As an Amazon seller, you have to select the right fulfillment option. You have two options for getting shoppers their stuff: (1) Ship orders out yourself, which is known as seller-fulfilled or Fulfillment by Merchant (FBM), (2) Use the Fulfillment by Amazon (FBA) program and pay Amazon to store and ship your products to customers.
If you’re fulfilling your own products (FBM), you’re maintaining your own inventory, and you store and ship products directly to customers yourself. Amazon charges shipping rates based on the product category and shipping service selected by the customer, then passes the amount on to you in the form of a shipping credit. On the other hand, if you opted to choose FBA, you can have Amazon take responsibility for packaging, labeling, and shipping products. Around the world, Amazon has more than 175 fulfillment centers which contain more than 150 million square feet of storage space. With FBA, you get to store your stuff on those shelves. Below are the steps on how FBA works:
- Step 1: You ship your inventory to Amazon. The items will be scanned and made available for sale.
- Step 2: Amazon will pack each order, then ship the product directly to the customer.
- Step 3: Payment will be collected by Amazon from the customer, and then pays you available funds every 2 weeks.
- Step 4: All questions, queries, including returns and refunds, will be handled by Amazon customer service.
In choosing the right fulfillment, you have to consider both the costs and responsibilities. Amazon FBM requires a firm hand on your selling responsibilities to manage things smoothly as well as make profits. You also have to consider the shipment and customer service. While FBA already handles those things for you, you still have to calculate it right, otherwise, it can eat up your profit margin. Below is the full comparison of both fulfillment options:
Fulfillment by Amazon means your inventory is completely fulfilled by Amazon. They take care of it all. You send a portion of your inventory to Amazon’s fulfillment centers, where it’s stored until a customer decides to buy it. Amazon then picks, packs and ships the items to your customers, while you sit back and profit. With FBM, the fulfillment is in your hands. Customers will purchase through Amazon, but you will ship the items directly to them with no intervention from Amazon. You will use Amazon’s brand name and shipping rules, but it’s up to you to pick, pack, and ship the items to your customers.
If you choose FBA, there’s what we call FBA Fees. Amazon will do almost everything for you so you can expect them to ask for something in return. Amazon’s fulfillment fees can change at any time. These rate structures and policies are updated yearly — and sometimes even more frequently. FBM users, on the other hand, are able to avoid these fees since you’re not sending anything to Amazon to be stored, handled, packed, shipped, or returned.
The storage of your inventory is another area that highlights the differences between these two fulfillment options. Unlike in FBA, you’ll be needing your own warehouse to store and control inventory and fulfillment as an FBM seller. It can be costly to acquire, maintain, and staff since your warehouse must be streamlined to process orders at high efficiency.
- Inventory Control
When your inventory is fulfilled by Amazon, you need to determine exactly what’s in stock and when inventory is getting stale. Amazon charges penalty fees for inventory stored in a fulfillment center for longer than six months. The longer you hold your stocks, the higher the fee. The difference when it comes to FBM is that you have complete control over your stock — no split inventory between Amazon’s warehouses and your own. All your inventory can be stored in one central location, meaning you have complete power over your stock.
When you choose FBA as your fulfillment option, Amazon will handle the returns on your behalf by means of their customer service. It will be very useful for you as you can save time and resources. However, Amazon will send you a general box of returned goods so it will be very hard for you to distinguish which returned item ties to which order. With FBM, you will handle all returns. This means you’ll need to have your own highly operational returns and customer service departments.