A lot of people dream of selling on Amazon in order to make their fortune. But it’s not as simple as a few clicks and watching the money roll in. As an Amazon seller, you will make many decisions along the way — such as how to ship products to customers. Where shipping is concerned, you will have two main options: Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM).
Fulfillment by Amazon
With FBA, the seller stores his or her products in Amazon’s fulfillment centers, and Amazon picks up, packs, and ships the products to the customers.
The following are the advantages of Amazon FBA:
- Sell more — If you choose FBA, your products become automatically eligible for Amazon Prime, which gives two-day free shipping and other benefits that include an increased chance of winning the Buy Box. This is a big benefit that converts a lot of tire-kickers into buyers.
- Cheaper shipping prices — Your shipping rates will be significantly lower than they would be for self-shipping if you opt for FBA.
- Hands-off fulfillment — It’s like your own Amazon inventory manager. You can focus on the more important aspects of your business without having to worry about the mechanics of shipping your merchandise to customers.
The following are the disadvantages of Amazon FBA:
- Fees and tax obligations — You will have to pay for Amazon’s services in storing and handling your products. Amazon will not manage the collection of sales tax for you. You need to make arrangements with the concerned state for Amazon to assist with tax collection.
- Inaccessible inventory — You have limited access to your own inventory, as it is stored and handled by Amazon. If inventory issues arise, Amazon will handle the problem or return the merchandise to you. You may prefer a more hands-on approach, though.
Fulfillment by Merchant
With FBM, the seller lists his or her products on Amazon and handles the storage and all aspects of the order fulfillment. The seller is responsible for any late, missing, or damaged products.
The following is one advantage of FBM:
- Convenience — You will have more control over your inventory because you store and handle it. Additionally, it used to be that only FBA sellers had access to Prime, but Amazon has a new program that gives merchants who fulfill their own orders the chance to participate in Prime. Be aware that the criteria for qualifying are extensive, though.
The following is one disadvantage of FBM:
- Inconveniences — Statistically, most Buy Box winners use FBA. This means it might be harder to scale your sales. And of course, the responsibility of fulfilling Amazon orders will be on your shoulders. If issues arise, you will have to handle them on your own.
If you are selling high volumes of merchandise, FBA will likely be the best choice for you. If you are just starting your e-commerce business and your sales volume is still small, FBM can afford you a higher profit margin, which you could devote to expanding your company.