Find the model that fits your company

How do you sell on Amazon? That’s a question we often hear when we are out talking to businesses about their potential on Amazon. Generally speaking, there are three ways to sell your products; FBA, FBM and Vendor.

All three sales models are profitable, but which one suits your company and your product?

The most popular models are FBA and FBM, which we also recommend to our customers, as they give the company the most control over their brand. Below you will get a good overview of the advantages and disadvantages of each model.

FBM – Fulfillment By Merchant – Pros:

• Hands-on fulfillment. With FBM, you have more control over inventory, and some sellers certainly see this as a benefit. You store, pack, and ship products, so you can access your inventory whenever you need it. This allows you to take more ownership of the actual fulfillment process.
• Fewer Amazon fees. Selling FBM, you’ll skip out on paying the fulfillment fees and storage fees associated with selling FBA. You’ll still incur referral fees and closing fees.
• Opportunity for Prime. Seller-Fulfilled Prime allows all Amazon sellers to access FBA benefits without the increased FBA fees. The criteria for approval to Seller Fulfilled Prime is pretty extensive, and includes having good standing with a Professional Account, existing premium shipping order volume and outstanding performance metrics.
• Slightly higher margins. Because you’re paying fewer fees without having Amazon fulfill the orders, you’ll likely make slightly more on each sale (depending on the product). However, you’ll likely drive less sales, especially if you’re not Prime. Over half of Amazon shoppers are Prime, and many times they’ll want Prime products, since they’re paying annually for free two-day shipping.

FBM – Fulfillment By Merchant – Cons:

• More responsibility. When selling FBM, responsibility falls on you. Packaging, shipping, managing inventory… It’s all you. This can be a pro for some sellers, but it gets pretty daunting with high volume products. You’ve got to be on the ball all day, every day, including weekends and holidays. Amazon isn’t there to take the blame if something goes wrong, so be ready to stay on top of everything.
• Not automatically eligible for Prime. While you can be Prime using Seller-Fulfilled Prime, Amazon will make you work for it. And, you’ll have to constantly stay on top of your game to keep your seller metrics clean.
• Buy Box is harder to win. Because fulfillment method is a major factor in determining who gets the buy box, FBM sellers will have a harder time getting and keeping the buy box than FBA sellers. FBM sellers may have to set a lower price to win.
• Overhead costs. – While you won’t pay fulfillment and storage fees selling FBM, you will likely have more overhead costs, including your own storage, fulfillment, and shipment expenses.
• Missing out on Prime members. Because over half of Amazon shoppers are Prime, 2-day free shipping with Prime is often a purchase criteria. Without being Prime, you’re missing out on many customers who many have purchased your product if it were Prime. Again, you can enroll in Seller-Fulfilled Prime, but it’s a sizable task.

FBA – Fulfillment By Amazon – Pros:

• Effortless Shipping and Logistics: Amazon does all the work for you. You just keep track of your listings, make sure they’re stocked on product, and let the fulfillment be taken care of from start to finish. For a small fee, you get a big weight off your shoulders.
• Discounted Shipping Rates: Because you’re working with Amazon, a global fulfillment giant, you’re also going to spend less on your shipping costs through the FBA platform. Therefore, even though you’re paying fees, they may be lower than you think when you factor in the shipping savings, and still cheaper than managing your own shipping and fulfillment in-house.
• Return Management: In addition to sales, FBA also handles returns and refunds because they are considered part of the fulfillment process. This takes one more thing off your plate.
• Customer Service Management: Amazon offers their own customer service for FBA sellers. You can also use their FBA platform to take care of your own customer service needs, routing all of your service through one platform for easy management.
• Quick Delivery: Products in FBA automatically get the Prime badge and are eligible from Prime free shipping (to the customer) and shipping times. Plus, you aren’t going to have to pay or charge premium shipping rates to do that, because it’s included with the service.
• More Storage Space: Without FBA, how much inventory could you realistically store? Do you have a warehouse or means to rent one? Are you capable of moving and managing inventory on that scale? This is where the Fulfillment by Amazon program really wins. You essentially have access to unlimited storage space – for a cost – because Amazon has warehouses all over the country that can hold a lot of goods.

FBA – Fulfillment By Amazon – Cons:

• Cost: For those who are trying to get started, money is everything. FBA is indeed a really handy service, but it costs money. That’s money that some people might not have to spend just yet. Plus, this service isn’t good for low-cost items because of the way fees are calculated, so you’ll want to be selective about products you enroll.
• More Returns: In many cases, there have been sellers who see an increase in the number of returns or their frequency. This is due, in part, to Amazon’s open return policy. While this could affect the bottom line, Amazon handles the processing, so it’s not the end of the world. While Amazon used to have returns shipped back to them and you would have to arrange to have them then forwarded to you, Amazon is making changes that will allow returns to go directly back to your facility.
• Long-Term Storage Fees: Amazon doesn’t like sitting on inventory. Therefore, you’re going to pay more for stuff that sits longer. Long-term storage fees aren’t the end of the world, but you’ll have to factor them into your ongoing budget to ensure that FBA still makes financial sense for your business goals. They also don’t like to store products that aren’t actively for sale and will charge for this and also negatively adjust your metrics. However, all of this can be viewed in your seller console and you can arrange for products to be shipped back to your own facility.
• Product Prep Requirements: Amazon has its own list of requirements for products that are coming into the warehouse to be fulfilled through FBA. You will have to ensure that all of your products are prepared accordingly before sending them off to Amazon, including how they are packaged, ensuring proper labeling, and shipped following the FBA inventory warehousing guidelines. Some of the details can be tricky.
• Sales Tax: Sales tax is managed at the state level. If your business operates in one state and has its items warehoused in a different state, you might not be sure which tax rate to use. Fortunately, there are tools to help automate various tax situations and rules, to help you figure out what to charge and Amazon can manage most of this for you.
• Amazon FBA Fee Payment: There’s no putting off what you owe Amazon. You can’t use the next sale to pay for the prior one. Amazon will deduct all fees owed to them before making any payment to you. And if you don’t have enough of a balance to cover fees? You’ll need to provide a credit card to pay off the remaining balance.

Try our calculator to estimate the cost of selling your product on Amazon – View more