A key factor in a seller’s ability to succeed on Amazon is inventory availability and their fulfillment strategy. There are many factors to consider such as speed to market, profitability, and your ability to perform customer service and process returns when choosing a fulfillment approach on Amazon. This is especially true during the Q4 peak.
So, what are your options to maximize sales and grow your business?
What is FBA?
FBA stands for Fulfillment by Amazon, which means sellers ship their inventory to Amazon Fulfillment Centers (FCs). Amazon is then responsible for picking, packing, and shipping the purchased item to customers. Amazon charges additional fees for this service such as Inbound Shipping (if you are using Amazon preferred carriers), FBA Fulfillment fees (based upon your item’s dimensions and weight), Storage fees, and more. FBA is generally considered a necessary tool in having a successful Amazon business.
FBA Pros
- Amazon’s Prime Badge: access to Prime customers and events
- Amazon handles customer service and returns, less Buyer Message maintenance by sellers
- Operational Efficiency: Amazon is responsible for consumer shipments, on-time delivery.
FBA Cons
- FBA fees: potentially higher costs/lower profitability (product dependent)
- Compliance with FBA prep and shipping policy
- Storage Limits: year-round with capacity reductions in Q4
- Less contact with consumers and control over customer service
What types of products are best suited for FBA?
- Small or standard-sized items, or some oversized items if Amazon fees are more cost-effective than your own 2-day shipping rates.
- Amazon states that “shipping with FBA costs 30% less per unit than standard shipping options offered by major U.S. carriers and 70% less per unit than their premium options comparable to FBA.”
- Best sellers: any item that has a high unit sales velocity in which FBA costs are offset by sales volume and the benefits of Amazon processing the orders vs. you, thus potentially reducing costs internally.
- Non-valuable items (expensive jewelry or artwork would not be best suited for this method).
What is FBM?
FBM or Fulfilled by Merchant, is a method of selling where sellers list products on Amazon, but manage all storage, shipping, and customer support independently. Sellers can manage this internally or utilize a third-party logistics (3PL) provider. FBM is sometimes considered the entry point for many Sellers on Amazon, as it can be cheaper (depending on product and sales velocity). However, there are risks to this method as well, in which Amazon can suspend your selling/shipping capabilities if Amazon shipping policies and metric thresholds are not met.
FBM Pros
- Direct access to your customers
- Less Amazon fees, possibility of higher profit margins (product dependent)
- More control over the end-to-end process
- No inventory restrictions
FBM Cons
- Loss of Amazon Prime customer access, unless you have Seller Fulfilled Prime
- Sellers are responsible for meeting Amazon shipping thresholds and requirements
- Requires internal team to pick, pack, and ship orders to customers
What types of products are best suited for FBM?
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- Oversized items, especially those with a low retail price
- Large or heavy items in which FBA fees reduce or eliminate profitability
- Slow unit velocity items
- Items that require special packaging or care
- Highly valuable items such as expensive jewelry or artwork
Other factors to consider?
Choosing FBA or FBM boils down to your preferences on time and resources, costs, control, sales volume, and shipping speed.
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- Time and Resources: Do you have the time and resources to handle fulfillment yourself? Or to scale, do you need a partner to store and ship products? Do you need to start selling immediately, or can you wait for items to ship and be received within the Amazon FC network?
- Cost: You must consider the costs of utilizing FBA or managing yourself, this is best done on product level. Costs will rise over time in both options, reducing profit margins. This should be continuously reevaluated.
- Control: If you fulfill your orders directly to the customer, you have complete control of the process from end to end. For instance, you might want to include special packing materials or product inserts when shipping to your customers. If you utilize FBA, you must follow Amazon policies and inventory restrictions.
- Sales Volume: If you have a high unit velocity item, selling more than 40 units per month, FBA may be a perfect fit, but lower sales volume items may be better suited for Fulfilled by Merchant (FBM).
- Shipping Speed: In today’s world, customers want their items shipped fast and for free. One study found that 64% of customers expect free shipping orders to arrive in less than three business days, while 56% of abandoned carts are related to delivery concerns. FBA enables your products to ship through Prime with 2-day free shipping.
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Sounds like you need both methods, right? You do!
Your Amazon fulfillment strategy needs to be at the product level, continuously evaluated over time, and mitigated for risks for both FBA and FBM models. Per Jungle Scout , 22% of Amazon Sellers use both FBA and FBM. This is only expected to increase as Amazon continues to impose storage restrictions and limits that are constantly in flux and generally reduced when you need them most like Q4/holiday peak. Additionally, Amazon has made changes to FBA and storage fees numerous times in the last few years, impacting seller’s profit margins as consumers haven’t always accepted retail price increases given current economic conditions. You can have standalone FBA listings and standalone FBM listings, based upon the factors above of time and resources, costs, control, sales volume, and shipping speed. But you also can have “dual” or “mirror” listings in which you offer both FBA and FBM options on the same product.
Why would I create an FBA/FBM “mirror” listing?
A dual fulfillment strategy in which the seller creates a “mirror” listing in both FBA and FBM ensures their product stays in stock and is available for sale if the following situations occur:
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- Higher-than-expected sales occur on FBA listings creating low or out-of-stock (OOS) items.
- FBA inventory capacity limits, in which a seller’s capacity is maxed out and cannot keep products in stock due to shipment restrictions.
- Carrier delays and longer Amazon FC receiving times, causing your inventory to be unavailable for sale and potentially missing peak selling windows. During Q4, it is common to see inbound shipping and receiving time expand to 8 weeks for LTL (Less-Than-Truckload) shipments. Even small parcel shipments (i.e., UPS and FedEx) are impacted by delays in holiday peak, as Amazon FC receiving can take up to 25+ days at the height of Q4.
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When should I have an Amazon Hybrid Fulfillment Approach?
The best time to implement a hybrid strategy is NOW! Sellers should always have both FBA and FBM listings within their catalog strategy, as not all products are alike and multiple factors must be considered. It is critical to use a Hybrid FBA/FBM “mirror” listing strategy during Q4 holiday peak. Situations of potential over-selling, capacity limits, and inbound shipping delays are almost guaranteed to occur. The best way to ensure you have a successful Q4 is to set up both FBA and FBM offers for all your top-performing products. If you already missed the shipping cut-off time , the dual fulfillment strategy ensures your offer stays live regardless of the status of your FBA inventory.
