What is FBA?
FBA stands for Fulfilment by Amazon - a service offered by Amazon to help with storage space and shipping, allowing business owners to sell products with fulfilment taken care of.
Ecommerce businesses ship their products to Amazon’s fulfillment centers, Amazon then handles receiving, picking and packing the products before shipping them to the customer. The returns process, refunds and customer service are also taken care of by Amazon FBA.
At DEVLND, we can help prepare your products to meet FBA requirements before being sent to an Amazon Fulfilment Centre.
What Are the Benefits of Amazon FBA?
Returns Management
The process of managing returns is not an easy one. As well as the possibility of coordinating with frustrated customers, you may have to deal with replacement and refund/returns processing fees - furthermore, notifying the customer with order status updates.
Depending on the order/returns volume, you may also need to hire extra staff. Amazon’s fulfilment service will help process these returns, as well as keeping the customer up to date with the whereabouts of their package.
If you are an EU-based ecommerce business wishing to learn more about how DEVLND can help you save costs on EU/UK returns, see our EU Customer Returns page.
Customer Trust
With Amazon’s FBA service, you’ll be able to reach more customers who are in search of free delivery. The Amazon Prime logo represents efficient shipping, and is something that consumers trust; as well as product listings on the Amazon marketplace in general. This is something unique to Amazon’s order fulfilment service.
Amazon Customer Service
By using Amazon’s Fulfilment Service, you’ll also have access to their 24/7 customer support. This can be hugely beneficial to a small business/startup, especially if you have customers from all over the world in different time zones.
FBA Disadvantages
FBA Fulfilment Fees
For small businesses and those just getting started with their ecommerce business, making the right financial investment is paramount. Amazon FBA sellers will have to pay the Amazon FBA fees for the privileges mentioned above, which are not good for low-cost product sellers. You’ll need to be fastidious about which products you sell with this platform.
Long-Term Storage Fees
Because they do not like sitting on stock, Amazon charges for FBA inventory that sits around longer. It’s up to you to decided whether Amazon’s inventory storage fees work with your budget; it should, however, be noted that for smaller businesses who aren’t frequently selling a significant amount of products, this may not be the best option.
Specific Product Requirements
Amazon FBA lists certain requirements for products that are sent into their fulfilment centres by sellers. They may ask for your items to be bubble wrapped or poly bagged before they are stored in Amazon’s warehouse. These requirements may be something to consider in your budget. Alternatively, Amazon FBA offer a prep service for a per-item fee.
Increased Customer Returns
Due to Amazon’s open return policy, you may experience an increase in customer returns. While this is very convenient for customers, the higher returns frequency can be damaging for smaller businesses.
Packaging Branding
When the customer receives your product fulfilled by Amazon, the packaging will feature Amazon’s logo and branding. This could mean that it will be tricky to build an identity with brand recognition. You’ll need to weigh up this disadvantage against the pros of using Amazon’s FBA program in order to decided whether or not your business should be an FBA business.
What is FBM?
Fulfilled by Merchant, also known as FBM, refers to sellers listing their products on Amazon and shipping products to customers themselves. Sellers are responsible for their orders and do not rely on Amazon FBA for fulfilment purposes. While this method can be positive for those selling products with lower margins, Amazon FBM can be overlooked due to the easy shipping/handling process offered by Amazon FBA.
Benefits of FBM
Inventory Management
Fulfilling your own ecommerce orders allows for better control over your business’s inventory and stock levels. This also means less to worry about regarding FBA shipping/warehousing fees. If you are a multi-channel fulfilment ecommerce business, managing your own fulfillment process makes it easier for you to keep track of each platform with one inventory.
Creative Control
With FBM, you can choose how to design your packaging - allowing for your customers to truly get a sense of your brand identity and creative vision. While it could be argued that the Amazon logo is trusted by the consumer, having your own design on your packaging shows the customer that you are thinking about their whole shopping experience, not just sales figures.
Increased Profit Margins
Sellers can expect a better cut from profit margins with FBM, as FBA fees do not apply. Those fulfilling their own orders save on fulfilment fees, find the best warehouse deals, and reduce shipping costs.
Disadvantages of FBM
Shipping Errors
Amazon puts huge focus on their customer service, so issues such as a late or incorrect order shipment could lead to financial sanctions for FBM sellers - and even warrant suspension from the FBM service altogether.
Of course, this should not be a concern if you are working with an experienced team who are able to accurately pick, pack and ship orders.
Lower Prices
Due to Amazon favouring FBA products to win the coveted Amazon Buy Box, you may have to sacrifice your profit margin by pricing your items slightly lower than Fulfilment by Amazon sellers. Unfortunately, this means you will be less likely to win the Buy Box for your product.
Amazon Prime Ineligibility
A significant downside to FBM is that sellers are not automatically eligible for Amazon Prime - customers have come to expect this as a fast and efficient delivery method, and will most likely be let down by the lack of this option. Because of this setback, it is important to look for alternative delivery options in order to compete with Amazon’s fast shipping.