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FBA and FBM – what is the difference

by Brian M. China Warehouse

Fulfillment by Amazon (FBA) and Fulfilled by Merchant (FBM) are two different ways to handle order fulfillment on Amazon.

1. Fulfillment by Amazon (FBA)

Imagine handing your products over to a trusted friend who has an extensive network of warehouses, fast delivery options, and excellent customer service. That's essentially what FBA does. You send your products to Amazon's fulfillment centers, and they take care of everything from storage to shipping to Amazon FBA and returns.

Here's how FBA works:

You send your inventory to Amazon: You prepare and label your products according to Amazon's guidelines and ship them to their fulfillment centers.

Amazon stores your products: They keep your products safe and secure in their warehouses.

Customers order your products: When a customer purchases your product on Amazon, Amazon picks, packs, and ships the order directly to the customer.

Amazon handles returns: If a customer returns your product, Amazon processes the return and provides customer service.

Benefits of FBA:

Fast and reliable shipping: Leverage Prime eligibility for faster delivery times, boosting customer satisfaction.

Reduced workload: Save time and resources by letting Amazon handle logistics.

Improved customer service: Amazon's customer service team takes care of fulfillment-related inquiries and returns.

Increased reach: Prime badge and faster shipping can improve product visibility and conversion rates.

Drawbacks of FBA:

Fees: Storage and fulfillment fees can add up, especially for larger or heavier products.

Less control: You have limited control over packaging and shipping methods.

Inventory management: Careful planning is needed to avoid storage fees.

2. Fulfilled by Merchant (FBM)

Think of FBM as doing it all yourself. You store your products, pack and ship orders, and handle returns directly.

Here's how FBM works:

You store your own products: You manage your own inventory, either at your home, a rented space, or a third-party fulfillment center.

You fulfill customer orders: When a customer orders your product, you pick, pack, and ship the order yourself.

You handle returns: You are responsible for processing returns and providing customer service.

Benefits of FBM:

Lower costs: No FBA fees, potentially lower overall fulfillment costs if done efficiently.

More control: You control packaging, shipping methods, and the entire customer service experience.

Flexibility: Suitable for unique products, limited inventory, or customized experiences.

Drawbacks of FBM:

More work: Requires managing storage, shipping, returns, and customer service.

Slower shipping: May not qualify for Prime badge, potentially leading to slower delivery times.

Customer service burden: Requires you to handle customer inquiries and returns yourself.

3. Choosing The Right Option

The choice between FBA (Fulfillment by Amazon) and FBM (Fulfilled by Merchant) depends on several factors specific to your business and products.

A. In the case of Electronics:

FBA may generally be better due to

· Faster shipping: Prime eligibility and efficient Amazon fulfillment can increase sales.

· Reduced customer handling: Amazon handles returns and inquiries, saving you time.

· Potential increased visibility: Prime eligibility and faster shipping can improve product rankings.

However, consider

· Potentially higher fees: Storage and fulfillment costs for electronics can add up.

· Less control over packaging: Branding and presentation may be less customizable.

· Product restrictions: Certain electronics may have FBA restrictions.

B. If you sell Women's Clothing:

FBA may be beneficial for:

· Fashion-conscious customers: Fast shipping and Prime eligibility can be attractive.

· Simplified returns: Amazon handles returns, potentially improving customer satisfaction.

· Greater reach: Prime visibility and faster shipping can attract more shoppers.

But keep in mind:

· Competition is fierce: Standing out among similar clothing sellers may require extra effort.

· Potential for damage: Fragile clothing requires careful packaging, which FBA may not fully address.

· Storage fees can vary: Fees may vary depending on the size and seasonality of the clothing.

C. For Large Items:

FBM is often preferred for:

· Lower costs: Storage and fulfillment fees for large items can be significant with FBA.

· Greater control over packaging: Special packaging for fragile or bulky items may be required.

· Direct customer contact: You can build relationships and provide personalized service.

But remember:

· Slower shipping times: You could lose Prime eligibility and potentially miss out on impulse buyers.

· Increased workload: Managing warehousing, shipping, and returns yourself requires more effort.

· Customer service burden: You'll be responsible for handling inquiries and returns directly.

Ultimately, the better option depends on your specific business situation.

Consider these factors:

§ Profit margins: Calculate whether FBA fees are offset by increased sales and reduced workload.

§ Inventory size and seasonality: Consider storage costs and potential fluctuations for large or seasonal items.

§ Customer preferences: Assess your target audience's expectations for shipping speed and service.

§ Your resources and capabilities: Evaluate your team's ability to handle FBM logistics versus the convenience of FBA.

Our recommendations:

- Perform cost calculations for both options based on your products and volumes.

- Start with FBA for small electronics and apparel to test the waters

- Consider FBM for large, bulky items or if you have the resources to manage the logistics

- Continually monitor your performance and adjust your strategy as your business grows

There's no one-size-fits-all answer to which is better for your business. Analyzing your specific needs and experimenting with both options will help you understand what's the best fulfillment solution for you.