To make money on Amazon, there are two selling options. Amazon FBA is how Amazon stores the seller’s products and items in their warehouse and takes responsibility for the packaging and delivery of the products.
In the FBA arrangement, Amazon handles customer service and order returns. On the other hand, in Fulfilment by Merchant (FBM), the seller manages the entire purchasing, packaging, shipping, and delivery of the products. The seller does not pay any service fee or shipping inventory to Amazon and takes control of the entire process.
The Jungle Scout survey revealed that the majority of sellers prefer FBA. According to the figures, 66% of sellers opted for FBA to fulfill their orders. The pros and cons of FBA are enlisted below.
- Benefits of Prime shipping increase sale potential: Amazon FBA sellers’ products are eligible for Prime shipping. So, the Amazon Prime subscribers, which are huge in numbers, probably more than 110 Prime subscribers in the US, will receive their orders with 2 days of shipping and no additional charges. So the propensity of buyers to take advantage of Amazon’s rapid delivery service increases the sale potential of products of FBA sellers.
- Sellers’ not bothered by fuss related to fulfilling orders: In the FBA selling format, sellers can focus on increasing the quality of their products and not be concerned with the logistics. Usually, fulfilling the orders comes with many inconveniences, hassles, and added costs that the sellers avoid, especially the new ones.
- Benefits of getting the Buy Box: The Buy Box is the white box where buttons like ‘Add to Cart and ‘Buy Now’ are located. But it is not easy to win the buy box as it is given to one seller at a given time. Fulfillment is one of the variables which plays an essential role in winning the Buy Box, so by choosing FBA, sellers have a higher probability of selling their products.
- High Storage Costs: High Storage costs could be one of the disadvantages of Amazon’s FBA policy. Large, heavy, and cumbersome products have higher costs of storage which might outdo the benefits of Amazon FBA. But, sellers can use the Amazon Seller Central account to use FBA’s Revenue Calculator to compare FBA and FBM fulfillment costs.
- Loss of Authority over one’s products: Sellers would feel a lack of ownership over their products because Amazon will not allow them to inspect their products. They have to completely trust and rely on Amazon to keep their products good. If a seller wants to do product inspections and keep daily tabs on their items, they should not opt for FBA.
- Packaging and Labelling issues: Amazon has a strict policy on packaging and labeling products before putting them in their warehouses. A seller should evaluate the costs in preparing the inventory and sending them before opting for FBA.
According to the Jungle Scout report, only 6% of sellers opt for FBM.
- Sellers can exercise more control over their inventory: Unlike FBA, FBM allows sellers to have full command over their inventory and fulfillment. They can cross-check items many times, which is restricted in FBA.
- Lesser Amazon fees: The FBM sellers have to pay lesser fees to Amazon as they handle everything. If their fulfillment cost is lesser than FBA fees, they profit.
- Non-eligible for Amazon benefits like Buy Box, SEO, etc.: FBM sellers enjoy much lesser Amazon benefits than FBA sellers, which hampers their sale equitability.
- Deal with customer service and handling issues: FBM sellers have to deal with all the pressures and gaffes related to customer service, which can sometimes cost an arm and a leg.
FBA is a viable option for sellers who start their business journey as a side hustle as they do not want to be worried by added pressure like storing products etc. FBM is preferred by those who want to have full ownership over their business and do not seek the intervention of Amazon in their business orders and logistics.