FBA vs FBM – Which is Better?

Storing inventory in your garage or dining room and labeling packages yourself may be manageable if your e-commerce business is still very small. However, as your company continues to grow, you will have to make choices about how to handle e-commerce fulfillment in a way that saves you money and time while giving your customers a positive experience. For Amazon sellers, the choice is between FBA (Fulfillment by Amazon) and FBM (Fulfillment By Merchant). There are pros and cons to both approaches, but with careful research into the services available, you can make the best choice for your business.

The Challenge: Customer Expectations

Amazon and other successful e-commerce sites have played a large part in raising customer expectations for delivery. Studies show that 86% of online shoppers expect fast delivery, and nearly half would pay more for better delivery options. They also expect a guaranteed delivery date, a clear and favorable return policy, and tracking status updates. Notably, 51% of shoppers did not complete an online order because they did not like the delivery choices.

Meeting Fulfillment Needs Yourself Versus Using a Service

Meeting all the demands of e-commerce fulfillment yourself can become a massive undertaking. To remain competitive, you will need not only your own warehouse space and staff who can pick and pack seven days a week but also experts in shipping regulations and a responsive customer service staff. Unless you want to grow that aspect of your company into its own division, using either Amazon or an independent third-party fulfillment service will free up your time and reduce your overhead expenses. You need only send your inventory to them, and they will worry about warehouse staffing, overseas deliveries, and returns.

Pros and Cons of Fulfillment by Amazon

Choosing Amazon fulfillment allows you to tap into Amazon’s enormous size and reach. Their coordinated network of warehouses is located throughout the U.S. and the world, and the volume of their business helps them negotiate good shipping rates. In addition, becoming an FBA client connects you to over a hundred million Amazon Prime subscribers who frequently choose to only see Prime-eligible vendors in their search results (although now FBM vendors also have the opportunity to be Prime certified, as described below).

The largest negative to FBA is the size of their fees. Several independent third-party fulfillment providers can provide the comparable service at a lower cost. If your margins are smaller, the difference in cost could be significant. Selling through FBA also requires a double-labeling process that could be confusing, unless you pay Amazon additional fees. Finally, if you need customer service from Amazon as a vendor, you will not be as important to them as you would be to an independent fulfillment provider.

Pros and Cons of Using a Third-Party Service

The largest advantage to using a third-party service is that their fees will usually be lower than Amazon’s. Different providers will often have different fee schedules, so be sure to compare rates based on the size and weight of your actual products and sales to discover which provider is really giving you the best rate. If their warehouses are well-located, and their operating systems are top-notch, your customers may still receive their packages just as fast at less cost to you.

Another advantage is that many Amazon customers feel more confident in FBM services, seeing them as a way to ensure good customer service and greater accountability for the quality of the products.

The downside to using a third-party fulfillment service is that choosing the most profitable option for your individual company takes a little research and cost-comparison. Another disadvantage is that your products won’t automatically be certified for Amazon Prime. Fortunately, FBM vendors can now qualify for Seller-Fulfilled Prime, although it requires a Professional Account and an excellent performance history. More fulfillment providers may be offering this service in the future, so be sure to ask.

Selecting a Third-Party Fulfillment Service

Do they have experience with shipping packages that are similar to yours in terms of size, weight and special handling needs?
Do they ship to the same regions where most of your customers are located?
Compare all fees; many independent fulfillment providers can beat Amazon on cost.
How well will their software integrate with your systems?
Track their rate of successful deliveries. It should be close to perfect.
Will their delivery options and return policy appeal to your customers?
Can your products be Amazon Prime Certified?

FBA Terminal supports a wide range of e-commerce platforms with seamless integrations, fast warehouse processes, and comprehensive returns management. To learn how we can save you money while exceeding customer expectations, contact us here.

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