The basics: How does Amazon’s Fulfillment by Merchant work?
Fulfillment by Merchant, also known as FBM, is the most basic way to sell on Amazon. For anyone new to the Amazon platform, it’s the best way to learn how to navigate Amazon, and from there, the world of ecommerce.
There are many advantages to FBM, and it’s arguably the best way to start on Amazon so that you can learn the process. FBM is just what it means: you handle customer service and fulfillment (packing and shipping) for the items you’re selling.
This is not to be confused with Seller Fulfilled Prime, or SFP, which allows merchants to sell items with the Prime badge provided they meet criteria like shipping speed. SFP is an opt-in program for FBM sellers. Read more about the different selling processes.
First, what are some of the advantages of using FBM?
By default, new sellers will be fulfilling their own orders. When you list an item for sale on Amazon as a new seller, it’ll automatically be self-fulfilled unless you change the setting to allow Amazon to provide customer service and fulfill the order.
List your items and sell immediately
The major advantage of FBM is that your item is immediately listed for sale on Amazon, so this option is a great way to start earning sales. Fulfilling your own orders will give you a better understanding of how Amazon works. Customer service (answering questions and handling returns) and picking, packing, and shipping, are all valuable skills, and it’s better that you understand how this works rather than jumping straight into FBA. You can even mix your items so that you’re selling some as FBM and some as FBA. This may be the better option for some since your product can start generating sales while your inventory is being processed for FBA.
If you’re creating a new listing, you may want to read our article on UPCs before you purchase a third-party block of codes.
Lower fees with FBM
Another advantage of FBM is that it doesn’t have any of the fees associated with FBA. FBA fees include storage fees, fulfillment fees, and possibly other fees depending on what you’re selling. The cost of preparing and shipping to an Amazon fulfillment center, coupled with FBA fees, can exceed the costs associated with shipping the item out yourself, especially for low-value items. While you may not pay Amazon these fees, you’re still paying them one way or another: you’re storing your product somewhere, and even if it’s at your home, you’re dealing with the stress of having every available square foot filled with inventory.
Depending on what you’re selling, your inventory may not move as quickly. If you have just a handful of expensive niche items, then you may be waiting months before it sells. If it doesn’t move after 6 months, then you’ll incur additional long-term storage fees with FBA. With FBM, you won’t have to worry about storage fees. While you may be paying a little more for the shipping, it may even out once you factor in storage fees.
Better customer service or quality control
The appeal of using FBA is that it’s an automated process. But if you’re selling more complex items, then having to rely on Amazon customer service to answer questions and process returns may not necessarily be a good idea since they’re not knowledgeable about the products. A product listing for a bath towel isn’t difficult to understand, but computer parts are more complicated.
Additionally, if you’re fulfilling your own orders, then you have the ability to look over the items that are shipping to ensure the quality of the product. Shipping from the factory straight to an Amazon fulfillment center without inspection can lead to higher return rates because of product defects. You can avoid this whole issue since you’ll be able to see if there’s anything wrong with the item before you ship it. Warehouse workers and automated systems that handle FBA orders may not necessarily care or know that the items they’re packing are obviously damaged (crushed, dirty, or obviously used).
While there are obvious advantages to FBM, there are two main disadvantages as well.
Lower likelihood to win the Buy Box
The Buy Box, which is the price of the item plus shipping, is one of the most important features for sellers. The Buy Box is conveniently located, and customers now expect that price to be the lowest. Any seller featured in the Buy Box will capture more than 80% of customers looking to purchase the item, making owning the Buy Box critical to success. If you look below the Buy Box, other sellers are featured, but they are not as prominent. One of the criteria Amazon uses for Buy Box eligibility is shipping speed, and sellers using FBA have a higher priority than FBM sellers.
One way to get around this Buy Box limitation is to enroll in Amazon’s Seller Fulfilled Prime (SFP), but the requirements are very strict because of the 2-day shipping expectation. This can lead to higher shipping costs (2-day or overnight), so enroll only once you’ve done your research, or you could end up losing a lot of money due to unexpected shipping costs.
You’ll want to improve your product ranking to increase your chance of winning the Buy Box.
A lot more work packing and shipping
If you’re becoming serious about selling on Amazon, then you’ll eventually need to automate aspects of your business. Even if your catalog of inventory is just a handful of items at a hundred or so each, then you’re still looking at packing and shipping those items yourself. You could be spending hours a day printing labels, packing, and shipping. You’ll also have to manually type in the tracking information unless you’re using a third-party service. The amount of time you spend here doesn’t necessarily grow your business. Instead, you’re bogged down handling a part of your business that can easily be delegated. If you want your business to grow, you’ll have to find ways to automate the more labor-intensive tasks like packing and data entry for accounting.
Ultimately, what whether you use FBM or FBA depends on what your goals for the business are. If your goal is to expand with minimal overhead, then using FBA is the best option since it’ll significantly reduce labor costs. But FBM may be a good choice if you’re selling certain items, like antiques or other products that have special packaging or shipping instructions. And it’s an excellent place to start for anyone new to the Amazon marketplace.