Selling on Amazon gives you access to the eCommerce behemoth’s customer base that spans more than 100 countries and regions. Choosing the right fulfillment strategy (Amazon FBA vs FBM), however, can make or break your efforts on the platform.

Your decision between the marketplace’s two programs — Fulfillment by Amazon (FBA) and Fulfilled by Merchant (FBM) — isn’t a matter of mere convenience; it’s a strategic choice that impacts aspects such as:

• Your profit margins
• Operational complexity
• Customer satisfaction

To help you select the right fulfillment model for your business, we’ll take an in-depth look at Amazon FBA vs FBM. We’ve weighed both options so you can consider their trade-offs and build a logistics strategy that aligns with your goals and supports smooth operations.

An introduction to FBA

The FBA program outsources your fulfillment responsibilities to Amazon. It involves sending your inventory to designated fulfillment centers, then letting the company take care of the rest. This allows you to bypass the complexities of inventory storage and management, pick and pack, shipping, and customer service.

By leveraging Amazon’s comprehensive logistical network and capabilities, you both simplify your operations and capitalize on their reliable brand and shipping.

Pros and cons of FBA

To give you a better understanding of Amazon FBA’s upsides and downsides, we’ve broken them down below.

Pro: Greater bandwidth

Amazon-managed fulfillment simplifies your operations so you don’t have to deal with logistics and customer service. That gives you the freedom to focus on initiatives of greater strategic value, like product development, scaling, and marketing.

Pro: Scalability

Amazon FBA’s numerous, strategically located fulfillment centers facilitate seamless logistics and boast considerable storage capacities. They enable better scalability since they can accommodate your business’s increasing needs as it grows.

Pro: Instant Prime eligibility

Being an FBA merchant automatically qualifies your listings for Amazon Prime, which lets you sell immediately to the program’s over 200 million members. Having the Prime badge allows you to reach a massive audience that looks for fast and free shipping up front.

Pro: Better Featured Offer placement

The Featured Offer (formerly Boy Box), which is the prominent Buy Now button people encounter while sifting through Amazon results, sees roughly 80% of the platform’s sales. Securing it is a much-coveted perk that pits you against other merchants for the opportunity.

But, since Amazon favors fast and reliable fulfillment, being an FBA seller improves your chances of winning it.

Pro: Consistent customer experiences

As we mentioned earlier, participating in FBA also entails handing off your customer service responsibilities to Amazon. The eCommerce giant will handle all inquiries, returns, and refunds on your behalf, which allows you to provide uniform experiences for your buyers.

Con: Loss of control

Despite the consistency in customer experiences, keep in mind that Amazon will control inventory management, packaging, and consumer interactions. As a result, that’ll limit your branding opportunities.

Con: Amazon’s fees

The operational simplicity FBA offers comes at a cost, and if left unchecked, your profit margins will take a hit. To enjoy a rewarding experience as an FBA merchant, you must first understand the associated fees.

FBA fees

Here are the charges tied to the FBA program:

• Fulfillment fees: These per-unit charges are calculated using your product’s category, size, and weight.
• Storage fees: These depend on how much space your inventory occupies in Amazon’s fulfillment centers. They’re based on your daily average volume in cubic feet, the product’s size tier, and the time of year.
• Other fees: Aged inventory, returns processing, and removal, disposal, and liquidation orders can also net you extra expenses.

Platform fees

Below are the expenses incurred from selling through Amazon, regardless of your chosen fulfillment method:

• Selling plan fees: The platform’s Professional plan nets you $39.99 per month, while the Individual plan incurs $0.99 per item sold. (Note: You must have a Professional account to sell through FBA.)
• Referral fees: Every successful sale is considered a referral that incurs a corresponding fee. That rate, ranging from 8% to 45%, is based on your product’s category and total sales price. Additionally, the marketplace charges a per-unit minimum of $0.30 for all categories except Amazon Explore, which is $2.00.
• Closing fees: In addition to other applicable fees, Amazon charges $1.80 for every media item (e.g., books, music, video games) you sell.

Con: Challenges with Amazon

Although FBA enables consistent fulfillment success, simplifies your operations, and allows you to devote more time to strategic activities, you’re still subject to Amazon’s policies.

The platform’s guidelines and fees evolve periodically, and you’ll be forced to pivot quickly or face the repercussions. These can disrupt your business and net you costly penalties.

An introduction to FBM

On the other hand, Amazon FBM has you take full responsibility for end-to-end fulfillment, from inventory storage to logistics and customer service.

While Amazon serves as your selling platform, you prepare and deliver orders yourself. You therefore maintain complete control over the fulfillment process and customer experience, offering greater flexibility in terms of operations and costs.

Pros and cons of Amazon FBM

To paint a clearer picture of FBM, we’ll walk you through its advantages and disadvantages.

Pro: Complete authority

Becoming an FBM merchant means you’ll oversee how you store and manage inventory, pick and package items, and ship orders to customers. You retain full control over fulfillment and customer service, which allows you to incorporate brand-specific elements throughout the process. This is a major perk for those keen on delivering branded or personalized experiences.

Pro: Fewer fees

Since you take on the burden of end-to-end fulfillment, you avoid FBA’s storage and fulfillment fees and only need to worry about the marketplace’s fees. The cost savings, meanwhile, can let you enjoy healthier profit margins.

Pro: Flexible logistics

Becoming an FBM seller doesn’t restrict you to in-house fulfillment only. If you have established inventory management and logistical capabilities, you can take advantage of them. Otherwise, you can partner with a third-party logistics (3PL) provider, or even mix the two.

Pro: Easier monitoring

Since you have complete control over your business operations, you’re more aware of your performance on Amazon. You can see what resonates with your audience, which products sell the most, and vice versa, as well as pinpoint any necessary improvements.

Pro: Avoid Amazon-related risks

FBM isn’t at the mercy of FBA’s guidelines, so you avoid the potential pitfalls that may result from changes to Amazon’s policies and fees. Besides this freedom, you also circumvent FBA-related paperwork and processes.

Con: Operational burdens

You’ll have more responsibilities with end-to-end fulfillment in your hands. Whenever issues arise concerning inventory management, picking and packing, shipping, or customer service, it’s your job to address them. That eats up a lot of your bandwidth.

Con: Logistical requirements

Smaller businesses may lack the resources and infrastructure needed to handle storage, packaging, and delivery themselves. Meanwhile, scaling requires a significant amount of investment to cover the additional warehousing, staff, and shipping solutions.

If left unchecked, these extra expenses can far outweigh the FBA fees you avoid. A competent 3PL partner, however, can help mitigate them and protect your margins.

Con: Lack of Prime eligibility

Unlike FBA, FBM listings don’t automatically qualify for the Prime badge. This blocks you from selling to Prime members, who represent a significant chunk of Amazon’s customer base. You can, however, work around that issue by enrolling in Seller Fulfilled Prime (SFP).

Con: Lower Featured Offer chances

As previously mentioned, FBA is slated to win the Featured Offer because Amazon favors its fast and dependable fulfillment network. So, FBM listings experience less Featured Offer visibility, especially if they don’t provide speedy shipping options.

Amazon FBA vs FBM: Key differences

You now have a solid grasp of what FBA and FBM can deliver. To choose the right program for your business, you’ll need to compare what distinguishes one from the other. We’ve summarized Amazon FBA vs FBM as follows:

• Responsibilities: With FBA, all the fulfillment burdens fall on Amazon’s shoulders. The opposite applies to FBM, as you take on inventory management, packaging, shipping, and customer service yourself.
• Branding opportunities: FBA requires you to hand control over fulfillment to Amazon, which heavily limits your ability to showcase your identity through packaging and offer branded customer experiences. FBM, on the other hand, lets you do these freely.
• Prime badge access: Since FBA listings automatically qualify for Amazon Prime, you can immediately display its badge. You can’t do this with FBM unless you enroll in SFP.
• Fees: Participating in FBA subjects you to the program’s storage and fulfillment fees, while FBM allows you to manage your own costs and inventory.
• Overhead: You don’t need established fulfillment capabilities to become an FBA seller. FBM, however, will require more warehousing, staff, and logistical solutions, especially as you grow (which is why sellers often partner with a 3PL).
• Featured Offer eligibility: FBA products often enjoy better Featured Offer positioning than FBM listings, which greatly affects your visibility.
• Dependency on Amazon: You still operate within Amazon’s ecosystem as an FBA seller, which makes your operations dependent upon their platform and policies. This subjects you to the risks associated with any changes that occur.

FBM is the complete opposite, giving you full control over end-to-end fulfillment. As a result, you sidestep challenges that arise from policy fluctuations.

Key considerations for Amazon FBA vs FBM

Before choosing between Amazon FBA vs FBM, take into account various relevant aspects of your business. These will outline your needs and reveal the ideal Amazon fulfillment model to accommodate them.

What you sell

First, there are a couple of product-related factors to think about:

• Exclusivity: Handmade or custom products, for example, are more distinctive, as they’re heavily laden with personalization and branding. If you sell these types of items, FBM lets you establish an identity more obviously by way of unique packaging and inserts.

In contrast, FBA offers little room in this department, making it ideal for more common or manufactured items.

• Size and weight: The amount of space your goods occupy heavily influences the FBA fees you pay. To maximize Amazon’s fulfillment network and mitigate the financial burden, it’s best to use it for more compact and lightweight products.

On the other hand, if you sell larger, heavier items, these expenses can pile up. In such instances, FBM is the appropriate choice. If you lack internal logistics capabilities however, find a 3PL that supports your offering.

Item turnover

The speed at which your products sell also plays a role in determining the right fulfillment model. For instance, fast-moving goods won’t incur significant storage fees because they pass through Amazon’s fulfillment centers quickly. That makes them great for FBA.

The opposite applies for low-velocity products: Since they’ll sit in storage for longer periods, FBM is a better fit for them. With sufficient logistical capabilities, they can still meet Amazon’s standards and customers’ expectations.

Sales volume

Your sales volume can place a heavy load on your business operations. For instance, your best-selling products would be better placed in FBA, as fulfilling numerous orders can become challenging, no matter your logistical capacity. Serving more people also means handling more customer support concerns. By entrusting a hefty chunk of that work to Amazon, you free yourself from a heavy burden.

With that being said, you can still sell high-demand items through FBM if you work with a specialized 3PL.

Operational capabilities and resources

As we tackled earlier, selling through FBM requires your own storage and logistical capabilities, unless you partner with a 3PL. So, businesses with established fulfillment networks are better able to maximize Amazon’s self-fulfillment program.

Those who lack such capacities and the resources to invest in them benefit more from FBA. Amazon’s comprehensive fulfillment system offers more scalability as well, which is a plus for brands that need a solution that can match their growth.

Customer experience goals

If you’re looking to establish a distinct brand on the platform, opt for FBM. It provides freedom and control over aspects like packaging and customer service so you can offer unique buyer experiences.

FBA greatly restricts branding in packaging, so sellers focused on brand presentation should steer away from the program.

The case for using both FBA and FBM

If you’re struggling to decide which fulfillment method to adopt, we actually recommend a hybrid approach with the two. Amazon imposes FBA inventory and storage space limits, depending on the type of seller account you have:

• Individual: 10 cubic meter cap
• Professional: 25 cubic meter cap (standard-sized items, oversized products, clothing, and footwear items); no limits for extra-large products

Your Inventory Performance Index (IPI) — Amazon’s measurement of how well you keep products in stock — also influences these limits. Combining FBA and FBM optimizes your costs and shipping, maintains a healthy IPI, and mitigates inventory restrictions.

Amazon’s IPI explained

The IPI is a metric Amazon uses to assess your inventory management efficiency within FBA’s system. The platform regularly checks this and, based on your score, will either increase or decrease your storage capacity.

The latter response restricts the amount of stock you can keep with FBA and heightens your risk of selling out. Maintaining a healthy IPI prevents these imposed limitations, so it’s critical to your eCommerce business.

To achieve a strong IPI score, you must understand what affects it:

• Excess inventory: If you have a SKU with stock for over 90 days (based on forecasted demand), Amazon considers it excess inventory. Regularly experiencing this signals poor inventory management.
• Aged inventory: Inventory is deemed aged if it sits in a fulfillment center for more than 365 days. Amazon charges extra for this, and avoiding it improves your IPI.
• Stranded inventory: This issue occurs when inventory doesn’t have an active listing, despite being in an Amazon fulfillment center. It leads to wasted space and lost sales, while the fees you pay will hurt your profits and IPI.
• Sell-through rates: This compares the number of units you’ve shipped in the past 90 days to the average amount of inventory you’ve had in fulfillment centers during that period. A strong measurement indicates healthy sales volumes and inventory management.
• In-stock rate: This measures how well you keep up with customer demand and conveys your ability to maintain a healthy amount of stock despite high sales volumes. We recommend holding enough inventory to cover 30 to 60 days’ worth of expected sales.

Why to use both FBA and FBM

FBM has no influence over your IPI, making the self-fulfillment program useful for balancing inventory without affecting your FBA inventory cap.

Let’s say you sell a mix of compact, high-turnover items as well as larger, slower-moving ones. Since you’re limited to 10 to 25 cubic meters in Amazon’s fulfillment centers, selling hefty, low-velocity goods via FBA will be detrimental to your IPI.

Fulfilling them via FBM though will earn you better scores and increase your FBA inventory capacity. As a result, you’ll not only be able to fulfill more orders but also deliver more consistent customer experiences (not to mention, you’ll minimize your FBA fees as well).

Amazon FBA vs FBM – Strategies for fulfillment success

We’ve covered everything you need to know about FBA and FBM, so you should be able to choose which fulfillment model fits your business best. To help you maximize both, either individually or concurrently, we’ll share some useful strategies.

Find packaging alternatives

A major disadvantage of FBA is how it limits your branding capabilities and uses generic packaging. However, you can explore other options that let you integrate customization while still complying with Amazon’s guidelines, like:

• Using branded inserts
• Utilizing personalized tapes and stickers
• Printing branding elements on box interiors
• Incorporating custom void fill

If you opt for a hybrid approach, you’ll be able to offer branded experiences through both FBA and FBM.

Utilize inventory management software

Managing FBA and FBM inventory can be challenging since you have to monitor goods and orders on two fulfillment channels. A distributed order management system (DOMS) can minimize these complexities though. This technology monitors your FBA and FBM stock, while providing features that simplify selling, fulfillment, and customer service.

Monitor and improve IPI

Regularly assess your IPI score and take corrective actions to maintain optimal FBA inventory performance and maximize your storage capacity. To achieve this, carry out these steps:

• Don’t send excessive amounts of inventory for one SKU.
• Aim for better sell-through rates.
• Keep your bestsellers in stock.
• Minimize or avoid FBA’s long-term storage fees.
• Monitor your listings and address any issues immediately.

Use mirror listings

Keeping inventory for the same product in both FBA and FBM can help you avoid stockouts. That lets you continue selling even after your FBA stock runs low or sells out. To do this, you’ll need to create mirror listings.

Enroll in SFP

A significant drawback with FBM is the lack of eligibility for Amazon Prime. Joining SFP, however, can remedy this issue. Although successful enrollment will require you to meet Amazon’s stringent standards, the work you put in will be worth it.

Once you’ve earned that coveted Prime badge, you’ll be able to sell to Prime members and increase your chances of winning the Featured Offer.

Partner with a specialized 3PL

Amazon FBA prep requirements can be complex, and adhering to them while trying to ensure FBM success will require time, effort, and resources. Thankfully, a reliable 3PL partner can help.

MyFBAPrep specializes in Amazon order fulfillment, and we guarantee all your goods are picked, packed, and shipped correctly to deliver seamless customer experiences. Our Amazon FBA prep services operate under the supervision of experts with decades of experience to ensure your inventory enters the FBA network without any hiccups. We also provide services geared toward FBM and SFP to enable a hybrid fulfillment strategy so you can earn the sought-after Prime badge and maximize FBM.

Wrapping up Amazon FBA vs FBM— A hybrid FBA and FBM strategy drives fulfillment success

Choosing between Amazon FBA vs FBM is a critical decision that requires you to evaluate your business priorities, whether they be cost savings, scalability, the customer experience, or something else. Review each program’s advantages and disadvantages as well to estimate your profitability with them.

For eCommerce businesses that aim to optimize their Amazon strategy, a hybrid approach can provide the best of both worlds. You can leverage FBA for fast-moving items and Prime access while employing FBM to retain control over inventory and branding.

That being said, maximizing the two methods effectively poses its own challenges. If you want assistance navigating them, get in touch! We’ll help you establish a fulfillment strategy that supports your Amazon business’s long-term growth.