecommerce brand owners to leverage the same marketplace as FBA sellers, with the main difference being that the seller is responsible for storing and selling their products on their own.  As we detail down below, this brings with it a host of pros and cons. Follow along below to learn more about FBM! 

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Pros of FBM

-Full visibility over order fulfillment: When a brand is responsible for storing and delivering their own products, it allows them to have a birds-eye-view of every single aspect behind how an order reaches its destination. This means everything from picking to customer unboxing can be controlled from end-to-end, giving the business owner full control over each customer’s experience with their brand.

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-Higher margins: Because the vast majority of Amazon’s fees don’t apply to FBM sellers, they are able to save a lot of money on their logistics operations - especially doing all of the work yourself. This translates to significantly higher profit margins for each unit sold, helping your brand grow that much faster - while having extra funding for other important expenses such as advertising and marketing. 

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-Sales channel diversity: One of the biggest contrasts between FBA and FBM sellers lies in sales channel access. With FBA, most sellers are effectively tied to selling exclusively through Amazon - because selling on other channels means spending more money on extra logistics. On the other hand, FBM sellers have [virtually] the same access to the Amazon marketplace, but are also able to sell on alternative channels - such as retail stores and social media sites.

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Cons of FBM
-Customer service & returns: On the other side of saving money by using FBM instead of FBA, sellers are required to handle their own returns, communicate with customers, and provide resources on their own. Depending on the size of an ecommerce business, this can sometimes be challenging for smaller brands who don’t have the bandwidth to focus on these important tasks. 

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-No SEO help: When a business owner uses FBA, they also benefit from an extra SEO boost from Amazon to boost their product visibility. Simply put, FBM sellers do not receive this perk directly (however, a product is still much more likely to be seen if sold on Amazon, rather than their own website).

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-Amazon Prime eligibility: For Amazon’s FBM sellers, access to Prime is not an included perk in their service offerings. BUT, this doesn’t mean FBM sellers don’t get any kind of access to Prime. To be featured as a Prime seller on Amazon as an FBM user, ecommerce brand owners need to meet strict requirements through Amazon’s Seller Fulfilled Prime (SFP) program. While these requirements are extremely strict, growing ecommerce brands typically have little trouble meeting criteria for being featured on Prime. Additionally, this will allow brands to increase their sales for a fraction of what FBA users have to pay. 

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FBM through a 3PL

‍FBM can be a great option for ecommerce brand owners who want more control over their inventory with lower fees compared to FBA. However, managing fulfillment in-house can be time-consuming and expensive. That's where 3PL providers like Atomix come in!

By partnering with a 3PL, ecommerce brands can outsource their fulfillment operations while still retaining full control over their inventory. This allows brands to have the best of both worlds: access to Amazon’s wide range of customers, while still saving a ton on business expenses in the long run. Many brand owners use this strategy, especially newer brands who are still in the process of establishing themselves in their respective industry. Despite this, it can still be difficult to determine which service option is the best for every business, and it’s always best to make the most informed decision possible. 

‍Making the right choice

‍Starting an online business from scratch is a tedious process that requires a ton of hard work, dedication, and persistence. In addition to these, however, business owners have to clearly understand their business’ needs, goals, and resources to set themselves up properly for long-term success. When it comes to choosing between FBA and FBM, both offer some great perks respectively, and it depends on what each owner is looking to get out of each service to determine what “best fit” is available.

As a rule of thumb, FBA is best for brands with small products that have a high turnover, and are not particular about having control over their inventory. It’s similar to a “set it and forget it” approach in terms of Amazon selling, and is great for business owners who prefer to let Amazon handle everything besides selecting which product(s) to sell on their site.

FBM, on the other hand, is better for brands who are A) still in early stages or B) sell larger, or less frequently sold products. Additionally, FBM allows ecommerce business owners to maintain complete control over their inventory, order fulfillment, customer service, and returns - translating to the significant cost savings FBM offers over FBA.

As we mentioned earlier, however, there is a way to get the best of both worlds! By partnering with a 3PL partner, those who want to take advantage of Amazon’s marketplace can dispatch their inventory to a logistics partner while using FBM services. The 3PL will handle everything surrounding order fulfillment: storage of inventory, picking/packing, and returns services - while the business owner can focus on customer service, advertising, and marketing! If you’d like to learn more about selling on Amazon, reach out to Atomix today and let us tell you all about our Amazon Prep services!

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