When starting an ecommerce business on Amazon, one of the first things you need to decide is how your inventory will be stored and shipped. The marketplace offers two selling methods to choose from, Fulfillment by Amazon and Fulfillment by Merchant. This is a big choice that will determine your competitive advantage and affect your conversion rates and revenue. This guide explores how to pick the right solution that agrees with your business.
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Fulfillment by Amazon (FBA) is a service provided by Amazon to its sellers that includes storage, packaging, and shipping of goods. As a seller, you simply need to label your products according to the Amazon requirements and ship it to the nearest Amazon Fulfillment Center. Amazon has around 185 fulfillment centers worldwide.
Under the FBA model, Amazon takes care of all logistics processes for you. The marketplace provides storage space, processes orders, handles packaging, and delivers goods to customers. Also, Amazon manages returns and deals with customer feedback on the site. All you’re left to do is to manage your inventory and keep good stock levels.
If you’re using the FBA solution, Amazon promotes your products to its Prime customers. Amazon Prime members make up the most loyal and high-paying part of the Amazon audience. An Amazon Prime member spends around $1,400 per year, while the average check of a non-member totals about $600. This way, FBA sellers are more likely to make bigger sales than their FBM rivals.
Regardless of your product range, you’ll probably have to compete with dozens of other sellers with a similar selection of goods. To help shoppers choose the best price-quality offers, Amazon launched the Buy Box program that promotes recommended sellers. The Buy Box products are highlighted so that customers could easily notice and add them to the shopping cart in one click. The conversion rates speak louder than words, so consider this impressive statistic: over 83% of all Amazon sales take place through the Buy Box.
Naturally, getting the coveted Buy Box is a dream of every Amazon seller. If you’re using the FBA model, you have a greater chance of qualifying for the Buy Box than those sticking with the FBM solution. (We’ll talk about FDM later in the article.)
FBA orders usually take 1-2 days to deliver. To expedite delivery, Amazon stores FBA items at different distribution centers. On top of that, since your products are shipped under the Amazon brand, shoppers will automatically associate them with the massive marketplace, which translates into increased customer trust.
In addition to basic seller fees, FBA sellers are charged extra for the following services:
The total amount of FBA fees depends on a bunch of factors, including your country of residence, product dimensions and weight, storage times, etc. To get a rough estimate of what the Amazon fulfillment services will cost you, use this FBA calculator.
When delegating a part of business processes to Amazon, you can no longer manage order shipment and communicate with customers.
FBA items are shipped in the branded Amazon packaging. This means you won’t be able to present your own brand to customers and set it apart from competitors.
Fulfillment by Merchant (FBM) is a business model whereby the seller is responsible for the whole process of order fulfillment, from storage, to packaging, to shipping.
FBM sellers don’t have to pay anything extra to Amazon. You’re free to choose the storage and shipping options that fit your needs and budget.
Another advantage is that you get to avoid unforeseen expenses if Amazon decides to increase its FBA fees.
You can access your inventory at any time and manage it based on your business needs. For example, you can get rid of unsold items or move a part of the inventory to your offline store.
Since it’s you who handles order shipping, you can use this opportunity to grow your brand and nurture a loyal customer base.
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When handling shipping, returns, and reviews on your own, you’re directly engaging with your audience and learning firsthand what they like and don’t like about your business. This invaluable information will guide you in the right direction, helping you eliminate your weak points.
FBM sellers have a lot on their plate! Here’re just some of the tasks you’ll have to deal with:
Amazon pampers its customers with a variety of shipping options that are both fast and convenient. Amazon Prime members get their orders delivered in 1-2 days. To be able to hold a candle to a professional like Amazon, you need to go out of your way to organize a smooth and speedy delivery. One of the smart practices that you can actually borrow from Amazon is to store your inventory at several different warehouses.
FBM sellers get less organic traffic on the Amazon site. To get your ecommerce business out there and catch the eye of potential customers, you may need to launch an advertising campaign.
Fulfillment by Amazon or Fulfillment by Merchant? Which solution should a budding entrepreneur go with? Let’s see the criteria that should be factored into your choice!
ZenBusiness will file your business formation paperwork for $0 + state fee. Plus, we offer additional services to help you start and grow a business.
Amazon is one of the world’s leading online marketplaces that offers numerous business opportunities for ecommerce businesses. Choosing between the Fulfillment by Amazon and Fulfillment by Merchant solutions is a crucial decision that has a high impact on your sales performance. To make a smart, informed choice, you need to analyze the basic aspects of your business. Consider your scope of tasks, product type, budget, etc. and pick the model that you can best benefit from.
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