One of the most important decisions for any Amazon seller is the choice of selling model. FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant) differ in e.g. where the goods are stored, how the returns are handled, or how the customer service is implemented. Find out the differences between these two models in detail!
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1. Different selling models on Amazon
Anyone starting their sales on Amazon is faced with the difficult choice of FBA or FBM? Which logistics model on Amazon to choose? The choice is not that obvious and therefore, both beginners and experienced sellers face a similar dilemma.
Both Amazon FBA and FBM have their specific advantages, although they work on different principles and have different seller’s obligations. Read and learn what’s Amazon FBM and how Amazon FBA works.
2. Amazon FBA for beginners
The Amazon FBA (Fullfilment by Amazon) is a sales model in which the seller passes the burden of storage, packaging, shipping and returns to Amazon. The products are sent to Amazon’s logistics center, where they are stored and processed further.
Benefits of Amazon FBA
This sales model has many advantages that make it a popular choice among the sellers.
- The products automatically join the Prime program, which offers free shipping within two days for subscribers. Globally, as many as 63% of Amazon customers use subscriptions, and the Prime filter is one of the most frequently used on the platform. This is a huge potential which increases the attractiveness of the offer.
- Instant order fulfilment that is processed 24/7. You don’t need to increase your internal capacity to benefit from professional and fast order processing. Amazon will take care of all the logistics.
- The handling of any returns is on Amazon’s side. This simplifies the whole process significantly.
- Vendors using the FBA model gain access to many marketing features such as Lighting Deal and Deal of the Day. This helps attract more customers.
- FBA products are displayed higher in the product ranking, and the chance of winning a Buy Box is also greatly increased. If the prices of competitors not using FBA are the same as yours, and the reviews on your account are higher, it’s a win! This results in a better visibility and leads to potential profits.
Challenges of Amazon FBA
The biggest concern for the sellers who are interested in Amazon FBA is the cost. Storing goods in Amazon’s warehouse is a very convenient option, although it doesn’t come free of charge. Moreover, the seller is obliged to cover the costs for packaging, shipping and handling of returns as well.
What are the costs of Amazon FBA? These are calculated individually. The following factors are taken into account:
- the weight of the products,
- package dimensions,
- product category,
- product price.
Fees are applied for fulfilment, storage, optional services (returns, disposal, labelling, additional packaging), long-term storage and selling into countries different from the one in which the goods are stored.
Proper preparation of items is also important. Amazon requires, among other things, that all products that arrive at their logistics centers are appropriately labelled. A label with a visible GTIN/FNSKU code is required. Failure to meet packaging standards will result in products being returned to the seller.
3. Amazon FBA in Poland
Sellers in Poland can benefit from one of several FBA programs operating in the European Union.
- Pan-European (PAN-EU) – the seller ships products to one of the logistics centres and Amazon distributes them to other European warehouses to be closer to potential customers. Importantly, there are no cross-border charges.
- European Fulfilment Network (EFN) – allows the products to be stored in a local logistics center so that the orders can be dispatched from there to other European markets.
- Multi-Country Inventory (MCI) – allows FBA units to be stored in the logistics centers in a number of European countries.
- Central Europe Programme – allows retailers who would store their products in warehouses in Germany to use logistics centers in Poland and the Czech Republic.
Interesting fact: Due to Brexit, on the 1st of January 2021 Amazon FBA stopped processing the sales and inter-warehouse transfers between the UK and the European Union. If you want to use the FBA model in the UK, you will need to register to the UK VAT and then send the goods to the warehouses located there.
Interested in finding out which logistics model on Amazon will work better for your business?
4. How Amazon FBM works
What is Amazon FBM? Fulfilment by Merchant is a system in which the seller takes full responsibility for warehousing, packing, shipping and returns. Shipping from your own warehouse is a popular choice for first-time sellers who are uncertain about the success of their products on Amazon.
Benefits of Amazon FBM
Amazon FBM has many advantages. Find out more about them!
- You have a greater level of control over your business and greater independence from Amazon’s policy changes. This allows you to grow your business in the direction that you have chosen and to build an independent brand. If Amazon changes its policy, you don’t suffer any loss.
- Control over the stock of products can be carried out in real time. This allows for a better control of e.g. expiry dates.
- Packaging is the seller’s responsibility, allowing you to use cardboard boxes and tapes with your own logo, or include a personalized thank you note with each package. Order picking can be done at a convenient time.
- You decide the delivery charges in each market.
Challenges of Amazon FBM
Amazon FBM requires a lot of commitment from the seller, including having a proper warehouse and hiring people to handle orders from Amazon. Packaging and shipping must always be on time. More responsibility is on the seller’s side.
Main disadvantage of this solution is the difficulty of joining the Prime programme. The seller isn’t automatically included in it and must meet a number of criteria, such as:
- on-time delivery rate higher than 99%,
- order cancellation rate of less than 0.5%,
- use of Amazon Buy Shopping Services for 99% of orders,
- ensuring delivery for all standard sized products,
- using shipping methods that ensure collection and delivery also at the weekends,
- committing to accept Amazon’s return policy
The above conditions must be fulfilled during a 30-day trial period. After passing it, the seller will be included in the Prime programme.
5. Amazon FBA or FBM. Which sales model to choose?
Amazon FBA is for you if::
- you sell fast-moving consumer goods (FMCG),
- you don’t have a warehouse to store your products,
- you don’t want to employ more people to handle the orders,
- the products you sell are small-sized,
- you don’t want to waste time on customer service.
Amazon FBM will work better for you if:
- your products do not sell quickly, are unique or luxurious,
- you have the ability to handle customer service and returns,
- you know you can always ship and deliver packages on time,
- you have storage space,
- you sell large products.
Amazon FBA and FBM sales models offer different opportunities. Which one is the better choice for your business? There is no simple answer to this question. However, the decision depends on many additional factors that you must take into account as a seller. It is important to weigh up all the pros and cons before choosing your logistics model. If you have any doubts, you can consult our experts. Get in touch with us today!