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Amazon FBA vs FBM And when to use which
Amazon FBA stands for Fulfillment By Amazon and is the most used way of selling products on Amazon, whether you do private label or online arbitrage.
Read this article if you want to know more about selling on Amazon doing Online Arbitrage.
It’s alternative FBM, short for Fulfillment By Merchant is much less used today.
The only exceptions that I know of where people still utilize FBM are:
- Big and/or heavy items
- Very cheap items ( below $20)
And there are of course some big players who sell so much on Amazon, that they realized it is far cheaper to rent a storage facility and hire their own personnel, over sending it to an Amazon warehouse.
But these are the exception on the rule and later on in this article we will delve into why these exceptions are there.
First we delve into what FBA actually entails, as knowing what it stands for doesn’t explain its deeper meaning.
What you have to understand is that with FBA, Amazon takes care of the following things:
Shipping the item to your customer
Dealing with first line support
Storing your products in their warehouses
Now they don’t do this out of the kindness of their heart, as they charge you about 15% of the sales value of your product(s) and $2 or $3 monthly storage fees.
This of course depends on the size, shape and weight of your products.
One of the tools you can use is the Amazon FBA calculator:
With this tool, you can calculate how much your profits are going to be after deduction of FBA fulfillment fees and shipping.
Initially you will find that everything is greyed out, this is because you need to fill in a product ASIN first.
An ASIN is nothing more than an Amazon listing identifier which you can find on every listing in the URL:
But once you filled it in ( simple copy the ASIN and paste it in the “Find your product on Amazon.com”-field) and you can start filling in the numbers you have on hand:
As you can see, when you fill in all the details ( in this case they are all made up except for the Item Price), you’ll get an overview of the costs and eventually your proceeds.
Just to be clear the costs are divided up in 2 columns: “Your Fulfillment” and “Amazon Fulfillment” , where the first is basically FBM and the last mentioned is FBA.
Now looking at the image it may seem that FBM is far more profitable.
However keep in mind that with FBM, you have to ship it yourself, store it yourself, communicate with the customer yourself, handle returns yourself… in short a lot of overhead which the FBA calculator doesn’t take into account.
Which leads to the exceptions I mentioned earlier.
Now just to be clear, in most cases it is better to just go with FBA as there are more benefits than downsides for the average seller, but there are the exceptions.
The first exception is wholesale.
The point of wholesale, as opposed to arbitrage, is that you go “all in” on one particular product.
Often it means you have several thousand items you need to store and that’s where the downside of FBA comes in, in the form of long term storage fees.
These are not too hefty when it comes to only a few items, however when you talk about 100’s if not 1000’s of products this can be expensive.
Now in an ideal world you sell your entire stock before you get hit with the long term storage fees.
However in the case of a slow selling product or just a large stock purchase this simply may not be possible.
So more often than not wholesalers ship items to their customers themselves, depending on where they live and how much a warehouse and personnel costs, they might end up paying less.
Another exception is that when you have a very large or very heavy item.
Ideally you want to have an item the size of a shoe box and not exceed a weight of 2 lbs.
But if you want to sell an item like a surfboard or weights used for weightlifting, I would seriously consider shipping this out yourself and also critically look at how much money you can make from these items.
One thing is pretty certain though and that is that often the FBA costs for items like this completely obliterate any profits you thought you could make.
Next to wholesale and big/heavy items, you should also be ware of items being too cheap and anything below $20 should be checked out thoroughly.
So for example, you can buy something for $8.99 and sell for $20.
On the surface it looks as if you will make a big profit, however if you take into account costs for shipping , FBA fees and maybe even fees for a prepcenter, you will find that these profits evaporate fairly quick.
Also in the case of cheap items you will most likely need to buy a lot of them in order to not lose all potential profits on shipping costs that occur from shipping it from the retailer to your own facilities.