FBM vs FBA for Ecommerce Brands

FBM vs FBA for Ecommerce Brands

This wouldn’t be an ecommerce blog if we didn’t talk about Amazon. With its ready-made infrastructure, hundreds of millions of customers, and fast, reliable shipping, Amazon is driving the retail bus, so to speak. So, if you own or manage an ecommerce brand, Amazon has to be one of the first sales channels you consider. Just hop on board the Fulfillment by Amazon (FBA) bus, and you can outsource all the post-purchase headaches that come with running an ecommerce business.

But selling on Amazon doesn’t have to mean handing over the keys to your business. Fulfilled by Merchant (FBM), or Merchant Fulfilled Network (MFN) as Amazon is now calling it, is Amazon’s program for third-party sellers who want to retain control of their inventory and their customer’s post-purchase experience. So, which is the best choice for your ecommerce brand, FBM or FBA? That’s what we’re going to help you figure out!

How Does FBM/MFN Work?

Sellers enrolled in FBM list their products on Amazon, but handle inventory storage, order fulfillment, shipping, returns and customer service on their own — or with the help of a third-party logistics (3PL) and fulfillment provider such as ShipMonk. The seller must subscribe to one of Amazon’s selling plans and pay a referral fee for each item sold, plus any other applicable fees. Inventory storage, fulfillment, and shipping costs are borne by the seller or paid to a 3PL. Sellers must apply for this program and prove that they can follow Amazon’s strict receiving guidelines and shipping standards before gaining acceptance. A large 3PL like ShipMonk, which handles thousands of orders per day and owns eight nationwide fulfillment centers, can help you qualify.

What about Seller Fulfilled Prime (SFP)?

Seller Fulfilled Prime is a step up from FBM/MFN that grants a third-party seller Prime status on Amazon. Shopify stores can add a Buy With Prime button to their storefront. To qualify for SFP, an ecommerce seller must be able to fulfill orders with one-day and two-day shipping at no additional charge for Prime members. Because this requires distributing inventory across the country, it is easier for older, more established brands to qualify. When your brand is ready for this, keep us in mind, because we have the expertise and know-how to maintain your fulfillment metrics and help you scale with SFP fulfillment.

How Does FBA Work?

Fulfillment by Amazon works just the way it sounds — Amazon handles fulfillment, as well as providing the sales platform. The ecommerce business is considered a wholesale vendor (not a seller) in this B2B relationship. Amazon purchases the inventory from the vendor, who preps and ships it to an Amazon warehouse. Amazon handles order fulfillment, shipping, and all post-purchase customer interactions, including returns and customer service. In addition to the selling plan and referral fees, the vendor pays Amazon for inventory storage fees, fulfillment fees, and return processing fees. If merchandise is mislabeled, not palletized correctly, or moving too slowly, there are penalties for non-compliance, storage removal or return fees.

3 Key Differences Between FBM and FBA

When evaluating the differences between FBM and FBA, it all boils down to three main considerations: control, product requirements, and costs.

1. Control

By control, we’re talking about the ability to control every aspect of your business, and manage your customers’ experience with your brand at every point of contact. This includes the shopping experience, inventory storage and handling, fulfillment and returns.

FBA products do have an advantage when it comes to placement in Amazon search results, qualifying for Prime, and access to speedy shipping options. On the other hand, an FBA vendor gives up control over inventory costs, warehouse conditions, packaging, handling, shipping costs, returns, and customer service. If you’re a hands-on person, or a founder who has built your brand from nothing, handing over the keys might be out of the question. But if you don’t already have a fulfillment center or 3PL provider in place, you might consider this a benefit, because Amazon takes care of it all for you! Here’s a look at some of the other ways you gain or lose control with either FBM or FBA.

ControlFulfillment by MerchantFulfillment by Amazon
Shopping experienceFBM brands will be competing with FBA brands on price and shipping speed.FBA brands generally rank higher in search results and lower in price than FBM brands.
Prime eligibility30-day trial and strict requirements to qualify for Seller Fulfilled Prime.Automatically qualified for Prime.
PackagingCan use branded packaging and packing materials.Must use Amazon packaging.
ShippingMust have your own shipping network and options.Access to Amazon’s reliable nationwide shipping network and Prime delivery.
FulfillmentSeller controls fulfillment operations.Amazon controls fulfillment operations.
InventoryInventory is tracked and easily managed whether in your own or third-party fulfillment centers.Inventory is out of your hands, but there are penalties for running low, or carrying too much.
Customer ServiceSeller handles customer service and returns.Amazon handles customer service and returns.
Customer engagementTransactional emails, unboxing, and post-purchase-follow-up offer opportunities to engage with customers.No direct contact with customers.
FlexibilityIf you invest in your own fulfillment operations or partner with a 3PL, you have unlimited flexibility to launch multiple DTC sales channels and develop an omnichannel sales strategy.Without your own fulfillment capabilities, you are reliant on Amazon for sales and fulfillment needs.

See how ShipMonk’s award-winning software gives ecommerce businesses complete visibility and control over order and inventory management.

2. Requirements

Amazon has strict requirements for the types of products it accepts, the way inventory should be packaged for delivery to Amazon warehouses, how long it can be stored in their warehouses, tech integrations, product photography, product descriptions, and more. Failure to comply with these requirements results in penalties, extra fees or returned merchandise. Here are some of the differences between FBM and FBA regarding product requirements.

RequirementsFulfillment by MerchantFulfillment by Amazon
Special handlingDetermined by your fulfillment center or 3PL; far more flexible than Amazon warehouses.Products that require temperature control are not accepted; extra large or heavy products incur high fees.
TechnologyOrder management systems must be EDI-compliant technology with system integrations.Vendors cannot qualify for FBA without the proper system integrations including Electronic Data Interchange (EDI) capabilities.
ReceivingGuidelines set by the fulfillment center or 3PL.Strict packing and labeling requirements; merchandise may be returned at vendor’s expense or fined if not packaged and palleted properly.
Inventory turnoverNo limits on storage. You pay only for the space you use.FBA vendors not only pay high fees to Amazon for the shelf space, they are expected to maintain high sales volume and minimum quantities of their inventory or risk losing their FBA certification. Inventory stored for more than six months will incur aged-inventory fees.
Picking and packingYou or your 3PL provides labor and automation technology to ensure order accuracy and on-time shipping.Amazon picks and packs orders.
ShippingSmall-parcel shipping capabilities required.Bulk packing and freight shipping capabilities required.
Customer serviceMust have bandwidth to process returns, refunds and handle customer service.Amazon handles returns, refunds, and customer service.

3. Cost

For most ecommerce brands, cost is the most important factor when deciding between FBM and FBA, but determining which program costs more isn’t as cut-and-dried as you might think. There are fees for pretty much everything associated with FBA, and they vary by product. The costs associated with FBM can also be hard to pin down, depending on whether you’re fulfilling your own orders or outsourcing. Consider that outsourcing fulfillment services reduces your overhead, gives you more control over inventory and fulfillment costs, and lets you scale your business without investing in additional warehouse space or automation.

CostFulfillment by MerchantFulfillment by Amazon
Prepping feesNo additional fees if fulfilling in-house. External partners regularly charge fees for inventory requiring prep pre-fulfillment.Paid by vendor. Some 3PLs (including ShipMonk) offer FBA prep services.
Warehouse spacePaid for by seller as overhead or supplied by 3PL.Supplied by Amazon.
Inventory storage feesBased on dimensions of un-packed goods.Based on dimensions of pre-packed goods.
Tech integrationsMultichannel or omnichannel fulfillment capabilities recommended. Paid for and managed by seller, or supplied by 3PL.EDI capabilities required. Paid for and managed by vendor.
Plan feeEither $0.99 per item sold, or $39.99 per month.Either $0.99 per item sold, or $39.99 per month.
Referral feeAdditional fee of 8% – 20% of total cost of order, depending on product.Additional fee of 8% – 20% of total cost of order, depending on product.
FulfillmentPicking and packing cost borne by seller as overhead, or paid to 3PL as pre-negotiated fee per order.Set fee per order, includes picking, packing and shipping.
ReturnsCosts borne by seller or set fee per item paid to 3PL or other third party returns handler.Set fee per item.
Special servicesPay as needed for re-labeling, re-packaging, kitting, assembly, custom packaging, etc.Not available.
Punitive feesNone.Punitive fees for non-compliance, long-term storage, or returned merchandise.
Shipping costsSeparate charge negotiated between seller and carrier, or 3PL and carrier.Set by Amazon and included in fulfillment fee.

A Lot Depends on Your Brand

Choosing between FBM and FBA starts with taking an objective look at where your brand is currently in its growth cycle, and a subjective look at where you want your brand to go. Ask yourself these questions:

  • Do you manufacture your own products, or are you a retailer or reseller?
  • Do your products require special handling, or special storage conditions?
  • Are you a hands-on, detail-oriented person? Or a hands-off, leave-it-to-the-experts person?
  • Are you fulfilling your own orders currently? If so, how is that going? If not, do you want to be?
  • How many SKUs are you managing? How many orders per month?
  • Where do you see your brand in five years?
  • Do you plan to sell products on other channels besides Amazon, such as a branded website, social media channels or a mobile app?
  • Can your profit margins absorb extra fees?
  • Is your tech stack capable of EDI and Amazon integrations?
  • Is your fulfillment center set up for bulk shipping? Small parcel shipping? Or both?

Your answers to these questions will determine whether your ecommerce business is better suited for FBM or FBA, and send you down the right path. 

FBM is best for FBA is best for
Sellers who have their own warehouse, or partner with a 3PL.Sellers who don’t have warehouse space.
Sellers who want to keep fulfillment and customer service in their own hands.Sellers who have no interest in handling fulfillment or customer service.
Sellers who already have (or want to be able to use) multiple DTC sales channels.Sellers who have B2B fulfillment capabilities.
Sellers with a reliable discount shipping network, or who partner with a high-volume 3PL that has flexible shipping options.Sellers who don’t have a reliable logistics network.
Low-margin products, or sellers that don’t want to compete on price alone.High-volume sellers and resellers that are able to compete on price.
Any size or weight product.Small, lightweight products.
Products that require temperature control or special handling.Products that don’t require special storage or handling.
Sellers who want to use branded packaging.Sellers who don’t mind Amazon packaging.

Still Undecided?

Let us simplify things for you. The right method for your ecommerce brand ultimately depends on where your brand is right now, and where you see it going. Keep in mind that starting out with FBA does not mean you cannot switch to FBM in the future, and vice versa.

For brands with no fulfillment infrastructure or logistics network in place, Fulfillment by Amazon is an attractive choice — provided your products fall into the small, lightweight, shelf-stable category. If you change your mind later, a tech-first 3PL can help FBA brands get started with DTC fulfillment while managing FBA prep services and B2B/retail fulfillment at the same time.

For brands that are already fulfilling their own orders and see themselves launching other sales channels in the future, it makes sense to choose FBM. If you’re worried about overhead costs or keeping up with orders, you always have the option to outsource fulfillment to a 3PL with omnichannel fulfillment capabilities. By leveraging their technology, affordable 2-day shipping, and high-efficiency pick-and-pack services you’ll be able to scale at your own pace, control your own destiny, and save money in the process!

The Path That’s Right for You

The experts at ShipMonk are happy to answer any questions you might have about FBA prep services, how to qualify for FBM and SFP, tech integrations, and what it might cost to outsource fulfillment. Contact us for a quote today, so you can make an informed decision about the future of your brand.

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