Amazon is one of the world’s largest online retail e-commerce platform, letting retailers to sell their products to Amazon consumer base from all over the world. It offers a huge opportunity to businesses and entrepreneurs with its strong consumer base. It is preferably the first place for buyers all around the world when looking to buy anything from an alarm clock to a washing machine.
Because of Amazon’s enormous loyal customer base shopping on the site daily, it offers a massive probability for profit. So, when you decide to sell on Amazon, one of the main decision you will have to deicide is which model you are going to follow, whether you will be selling your products via FBA (Fulfilled By Amazon) or FBM (Fulfilled By Merchant)?
If you opt for FBA, Amazon will handle the packing, distribution and shipping the products directly to the customer from the Amazon fulfillment centers. On the other hand, with FBM, the merchant that is you or a 3rd party supply base will be handling the receiving, packing and mailing of products to the customer’s destination.
FBA maybe already sounds much appealing given the fact that Amazon basically handles everything for you. Though, this is not the case because there are advantages and disadvantages to both methods.
We’ve compiled this article to make you understand the differences and that which type you would like to opt for building your Amazon business from Pakistan.
Let’s start with FBM.
Advantages of FBM
Less fee, High margins
FBM model involves comparatively less fees paid to Amazon. You won’t have to pay fees for stocking products in their warehouses, along with less fees in other areas as compare to FBA.
Naturally, the less fees you pay the higher your margins on your products will be. This is particularly beneficial for products that have relatively low margins to begin with. Moreover, lower fees doesn’t mean no fees, you will still have to pay Amazon a fee for each product you sell and you will pay for shipping yourself. So know that there are still costs to Amazon and selling through FBM.
Being a disadvantage too but there are also benefits to being able to check each item before they’re delivered out to the customer. There are many cases where a customer receives a defective or incorrect product and this results in leaving a negative review by the customer. No matter that they are able to return the product and get a refund.
Hence, when you send through FBM, you are able to guarantee the quality of each item. You can also provide more personalized packaging contrary to just the standard Amazon packaging.
With FBM, you don’t have to pay for all your stock at the same time and ship it to the Amazon warehouse. There is no condition to invest time or go through the process of shipping to Amazon’s warehouse. You will just have to get your listing up on Amazon and start selling faster using FBM.
New consumer base for current business
In case if you already have a current business that involves packing and distribution, then selling on Amazon using FBM is an opportunity for you to open your business up to new customers that will truly increase your orders and sales.
If you already have a place that stocks inventory along with staff and processes to manage orders and deliver products then Amazon FBM can be a good option to get started selling on Amazon quickly and cheaply.
Disadvantages of FBM
Handle every teensy weensy detail
You are in charge of everything from preparing the product and delivering to taking care of yours storage. This can be a pretty upheaval task. In the start it doesn’t seem like a big deal because comparatively your sales will be low so it’s not much of a problem to pack and ship a few products.
But, is this scalable if your product becomes popular and you start getting a lot of orders? Do you have the time to pack, label and deliver 100 products a day? You will need to get the boxes, labels, print the addresses, and make sure that the addresses match the products being dispatched. And in case, if you send a product to the wrong address, you’ll have to handle the issue and get a new product to the customer and handle the returns.
The idea of an Amazon business is much appealing because of a way to make more income and freedom. You may dream of checking your sales from your phone on a beach while not being physically present at the office or warehouse. But, if you end up working all day, you don’t have a lot of freedom like that. Once your business takes a leap, you may be spending all day stamping and packing boxes in order to keep up with orders.
With FBM, as you are in charge of the inventory and shipping yourself, that means you have to actually be in a location to pack and send the inventory. Yes, you can hire someone to do that but that will cost you additional money to hire staff and then you will still have to have a location to stack up the inventory to fulfil the orders.
The idea of saving money and increasing margins using FBM model as compared to FBA may seem tempting at first but there are still other costs involved. Yes, you’re saving money by not paying Amazon for storage and shipping fees but you still have to stock your inventory at some place and pay for shipping.
If you’ve got a room at your house, that may be enough but if you don’t have room in your house or apartment, you’ll have to rent a storage space to stock your products. Moreover, shipping each order will also involve getting those products from your storage space, packing and labelling them before going to the postal office to send them.
The location and shipping costs are still there and you need to pay. The difference is just that you’re paying them to someone else instead of Amazon, which means that could be more money and disturbance than it’s worth.
No Prime benefits
According to a research estimation it is recorded that there are more Amazon prime customers then non-prime customers. And this means that more than half of the customers searching for your products get the benefits of fast free shipping of any eligible prime product in less than 2 days. These customers mostly only buy from sellers that offer Amazon prime.
If the customers is buying from non-prime FBM sellers, they will have to pay additional shipping charges and will receive slower shipping. So, if you’re an FBM seller then more than half the customers on Amazon may oversee your product and buy from other competitor.
Also, it is likely to be accepted by Amazon as a Prime seller even using FBM, but it is mostly reserved for well-known businesses on Amazon with a track record of fast shipping and positive customer reviews. It’s a time demanding process so don’t anticipate to get acknowledged anytime soon as a Prime seller if you’re using FBM.
Low conversion rates and sales
Amazon is a viable platform and customers have a massive volume of choice for any product they want to purchase. Hence, if you’re not offering the best price, best quality, fastest free shipping or best customer service for a product they are searching for then they will rather buy from a competitor.
The disadvantages of selling via FBM as compared to FBA results in lower conversion rates for each customer that is looking to buy your product which leads to lower sale generation.
Now let’s talk about FBA;
Advantages of FBA
Amazon handles all logistics
One of the major advantages is in the name; your orders are fulfilled by Amazon. They take care of everything for you with their thousands of employees and machines doing all the hefty lifting.
When a customer places an order, it is shipped out from Amazon’s warehouses directly to the customer.
With Amazon Fulfillment vs Seller Fulfillment, you don’t have to invest your time packing items and taking trips to the post office to mail them.
Amazon handles the inventory stock
With FBM, you have to stock up all the inventory in your house or any other storage location. Hence, when you receive thousands of orders, this will make your house being full of boxes and products, taking up major space in your home.
On the contrary with FBA, you send the inventory to Amazon’s warehouse and they store it all for you. As customer places an order, Amazon takes it from the stocked inventory and delivers it to the customer.
The only thing you need to cope up with is to ensure that you fill up your inventory in Amazon’s fulfillment centers before they run out of your products.
As it has been mentioned above that over half of the customers on Amazon are prime customers. When you’re selling your products using FBA, your products are eligible for Prime shipping that means your order can be shipped free within 2 days.
This makes your product more likeable to the majority of the Amazon consumer base. It is the main and big benefit of FBA, which is not available to FBM sellers.
Using FBA model, you can basically run your business from anywhere in the world where you have internet access.
This leads to Amazon FBA becoming one of the most widespread methods alongside drop shipping for making an income while traveling the world. We have a comparison of FBA vs drop shipping you should have a read.
You can connect with your suppliers using email, or skype. The suppliers will then ship the products to Amazon and all of your sales and order will be fulfilled by Amazon. You can remotely do all the work from anywhere in the world with internet access.
If you want to sell on Amazon to gain more freedom, then FBA provides one of the best options for accomplishing a rightly location independent business with slight work to run it.
Disadvantages of FBA
Prepare the products
In order to send products to Amazon warehouses, you will need to prepare the products suitably to make sure they are accepted. This includes correct labelling and other requirements.
If you do this inaccurately, Amazon will reject your products and you will need to relabel them and go through the same process again.
You may also need to outsource it, they will label the products and handle the delivery to Amazon’s warehouse which will then add additional costs to your products.
Storage and order fee
Though you don’t need to worry about storing products in your own storage location with Amazon FBA as compared to Merchant Fulfillment, you will still need to pay Amazon for storing products in their warehouse.
You will have to take care and make a delicate balance to make sure that there is enough products to fill the orders but do not send too much inventory and pay too much for storage fees.
Let’s elaborate! If you sell your products too quickly before you can fill up them, you’ll run out of inventory and lose you product’s ranking on Amazon. And as well as, if it takes a long time to sell your inventory then you will be paying more on storage fees for the time they remain in Amazon’s fulfillment centers.
Moreover, as soon an order is placed, Amazon will take care of it completely. It’s excellent but you pay a fee for that handiness. Upon every order placed on Amazon, it will take a certain amount of money out of your pocket. So, it’s significant to know each fee involved with selling through Amazon FBA so you know accurately what your margins and profits will be.
No instant access to your inventory
In spite of having free return policies or offering refunds, some customers are fast to complain by leaving a negative review on your product.
Once your inventory is in the Amazon warehouses, there’s no way for you to check them. If there is an issue with a product, the faulty product will be delivered to a customer and you won’t be able to resolve the problem before it is sent.
On the other hand, with FBM, you are able to personally check the quality of each product before it is dispatched to ensure the quality of each product sent to customers.
As we have covered the advantages and disadvantages of both FBA and FBM, so hopefully now you easily understand which model better suits you.
FBM may proves a good option for small businesses or companies that already have the shipping and logistics process established. So, if you are drop shipping products, then Amazon FBM is a clear victor as you don’t have to stock the warehouse before selling on Amazon.
In terms of which is better, FBA is a perfect winner in terms of opportuneness; you ship your products to Amazon’s warehouses and they handle everything. The benefits of FBA do come with additional costs with continuing storage fees and other expenses, however, the majority of Amazon customers are Prime members and that tendency is only going to increase over the coming years and so are the benefits. Get in touch with enablers to get proficiency in order to build successful ecommerce business in Pakistan.
In the end, it’s important to be attentive of all the costs involved with both FBA and FBM at each part of the process in order to make sure you can actually make a profit selling on Amazon.