Pros and Cons of FBA and FBM

Amazon FBA Pros:

  • Prime eligibility
    This is one of the biggest benefits to FBA. Your products are automatically eligible for Amazon Prime free two-day shipping and other Prime benefits such as free shipping and increased chances of winning the Buy Box. With Prime, you’ll likely sell more inventory, since your product is associated with Amazon. It’s estimated that Amazon has 60 to 80 million Prime members who shop more frequently and spend more than non-Prime members. The Reputation Institute named Amazon the #1 most reputable global company among the American general public, so it’s safe to say that shoppers typically trust products fulfilled by Amazon itself.

  • Hands-off fulfillment
    With FBA, you’ll have a freed-up time. It allows you to focus your time and resources on important aspects of your business without worrying about fulfilling orders, instead of spending it on the logistics of storing, packing and shipping your inventory to customers. Amazon takes on the task of filling your customer’s orders including customer service and returns. FBA provides a simplified process of hands-off packing and shipping. Amazon will also store your inventory in its warehouses, so that you’re not stuck with hundreds to thousands of units scattered across your living space. 

  • Buy Box advantages
    The Buy Box is the CTA (Call to Action) that leads Amazon shoppers to purchase the product on the product listing. The Buy Box is found on a product page and contains the price, shipping information, seller, and an “add to cart” button. The purpose of the Amazon buy box is to give shoppers a streamlined, easy shopping experience. On the first product page shown to them, customers can add the item they want. And, they know they’re buying from a trusted marketplace seller.

    When multiple sellers are selling the same item, one seller will “win” a purchase made on the Buy Box, while other sellers can be found underneath the Buy Box. When Amazon shoppers buy a product, they do so through the Buy Box 82% of the time (as opposed to the “Other Sellers” section). This is why it’s so crucial to win the Buy Box as often as possible. When you’ve got the Buy Box, you’ll likely get the purchase. Many factors determine who wins the Buy Box: from seller rating to order defect rate to customer response time. One of the biggest factors in determining who wins the Buy Box is fulfillment method. Generally, an FBA seller can price a little higher than an FBM offer and still hold the Buy Box.

  • Multi-channel fulfillment
    Access fast, trusted shipping by Amazon for orders made from other sales channels. Amazon will store your inventory in its fulfillment centers and will pick, pack, and ship them to customers when products sell on your own site or other e-commerce sites. This makes integrating FBA into other channels fairly effortless. Amazon handles the details to save you time, so that you can focus on your business.

  • Lower shipping rates
    Depending on the size and weight of your product, the fees associated with selling FBA will typically be smaller than shipping costs you’d spend fulfilling the orders yourself. It’s likely that the fees Amazon charges to ship your products are lower than what you would get through your own shipping account. Amazon is the largest online retailer in the world, and with that comes pretty drastic shipping discounts. Take advantage of those discounts by fulfilling through Amazon.

Amazon FBA Cons:

  • Additional fees
    Amazon charges different FBA fees, including fulfillment fees, monthly inventory storage fees, closing fees, and order handling fees. Depending on the product’s category, you may run into a few additional fees, such as a high volume listing fee. You’ll also need to consider the cost to ship the product to Amazon’s fulfillment centers. On top of that, you may run into long-term storage fees and Q4 storage fees. These fees vary depending on the size of your item and can be complicated to calculate on your own. Use the FBA revenue calculator or the Fee Preview report to determine what you are paying in fees for each of your products.
  • Limited access to inventory
    You’ll have limited access to your products as your inventory is in Amazon’s fulfillment centers. Inventory can also be harder to track without a hand in the process. If there are quality problems with your inventory or the wrong product is being sent out to customers, sellers are obviously not able to walk into the warehouse and review their inventory.You must rely on Amazon to resolve the problems or have inventory removed and shipped back to you.
  • Preparing products
    Labeling products can be a tedious and tiring process, especially for newbie Amazon sellers. You have to label each unit so that the correct item can be picked up from Amazon’s inventory and shipped to the customer. There are two kinds of barcodes that you can use to identify your products: manufacturer barcodes or Amazon barcodes. However, Amazon does provide the option for eligible products to have Amazon apply barcodes for you for a per-item fee, called FBA Label Service. You can also speak to your supplier and have them label for you to help save on these costs.
  • Multi-channel fulfillment is pricey
    If you choose to use FBA multi-channel fulfillment, you’ll incur some additional, hefty fees. In addition to that, you’ll be charged for long-term storage fees on the 15th of each month for inventory that has been at FBA for more than 181 days. You will need to be aware of your inventory age and have a plan to sell through or remove your older inventory to avoid these penalty fees.
  • Tax Obligations
    Contrary to what you may think, Amazon does not automatically collect sales tax for the seller. To enable tax collection on purchases, sellers have to provide their state tax registration numbers for each state they want Amazon to collect tax for. Sellers can then enable Amazon sales tax collection within the Tax Settings in Seller Central. Amazon will store the inventory in many warehouses across different states, which will constitute a sales tax nexus (or significant presence) in those states. If a seller has a sales tax nexus in a state, he or she has to collect sales tax from people who buy the product and live in that state. As an FBA seller, It’s important to understand your tax obligations.

Amazon FBM Pros:

  • Hands-on fulfillment
    With FBM, you have more control over inventory, and some sellers certainly see this as a benefit. If you store and ship your inventory yourself, you will maintain hands-on access to your inventory whenever you need it. You store, pack, and ship products, so you can access your inventory whenever you need it. This allows you to take more ownership of the actual fulfillment process.
  • Opportunity for Prime.
    Amazon recently rolled out a new program that allows you to enroll seller-fulfilled products in the Prime program. Seller-Fulfilled Prime allows all Amazon sellers to access FBA benefits without the increased FBA fees. The criteria for approval to Seller Fulfilled Prime is pretty extensive, and includes having good standing with a Professional Account, existing premium shipping order volume and outstanding performance metrics. Sellers have to apply to the program and show that they can meet Amazon’s strict shipping standards.
  • Fewer Amazon fees
    By fulfilling your products on your own, you will have lower costs. Selling FBM, you’ll skip out on paying the fulfillment fees and storage fees associated with selling FBA, though you’ll still incur referral fees and closing fees. Because Amazon’s fees are based on the size of the item, if you have a large item with small margins you will want to compare the costs of using FBA vs. handling fulfillment yourself.
  • Slightly higher margins
    Because you’re paying fewer fees without having Amazon fulfill the orders, you’ll likely make slightly more on each sale (depending on the product). However, you’ll likely drive less sales, especially if you’re not Prime. Over half of Amazon shoppers are Prime, and many times they’ll want Prime products, since they’re paying annually for free two-day shipping.

Amazon FBM Cons:

  • More responsibility
    When selling FBM, responsibility falls on you, and your responsibility requires discipline. You’ve got to be on the ball all day, every day, including weekends and holidays. You’ll take care of packaging, shipping, and managing inventory. Amazon is fanatical about customer service and will penalize sellers for late and incorrect shipments. Without a strong, quality-controlled process, you will make mistakes. Those may lead to a lower seller-health rating, which affects how you show up in search and reduces your chances of winning the Buy Box. Amazon isn’t there to take the blame if something goes wrong, so be ready to stay on top of everything. Too many errors and Amazon could suspend your seller account, even permanently.
  • Not automatically eligible for Prime
    While you can be Prime using Seller-Fulfilled Prime, Amazon will make you work for it. And, you’ll have to constantly stay on top of your game to keep your seller metrics clean. You may also miss almost half of Amazon shoppers who are Prime. The 2-day free shipping with Prime is often a purchase criteria. Without being Prime, you’re missing out on many customers who many have purchased your product if it were Prime. Again, you can enroll in Seller-Fulfilled Prime, but it’s a sizable task.
  • Overhead costs
    While you won’t pay fulfillment and storage fees selling FBM, you will likely have more overhead costs, including your own storage, fulfillment, and shipment expenses.
  • Potentially Lower Conversions
    In FBM, there’s a high risk of you getting a lower selling price. To win the Buy Box and compete with other FBA sellers, you may need to keep your sales price low. This will affect margins and could start a pricing war.
  • Elusive Buy Box
    Because the fulfillment method is a major factor in determining who gets the buy box, FBM sellers will have a harder time getting and keeping the buy box than FBA sellers. FBM sellers may have to set a lower price to win.