In 2020, there are nearly 3 million active sellers on Amazon. And based on Jungle Scout’s 2020 State of the Seller Report, we know that nearly all Amazon sellers have different methods of finding success on Amazon.
A key differentiator among Amazon sellers is the fulfillment method they choose: Fulfillment by Amazon (FBA) and/or Fulfillment by Merchant (FBM).
Nearly all Amazon sellers (94%) sell using Amazon FBA, and a third (34%) use Amazon FBM. Broken out, Amazon sellers sell:
- FBA only: 66%
- FBA and FBM: 29%
- FBM only: 6%
We’ll take a look at the primary differences between these two fulfillment methods — including which requires more experience and which is more profitable — as well as the factors you should consider when choosing whether to sell on Amazon FBA or FBM.
What’s the difference between Amazon FBA and FBM?
Fulfillment by Amazon (FBA): A method of selling on Amazon in which a seller (or a seller’s supplier) sends their products directly to Amazon’s warehouses. Amazon then stores the inventory and ships it directly to the customer (often through their 2-day Prime shipping). They also manage customer support.
Fulfillment by Merchant (FBM): A method of selling on Amazon in which a seller lists their products on Amazon, but manages all storage, shipping, and customer support themselves (or through another third-party).
Which one should sellers use?
For both small businesses or at-home sellers to major brands with elaborate supply chains, all sorts of Amazon sellers can benefit from both Amazon FBA and FBM fulfillment methods. But how do you choose what’s right for your business?
First, consider your sales strategy:
- Private label: create own product label/brand
- Wholesale: buying products directly from a brand or from distributors with extra stock in order to sell on Amazon
- Retail Arbitrage: buying discounted products through retailers to sell on Amazon
- Online Arbitrage: buying discounted products online to sell on Amazon
- Dropshipping: buying products directly from a manufacturer who fulfills the order and ships directly to the customer
- Handmade: creating/crafting own products to sell on Amazon
Then, there are six major factors you should consider before you select a fulfillment method on Amazon.
- Size and weight of the product
- Control of customer experience
- Seller feedback
- Inventory turnover rate
- Expenses and fees
Below, this article goes into detail on those factors.
Here is a quick overview of which method you should use based on those factors.
You should use FBM if…
- You want more control over your customers
- Your excellent customer service practices are in place
- The products you sell are oversized or heavy
- You already have logistics in place
- You’re able to mitigate the expenses involved in fulfilling your own products
- Your inventory turns over slowly
You should use FBA if…
- The products you sell are small and lightweight
- You’re okay surrendering control to your customers to Amazon
- You want Amazon to handle your customer service
- Your inventory turns over quickly
- You do not have logistics in place
- Your expenses would be higher if you fulfilled your own products
Can you use both FBA and FBM?
Yes. In fact, Jungle Scout’s data indicates that 29% of Amazon sellers sell both FBA and FBM.
If you have a large variety of products, you may consider using both to gain the benefits from the two.
For example, imagine you sell two types of products. One product is oversized and turns over slowly. The second product is small and turns over quickly. To maximize your profits and minimize your expenses, you would use FBM to sell the large/slow-selling product and FBA to sell the small/fast-selling product.
1. Item size/weight
Amazon’s fee structure and logistics are beneficial to FBA sellers who have small, lightweight products that turnover quickly. Inversely, Amazon’s fees (specifically FBA fees and storage fees) are not conducive to selling oversized, heavy products.
To decide which fulfillment method works best for your product, you can use Amazon’s FBA revenue calculator to forecast fees and expenses.
Example 1. You are selling a garlic press FBM, exactly like the image below. Assuming that your price is $7.99 and that your cost to fulfill the product is $6.20, the fee to sell on Amazon is $1.20, and the cost of the product is $1.50. In this case, by selling FBM, you would lose $0.91 each sale.
$7.99 – ($6.20 + $1.20 + $1.50 = $8.90) = – $0.91
However, were you to sell the same garlic press via FBA, the costs would be less. While the cost of the product and the fee to sell on Amazon remains the same ($1.50 and $1.20 respectively), the fee to fulfill the product is $3.64 rather than $6.20.
$7.99 – ($3.64 + $1.20 + $1.50 = $6.34) = $1.65
In the end, by selling FBA, your profit is $1.65 per item (a 20.65% profit margin).
Example 2. You are selling a kayak FBM, exactly like the image below. Assuming your retail price is $75 and your cost to fulfill the product is $28.00, fees are $11.25, and the cost of goods sold is $15. In this case, you would profit $20.75 (a 27.67% profit margin).
$75 – ($28 + $11.25 + $15 = $54.75) = $20.75
However, were you to sell the same kayak via FBA, you would have to account both for the cost to ship the product to Amazon and then to the end user (the FBA fee as described below). In the end, you only profit $4.13 (a 5.51% profit margin).
$75 – ($44.62 + $11.25 + $15 = $70.87) = $4.13
How do I ship products Prime with Amazon FBA vs FBM?
Both FBA and FBM sellers can ship products via Prime. Prime is a program Amazon offers its shoppers that award them benefits such as one or 2-day shipping. According to Amazon, Prime sellers compete more effectively than non-Prime members.
Products that are fulfilled by Amazon are automatically available for Prime benefits. However, products fulfilled by sellers can only sell via Prime if the seller is part of Amazon’s Seller Fulfilled Prime program.
As of this writing, there is a waiting list to join the program, so there is no guarantee of entry.
2. Control of Customer Experience
FBM sellers store their own products, ship their own products, and handle all of the customer service for their Amazon sales.
On the other hand, sellers who use FBA use Amazon to store and ship their products and handle customer service on their behalf. FBA sellers rarely, if ever, speak with their customers. As such, FBM sellers have greater control over their customer’s experience.
3. Seller Feedback
Amazon’s seller feedback system is a way for customers to communicate to Amazon their satisfaction with third party sellers and the resulting transactions.
Seller feedback has two components:
- Star rating: Like a product review, the shoppers can rate the seller’s performance on a scale of 1-5.
- Comments: In addition to the star rating, shoppers can leave comments on why they granted a certain rating to the seller.
Note that the seller rating is different from a product rating/review. The seller rating only covers the elements of the actual transaction such as shipping, whether or not the product matched its description on Amazon, and seller communication.
Because Amazon handles the majority of the steps involved in fulfilling FBA products, FBA sellers have less to worry about when it comes to seller feedback. In fact, if Amazon handles an FBA seller’s transaction and the seller receives negative feedback, the seller can request for the feedback to be removed.
Because FBM sellers have more control over their transactions, they are more susceptible to receiving negative seller feedback on Amazon. As such, FBM sellers must focus more on the condition of the products they send, the speed at which they send them, and how they handle all communications with sellers.
4. Turnover Rates
A seller’s turnover rate is the speed in which they sell and restock inventory. An FBA seller’s turnover rate is important because Amazon tracks the length of time that inventory remains in this fulfillment centers.
The longer a product stays in a fulfillment center, the more storage fees the product accrues. Then, if a product is in an Amazon fulfillment center for 365 days or longer, Amazon starts charging the seller long-term storage fees.
Therefore, sellers with products that have slower turnover rates should consider fulfilling their own products to avoid Amazon’s expensive storage fees.
Picking, packing, and shipping one’s own products can be incredibly time consuming. Therefore, it’s recommended that a seller just starting with Amazon who does not already have their own fulfillment logistics in place start with Amazon FBA. That way, they can focus on the other important elements of building a business using Amazon.
For sellers who are adding Amazon as a new sales channel and already have logistics in place, they may still want to review whether or not Amazon FBA can save them money on fulfillment, especially if they sell and ship high-turnover products.
Amazon FBA sellers must pay FBA fees to ship goods via Amazon’s fulfillment network. FBA fees cover the costs to pick, pack, and ship the goods to the consumer. In a way, they are “shipping and handling expenses” that Amazon charges.
While Amazon FBM sellers do not have to pay FBA fees, they must still consider the expenses involved in handling and shipping their own products. This includes storage costs, labor costs, product packaging costs, and the actual cost to ship the product.
If these costs are greater than what the fees would be to let Amazon handle the fulfillment, the seller should consider using Amazon FBA.
What are the key differences between FBA and FBM sellers?
Beyond the methods they use to fulfill their products, we discovered a few key differences between sellers who use FBA and those who use FBM.
Which is more profitable: Amazon FBA vs FBM?
FBM sellers have more sales and larger profit margins than FBA sellers
- 27% of FBM sellers earn more than $25,000 per month in revenue versus 24% of FBA sellers
- 22% of FBM sellers have profit margins of 25% or more versus 20% of FBA sellers
Which sellers get started selling faster: Amazon FBA vs FBM?
FBM sellers launched their Amazon businesses faster than FBA sellers.
- 51% of FBM sellers took less than six weeks to get started on Amazon versus 34% of FBA sellers
- 31% of FBM sellers realized a profit in fewer than three months versus 21% of FBA sellers
Which method requires less time to manage: Amazon FBA vs FBM?
FBA sellers spend less time on their business than FBM sellers.
- 23% of FBM sellers spend more than 40 hours per week in the Amazon business versus 18% of FBA sellers
- 42% of FBM sellers attribute their success on Amazon to having more time to commit to the business than 37% of FBA sellers who said the same
What are the top product categories for FBA and FBM?
Fulfillment by Amazon
|Home & Kitchen||44%|
|Toys & Games||23%|
|Sports & Outdoors||21%|
|Beauty & Personal Care||21%|
|Health, Household & Baby Care||20%|
|Kitchen & Dining||20%|
|Clothing, Shoes & Jewelry||18%|
|Tools & Home Improvement||16%|
Fulfillment by Merchant
|Home & Kitchen||45%|
|Toys & Games||27%|
|Beauty & Personal Care||24%|
|Sports & Outdoors||24%|
|Kitchen & Dining||22%|
|Clothing, Shoes & Jewelry||22%|
|Garden & Outdoor||22%|
|Health, Household & Baby Care||21%|
|Tools & Home Improvement||20%|
Other Findings: Selling Amazon FBA vs FBM
FBA sellers are heavily focused on private label sales, while FBM sellers engage in other sales models at much higher rates.
- 73% of FBA sellers use the private label business model versus 58% of FBM sellers
- 41% of FBM sellers use the wholesale business model versus 26% of FBA sellers
- 15% of FBM sellers use the dropshipping business model versus 7% of FBA sellers
FBM sellers tend to start with less start-up capital
- 40% of FBM sellers started with less than $1,000 versus 27% of FBA sellers
- 38% of FBA sellers started with more than $5,000 versus 28% of FBM sellers
FBM sellers have far more product listings on Amazon than FBA sellers (with more category diversity).
- Nearly half of FBA sellers (49%) have fewer than 10 products while half of FBM sellers (50%) have more than 50 products.
- FBM sellers had a higher presence in all Amazon categories than FBA sellers
FBA sellers are less concerned with the effects of rising competition than FBM sellers
- 49% of FBM sellers are concerned about increased competition driving down prices versus 46% of FBA seller
- 31% of FBM sellers are concerned that Amazon sells products that compete directly with their own versus 27% of FBM sellers
For more Amazon seller data, see Jungle Scout’s 2020 State of the Amazon Seller Report.