Fulfillment by Merchant (FBM) vs Fulfillment by Amazon (FBA)
In the old days, becoming an Amazon seller was a much larger commitment than today. You had to contact a manufacturer in China (much tougher without a properly working Alibaba) and have items shipped to your house or a warehouse. So, the first order of business was to have someplace to store your inventory. Then, ship all items by hand once a purchase was made. This means, packaging, and individually shipping items was up to you. This process included printing shipping labels and pasting them on each individual box. It was a time and space consuming process. Today, it’s know as fulfilment by merchant. There are still people who do this. However, the creation of Fulfilment by Amazon (FBA) changed everything.
What is FBA?
FBA is a service that allows you as a seller not to worry about inventory for a reasonable fee. Your responsibility is to make sure your inventory arrives at the designated FBA warehouse with proper labels. Amazon takes care of the rest. They handle shipping & handling, storage, and even returns and customer service. You focus as a seller can thus change from logistics to focusing on getting more sales. This system has allowed several people to become Amazon sellers. Many are able to build great businesses and make extraordinary sums of money. You can sell things on Amazon without ever touching your inventory! There is an entire article dedicated to this alone. I recommend reading it if you haven’t already.
Advantages of FBA
Even though Fulfilment by Amazon has been so successful, and has made such an enormous impact on the way we see eCommerce today, some choose to fulfil orders themselves. There are still a few advantages to doing thing the old-fashioned way. Let’s go through them:
No wait time for inventory to become available
There is a certain time of the year (especially the 4th quarter) where inventory takes longer to become available through Amazon. When I say longer, it usually takes 12-24 hours to have your inventory scanned and loaded into the system to be available for purchase. It can take 4 or 5 days for inventory to become available through Amazon around the holidays. More specifically, just before Black Friday, Cyber Monday, or Prime Day. Occasionally, a batch will take 7 or more days to be entered into the system. This can be frustrating if you’re out of stock, watching your ranks plummet while inventory is unavailable. To avoid this, some sellers opt to fulfill orders themselves. This is especially common with seasonal products they know won’t sell for awhile. As an FBM, your inventory becomes available the moment that it comes to your doorstep. Thus, avoiding the hassle involved with delays caused by the FBA receiving process.
You can put in additional materials yourself
Creating added value for customers should always be considered. A small pamphlet or something they can learn from is deeply appreciated if done well. Customers appreciate and notice the extra mile taken. This created brand loyalty and increases chances of your product being recommended by word of mouth. Amazon also forbids sellers from using external links when sending emails via seller central. You can bypass this by creating things that lead customers to your website or social media platform. Here, you can engage them to receive valuable feedback.
It’s not that an FBA seller can’t do this. It’s just easier for an FBM seller to since they handle their own shipping and can make changes much more frequently. An FBA seller would have to coordinate with a supplier. It’s a process that takes time and additional costs. As a self fulfilling merchant, you can have an idea, make it, and begin to put them in your packaging. Split testing and tinkering it much easier for a merchant fulfilled business.
No need for a prep center
A prep center is something most Amazon FBA sellers use, at least until they have faith in their supplier. When you first launch a product, sending batches to a prep center is simply a must. You cannot be sure that your supplier did everything they promised. So, a prep centre is hired for about $1/unit to complete labeling and visual inspections for any damage or faulty packaging. Although, the price can vary on the size of the product. Cost don’t just end there. You also have to have these batches shipped there and from the prep center to the FBA warehouse. This process also takes time which can make a big difference. You want the timeframe, from ordering a new batch to available for sell, to be as short as possible. Adding more time to that process means ordering earlier while calculating projected inventory levels. This leads to less funds to be spent on new inventory shipments. Because it takes so long, you don’t have the luxury to wait for enough of your inventory available to be sold before you make your next order. A self fulfilled merchant doesn’t have to lose time nor money with prep centers. They are a prep center.
Having the ability to personally inspect each new shipment can be a great asset. If you go online, you will see Amazon seller horror stories that almost all could have been avoided if the seller could have inspected their own inventory. Sometimes suppliers cut corners and make sup par batches. Sometimes, an honest mistake occurs. In any case, something wrong with the product can cause most or all products to be returned. It’s a disaster. It can also get your listing suspended or banned.
Proper quality control can cost money since it can require someone to take a few units out and stress test them in various ways to ensure they are up to standards. Self fulfilled sellers can establish their own system and develop their own standards. They also have the ability to save 1 unit/batch to compare to subsequent ones. This way, suppliers can be held accountable. For self fulfilled merchants, it’s impervious to potential quality control disasters, unless they are lazy and don’t bother.
After discussing various ways fulfillment by merchant may be advantageous, it’s time to analyze FBA advantages. After all, the ability to be anywhere in the world and control an intercontinental logistics network is the epitome of passive income as we’ve come to know in the 21st century.
Using the FBA service gives your products Amazon prime status, which is an enormous advantage. First, let’s dwell on who an Amazon prime user is. It’s someone that pays an annual fee of $99 to have certain privileges. These include fast and free shipping and access to special deals and content. It’s estimated Prime users outspend regular users 3-4 times. Obviously, they are avid consumers. The number of prime users on Amazon.com has exceeded 100 million! A common habit these users have is to choose only prime options. This fact alone could be enough for someone to seriously consider transitioning from an FBM to an FBA seller. The same way prime users maintain a special status, so do prime products. These are the only products qualified for a lightning deals. That’s not the only qualification, you it’s necessary to even be considered. If you aren’t familiar with lightning deals, check out our article. Having prime status means you are more likely to be considered by the largest segment of spenders on Amazon.
Getting the buybox
Having the buybox means that when an Amazon user clicks on add to cart, the holder of the buybox gets the sale. If you are selling the same product as another (or a few), you have to battle for the buybox. Not having it means someone looking to buy a product has to click on the small link displayed that reads “other offers” in order to see prices from other sellers. Like the image below:
Since Amazon is always looking out for the interest of their users it’s only natural that they prioritize those that Amazon has more control over. It’s not a desired position. Not because you can’t make sales, but because more people don’t bother looking through other offers. A few factor come into granting the buybox to a certain seller. These include: seller feedback, price, rate of returns, and prime status. Amazon isn’t apologetic about playing favorites and they assign the buybox to a prime seller that has equal qualifications to an FBM seller. This is mostly due to the fact that Amazon can guarantee more things for a product in their system.
Amazon customer service and handling returns
Besides not worry about inventory and shipping, FBA sellers don’t have to concern themselves with returns. For self fulfilled sellers, this process can be strenuous and time consuming. Certainly, no one wants to get a return, yet, there’s no need for a return to cost you time along with money. As previously mentioned, Amazon goes above and beyond for their users and you get to be apart of that using FBA services. You are also backed up by Amazon’s reputation and trust.
Scaling your business
As a self fulfilled seller with a growing business, it’s tough to scale it quickly and efficiently. Let’s say you’ve had to ship 15-20 units/day and now it’s grown to over 100/day. Not only is your time a factor, but storage is also a factor. Business growth requires upgraded storage capacity. What if you have multiple product with different packaging? These costs and space are multiplied as well. Or, you can use FBA and not worry about any of these concerns. You’re sole concern as an FBA seller is to try to sell more products. Your costs don’t expand by other factors. You still pay the same fees per unit, with the exception of probably getting a better deal from your supplier for buying larger quantities. Growth trajectory won’t slow you down. There are no additional costs for new facilities or staff to handle packages. Some sellers make half a million dollars doing it themselves. This is only possible with Amazon FBA.
Your time and your freedom
Using FBA services allow your focus to shift to getting more sales. That’s easier said than done. Successful sellers are constantly on a lookout to improve listings and improve their PPC to keep an eye on the competition. They’re always looking into new products, niches, and opportunities for growth. There are plenty of things for sellers to do. Things that can certainly lead to higher profits. Any business can be divided into 2 components: those that generate growth and profit; those that support to keep the system running. Amazon FBA allows you to outsource all support components and focus on primary ones.
Another important aspect is your freedom. Being an Amazon FBA seller let’s you run a business from anywhere in the world. As long as you have an internet connection, you can log into seller central or read/send a few e-mails to your suppliers and you’re in business. This is one of the more attractive aspects of being an FBA seller. People are trying to get out of the office to be their own boss. It’s a common dream for so many. FBA let’s you do that without having to be stationary and spend hours upon hours every day packing boxes. You can be anywhere in the world spending time on aspects of your business that can actually make you money.
There are some aspects of FBM that might intrigue you. In some cases, it makes the most sense. It can save your inventory time from manufacture to sale. It can also be practical when selling large objects like furniture. Some think it’s better to start by FBM to understand the process better. Either way, all roads lead to FBA. It’s the primary reason selling on Amazon is what we know it as today. It’s facilitated many to become millionaires. Many made millions not using FBA, but they all did it by building facilities and companies around products. This is an option with FBA as well. But, you can grow in a way that was impossible before. It’s a time of great opportunity! Good luck sellers!