FBA vs FBM Fees: Understanding the Costs of Amazon Selling

As a seller on Amazon, one of the biggest decisions you’ll face is whether to use Amazon’s Fulfillment by Amazon (FBA) program or to fulfill orders yourself (Fulfillment by Merchant or FBM). FBA allows you to store your products in Amazon’s fulfillment centers and have them handle shipping, customer service, and returns, while FBM requires you to handle all aspects of fulfillment yourself.

There are pros and cons to both options, and it’s important to weigh them carefully before making a decision. In this article, we’ll explore the advantages and disadvantages of FBA and FBM to help you decide which option is right for your business.

Advantages of?FBA

1. Prime Eligibility: One of the biggest advantages of using FBA is that it makes your products eligible for Amazon Prime. This means that customers with Prime memberships will receive free two-day shipping on your products, which can help increase sales.
2. Increased Visibility: When you use FBA, your products are eligible for Amazon’s Buy Box, which is the prominent “Add to Cart” button on a product listing. Winning the Buy Box can significantly increase your sales and visibility on Amazon.
3. Customer Service: Amazon handles all customer service inquiries for products fulfilled through FBA, which can save you time and effort. They also handle returns and refunds, which can make the process much easier for both you and the customer.
4. Storage and Shipping: When you use FBA, you don’t have to worry about storing your products or shipping them out to customers. Amazon handles all of that for you, which can save you a lot of time and hassle.

Disadvantages of?FBA

1. Fees: Using FBA comes with fees, including storage fees, fulfillment fees, and other charges. These fees can add up quickly, especially if you have a lot of products or slow-moving inventory.
2. Less Control: When you use FBA, you’re relying on Amazon to handle all aspects of fulfillment, which means you have less control over the process. This can be frustrating if you have specific packaging requirements or want to include a personal touch in your orders.
3. Restricted Products: Some products are restricted from being sold through FBA, which can limit your options as a seller.

Advantages of?FBM

1. Cost: Fulfilling orders yourself can be less expensive than using FBA, since you don’t have to pay for storage or fulfillment fees. This can be especially beneficial if you have a smaller inventory or are just starting out.
2. Control: When you handle fulfillment yourself, you have more control over the process. You can customize packaging and include personal touches that can help set your business apart from others.
3. Flexibility: With FBM, you have the flexibility to fulfill orders from anywhere, which can be beneficial if you have a distributed team or work from home.

Disadvantages of?FBM

1. Prime Eligibility: If you’re not using FBA, your products won’t be eligible for Amazon Prime, which can limit their visibility and sales potential.
2. Customer Service: When you fulfill orders yourself, you’re responsible for handling all customer service inquiries, which can be time-consuming and challenging.
3. Shipping and Storage: Fulfilling orders yourself requires you to handle shipping and storage, which can be difficult and time-consuming. You’ll need to have a system in place for storing and shipping products, which can be expensive. Both FBA and FBM have their advantages and disadvantages, and the decision of which to use will depend on your specific business needs and goals.

Unless you’re living under a rock on the moon, you’re well aware that Amazon is the eCommerce success story of the century — not only for Amazon itself but for thousands of independent sellers who take advantage of its marketing reach and customer confidence. Amazon’s FBA (Fulfillment By Amazon) program goes a step further: it gives smaller eCommerce businesses the clout and convenience of its warehousing, shipping, and customer service facilities.

So if you use FBA, you do less than half the work of the transaction: listing your product on Amazon and getting your merchandise shipped to an Amazon fulfillment center. They take care of the rest: merchandise storage, order processing, picking, packing, shipping, and shipment tracking.

A fundamental decision any third-party seller on Amazon must make is whether to use FBA or its fulfillment facility. Here are some things to consider:

Comparative costs.

Which will be more profitable: paying for your warehousing, packaging materials, and staff to do the picking, packing, and delivery to the shipper; or paying the FBA fee to have Amazon do all that for you?

Amazon makes it easy for you to compare the numbers with this Fulfillment by Amazon Revenue Calculator. Fill in the item price and your costs, then click “Calculate” to see the FBA costs for the same item, and which is your best option in terms of net profit and net margin.

Time investment.

The more you sell, the more time fulfillment takes out of your day. The time that should be spent on management and development, not putting items inboxes. This is often a major roadblock to scaling your business.

Sales tax obligations.

When some or all of your inventory is stored in and shipped from Amazon warehouses, you may be required to collect and remit sales tax in the states where those warehouses are located.

Amazon Prime eligibility.

Only third-party sellers who use FBA are Prime eligible, and many say that this is their number one reason for doing so. When customers see “Fulfilled by Amazon” on the product page, they have confidence that:

• Their purchase will be delivered in just 2 days
• They are getting a better deal because shipping is free
• They will receive excellent shipment tracking and customer service

Even Amazon shoppers who are not Prime members often choose to buy from a seller who is Prime eligible rather than one who isn’t. This gives FBA sellers a huge advantage over those who do their fulfillment.

Each business must weigh the pros and cons of Amazon FBA concerning its needs and goals. But we think that in 99 cases out of 100, the advantages far outweigh the costs. It’s certainly worth a try.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.