As an Amazon seller, one of your most important decisions is choosing your fulfillment method. This is the process of storing, packing, and shipping orders, as well as handling returns and exchanges. Some businesses use Amazon’s fulfillment service, while others manage the fulfillment process in-house. This article discusses the pros and cons of each option and how to determine which is best for your brand.
What is Fulfillment by Amazon?
Fulfillment by Amazon (FBA) is a service that allows businesses to outsource order fulfillment to Amazon. When a customer makes a purchase, Amazon picks, packs, and ships the order from their fulfillment centers. Amazon can also provide customer service and process returns for those orders. Amazon FBA is a good option for brands that meet the following criteria:
- Turn over inventory quickly
- Have a large inventory but little-to-no storage options
- Are unable to fulfill orders in-house
- Don’t have logistics in place
- Have limited resources for customer service and processing returns
- Need a cost-effective, pay-as-you-go fulfillment option
Pros of Amazon FBA
- The Prime Badge: Qualified FBA listings are displayed with the Prime logo, which denotes trust to customers. Products enrolled in FBA are also eligible for free two-day shipping (and next day shipping in some cases).
- FBA Customer Support:Shoppers can contact Amazon customer support via phone or email. This service is provided at no extra charge to FBA sellers, with the exception of the Returns Processing Fee for select product categories.
- FBA Returns: Amazon manages all customer service associated with FBA products and provides customers with help pages and details about how to contact Amazon in case of concerns.
- Access to Additional Programs: FBA offers additional programs and services to help sellers grow their brand, including FBA Small and Light, FBA Subscribe & Save, and FBA Export.
Cons of Amazon FBA
The biggest disadvantage of FBA is the cost. Since Amazon is storing, picking, packing, and shipping your orders, you will be charged a variety of fees. Before enrolling in FBA, it is important to consider how these costs will factor into your profit margin. Below is a basic breakdown of the different fees associated with FBA:
- Inventory storage fees: Charged for all items stored in an Amazon fulfillment center and based on your daily average volume of inventory measured in cubic feet.
- Long-term storage fees: Assessed monthly for all items stored in a fulfillment center for more than 365 days. Maintaining sound inventory health can help you avoid long-term storage fees.
- Fulfillment fees: Charged per unit for picking and packing your orders, shipping and handling, customer service, and product returns.
- Unplanned services fees: Charged when inventory arrives at a fulfillment center without proper preparation or labeling, making unplanned services required.
- Removal order fees: You can have Amazon return or dispose of your inventory in a fulfillment center for a per-item fee.
- Returns processing fees: Charged on orders when Amazon provides a customer with free return shipping.
What is Fulfilled by Merchant (FBM)
FBM is a method of selling in which sellers list products in Amazon stores, but manage all storage, shipping, and customer support independently. This is a common approach for brands that have their own warehouses and logistics network. FBM may be a good option if you meet the following criteria:
- Sell a low volume of products
- Have large or heavy items to ship
- Have plenty of space to store products
- Keep a small amount of inventory
- Deal with minimal fulfillment requirements
- Easily provide customer service and returns in-house
- Already have smooth-running logistics in place
- Have temperature-sensitive goods
Pros of Amazon FBM
FBM allows sellers to be in control of their inventory, storage, packaging, and shipping. This means fewer Amazon fees, which results in higher margins for your products. FBM also eliminates the costs involved with shipping your products to Amazon fulfillment centers.
Shipping via FBM allows you to ensure the quality of each item at the time it is shipped to customers. With FBA, you are relying on Amazon workers who will often pack and ship your products regardless of whether or not there is any damage. Maintaining quality control over your shipments results in less negative feedback, which can quickly harm an Amazon business via bad reviews.
Another benefit of FBM is the ability to provide custom packaging, which helps establish your brand and provides a better customer experience. When you ship via FBA, your products will all arrive in Amazon-branded boxes or poly-mailers. This is good for Amazon but not necessarily for your brand. By using FBM to fulfill orders, you can also provide inserts, thank you cards, and free gifts. This can be a powerful way to build customer loyalty and repeat business. With FBM, you must adhere to Amazon’s policies about what you can and cannot include in your packages.
Cons of Amazon FBM
The biggest disadvantage of FBM is not having access to the Amazon Prime Badge, which is only available to FBA sellers. Earning the Prime badge guarantees free, two-day delivery for eligible products (sometimes faster) to more than 200 million Prime members. It is important to note that Amazon offers a Seller Fulfilled Prime program, but it is not accepting new registrations at this time (August 2022).
Not having the Prime badge also makes it more difficult to win the buy box. While this is not officially confirmed by Amazon, Channel Key has found that most products that win the buy box are enrolled in FBA.
Another challenge of FBM is meeting Amazon’s strict fulfillment requirements. Amazon requires you to ship an order within 24 hours of receipt. You also need to provide valid tracking. Amazon monitors FBM sellers with metrics like late shipment rate, pre-fulfillment cancellation rate, and valid tracking rate. If you don’t adhere to these fulfillment standards, Amazon may suspend your selling privileges.
Channel Key Takeaway
Fulfillment is an important component of every ecommerce business. Effective, reliable fulfillment earns trust from customers. Choosing the right fulfillment method can give your business a competitive edge by helping you manage customer orders, send shipments on time, and obtain accurate information about product inventory. FBA and FBM both offer advantages and disadvantages. For this reason, a hybrid fulfillment solution is often the most beneficial strategy. Many brands use FBA to fulfill high-margin and/or best-selling products. This reduces the impact of Amazon fulfillment and storage fees while eliminating the workload required to fulfill these items in-house. Conversely, you might consider FBM for low-margin and/or slow-selling products since these would likely yield a poor return after factoring in all FBA costs. In any case, be sure to evaluate the pros and cons of each option as they relate to your products, capabilities, and needs. Choosing the right fulfillment strategy will help keep your customers happy and your business profitable.