Should You Use FBM Or FBA?

Amazon is the world’s largest online marketplace and that provides unique opportunities for hustlers and entrepreneurs who want to make money.

Due to the laws of supply and demand, virtually anyone can succeed if they supply inventory that is in high demand, because the majority of users of Amazon are buyers.

When the number of buyers far exceeds the number of sellers, it is no surprise that selling on Amazon isn’t as difficult as people want to believe.

No matter how much competition there is, there will always be a shortage of sellers in relation to the number of buyers.

That being said, what is the best way to sell on Amazon?

Should you do FBM (fulfilled-by-merchant) and fulfill orders yourself?

Or should you use FBA (fulfilled-by-Amazon) and tap into Amazon’s logistics network, employee base and Prime customer loyalty?

The answer is that you should do both if you can.

You can succeed with a single fulfillment method, but you will be leaving opportunities on the table if you only focus on a single fulfillment method.

That is because FBM and FBA draw in different customer bases, and to maximize your selling potential, you want to tap into as many sales channels as possible.

Positives of FBM

-Higher profit margins
-Lower fees
-Full control of your inventory
-Your offer is available immediately
-You can list items in the store and sell them while you’re still in the store. This can protect you from price tankers. You can also return items that don’t sell. This helps you preserve capital if you don’t like losing money.
-During the Q4 holiday season, you can make $$$ doing FBM because FBA inventories get low in stock, and won’t be able to restock in time to deliver by Christmas. If you capitalize then, you will win the buy box for many items and acquire tons of sales.
-You can sell meltable goods all year round.
-You can sell “dangerous goods” such as Aerosols which are not eligible for FBA
-You do not need to pay for storage fees

Negatives of FBM

-Slower shipping methods = less sales
-Difficult/impossible to remove negative feedback
-You will have to compete at a lower price point than Prime offers
-You have to buy your own shipping labels and go to the post office/UPS store
-Individual items are more costly to ship than shipping bulk boxes into Amazon. For example, I could ship 50 lbs into Amazon for around $10-12. Shipping a 2 pound FBM product to the end customer could cost $8+
-Winning the buy box can be more difficult when competing against Prime offers and you may have to compete on a price basis.
-You have to store and ship items yourself.
-You may have to obtain storage units or warehouses/workers if you want to scale your operation

Positives of FBA

-Your offers will have Prime shipping, sometimes next day Prime which translates to more sales
-Can easily remove negative feedback
-You can charge higher prices due to Prime
-You don’t worry about shipping to the end customer. Instead of going to UPS every day, you can schedule bulk UPS pickups.
-Bulk discounted shipping rates allow you to ship into Amazon for less than $0.30/pound. This can save you a lot of money on shipping.
-You are more likely to win the buy box
-You have access to Amazon’s logistics network to store and ship your items.
-You do not have to store items at your house or at a storage units.
-You can start scaling your business right off the bat, without having to hire workers and get a warehouse

Negatives of FBA

-Tighter profit margins
-High fees
-Lack full control over inventory
-Your offer is only available once your inventory is checked into Amazon
-You cannot actively sell items while you are in the store, you cannot return items that don’t sell, you are more at risk of price tankers and having to sell at break-even or at a loss
-You have to time your deliveries sometimes. For instance, you need to ship in your items by a certain date to make sure they are checked in before the Christmas rush. Seasonal items can also be problematic because check-in times can vary considerably.
-You can only sell meltable goods during half of the year. The meltable season is October 16 to April 14. Once that period passes, you cannot send in meltable goods via FBA and any unsold inventory that is meltable will be disposed at your expense.
-You cannot sell “dangerous goods” such as aerosols unless you receive special approval.
-You will be charged storage fees and long term storage fees so you want to focus on fast selling inventory

As you can see, there a wide range of pros and cons for each method.

I use both because I believe in taking massive action and leaving no stone unturned.

That being said, I tend to focus and scan for FBA primarily unless it is during the holiday rush.

This year, I’m stockpiling tons of toys to sell during Christmas that will generate a lot of sales.

If you are already an FBM seller, you can easily transition to FBA and it could take a lot of stress out of your day-to-day operations.

Just because an item is profitable for FBA does not mean it will be profitable for FBM.

Likewise, just because a product is profitable for FBM, doesn’t mean it will be a profitable FBA offer.

It depends on the fees and shipping.

Here is a simplified breakdown for you:

FBM

Sales Price – Fees – Shipping – Cost Of Goods Sold = Profit

FBA

Sales Price – FBA Fees – Inbound Shipping ($0.30/lb) – Cost Of Goods Sold = Profit

The main variables you need to pay attention to are the sales price, fees and shipping.

FBA offers generally go for more money, while FBM offers have significantly lower fees. However, you will have to buy shipping yourself, in contrast to FBA where the shipping to the customer is part of the FBA fees.

Conclusion

In conclusion, when you are sourcing, you want to consider whether you are looking to sell FBM items or FBA items. Certain items will work better with a specific fulfillment method and others will be more profitable if sold in a specific fulfillment method.

Best regards,

Alex Chung