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Amazon fulfillment strategies in 2020: FBA vs. FBM

Times have changed drastically since we wrote our article on FBA vs. FBM back in 2019.

Since then, the eCommerce world has seen Amazon FBA go from the fastest shipper around to one of the slowest, owing to the FBA COVID-19 restrictions put in place in March 2020.

Whether you’re considering FBA vs. FBM during COVID-19 or for the long-term, this guide examines the pros and cons of each for your business now and into the future.

Amazon fulfillment strategies

There are two main ways to fulfill orders on Amazon; Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM).

Fulfillment By Amazon (FBA)

FBA is Amazon’s own fulfillment service. You send your inventory to Amazon’s FBA warehouses, and Amazon fulfills your orders for you.

Note: From March to early April, FBA was operating a reduced service owing to COVID-19. Inbound deliveries of non-essential items were restricted, and outbound deliveries were taking up to one month. Today, Amazon has announced they’re allowing non-essential items back and Prime deliveries are picking up speed again.

Fulfillment By Merchant (FBM)

FBM is when the merchant is responsible for fulfilling Amazon orders, including storing, picking, packing, shipping, and handling returns.

FBM can be further split into two different methods:

1) In-house FBM

Using your own storage, resources, materials, and chosen shipping carrier to fulfill orders.

2) Outsourced FBM

Using an outsourced fulfillment partner to handle fulfillment for you, much like Amazon Prime.

FBA vs. FBM: A comparison

Last year, we looked at the pros and cons of FBA and FBM in turn. In this blog, we’re going to examine each stage of the fulfillment process, to help you determine the pros and cons relevant to your business.

Costs

FBA is competitively priced for fast-moving, small, and lightweight items. You pay a fulfillment fee per unit (including picking, packing, shipping, and handling costs) and a storage fee per cubic foot.

However, FBA imposes additional fees for long-term storage, inventory removal, returns processing, and multi-channel fulfillment. This makes FBA costly for those selling large, heavy, or slow-moving stock on Amazon or other sales channels – especially with the current delays.

FBM incurs no direct cost to Amazon. However, that doesn’t mean it’s free.

In-house FBM involves costs for:

  • Storage space, including rent, insurance, and staff
  • Packaging materials
  • Shipping carriers

For a small seller, these costs are likely manageable. However, for a growing seller, an outsourced fulfillment provider with all-inclusive fees and no hidden charges might work out cheaper.

Find out for yourself by comparing FBA and FBM fulfillment rates using our fulfillment cost calculator.

Products & restrictions

Amazon FBA has prohibited the following items. Note that these are in place year round. You can read more about the restrictions Amazon introduced due to COVID-19 here.

  • Alcoholic beverages (including non-alcoholic beer)
  • Vehicle tires
  • Gift cards, gift certificates, and other stored-value instruments
  • Products with unauthorized marketing materials, such as pamphlets, price tags, or other non-Amazon stickers
  • Products that require preparation but that have not been prepped according to FBA packaging and prep requirements
  • Loose packaged batteries
  • Damaged or defective units
  • Products with labels that were not properly registered with Amazon before shipment or that do not match the product that was registered
  • Products that do not comply with any agreement between Amazon and the seller
  • Products that have been illegally replicated, reproduced, or manufactured
  • Products that Amazon otherwise determines are unsuitable

For FBM fulfillment, please check with your specific outsourced fulfillment partner to see what they will not allow into their network. If you are self-fulfilling, check with the shipping carriers you use and stick to the seller guidelines (for example, not selling fake or defective items).

Storage

FBA has warehouses across the country, which is how Amazon can offer 2-day, 1-day, and same-day deliveries. You are responsible for shipping your inventory to these different warehouses.

However, these warehouses are currently operating at limited capacity to comply with social distancing rules and prevent the spread of the coronavirus.

The storage facilities and locations used with FBM are entirely down to you. You can use your own home, garage, or warehouse; rent storage space; or send your inventory to a third-party fulfillment provider with warehouses across the country.

Essential considerations for FBM inventory storage are:

  • Flexible space to grow your inventory alongside your business.
  • Multiple locations to increase the regions you deliver to and how quickly you deliver.
  • The use of your own staff or a third party’s employees.

Packaging

FBA deliveries are sent in Amazon-branded packaging, which has both pros and cons.

You benefit from an all-inclusive fulfillment fee that includes packaging costs, and you don’t have to worry about picking and packing orders. However, your products become branded by the Amazon logo, merely by association. This makes it difficult to build a relationship with your customers and foster brand recognition.

FBM deliveries that are processed in-house, are packaged how you want them. You can get creative with branded packaging, inserts, and unique unboxing experiences. However, these practices are costly and don’t always generate sufficient ROI.

This is why many outsourced fulfillment providers use neutral, unbranded boxes that cost less and preserve your brand identify.

Shipping

One of the biggest considerations when choosing between FBA vs. FBM is shipping speed.

Typically, Amazon FBA was the king of fast shipping speeds, offering standard 2-day deliveries and achieving heights of same-day deliveries. However, things have changed.

Firstly, independent fulfillment providers have caught up with FBA’s speeds and standards, replicating its 2-day delivery guarantee and offering next-day shipping where possible.

Secondly, during the coronavirus pandemic, FBA has extended its shipping guarantees to a longer delivery time in most categories.

It’s possible for FBM to become a faster shipping option, but check your specific use case to find out.

Returns & exchanges

FBA assumes responsibility for processing returns and exchanges. For businesses with a high return rate, this can save significant time and hassle.

FBM sellers are responsible for handling their own returns and exchanges. While this is usually an unwanted task, in the current COVID-19 situation, this responsibility could be a good thing.

Tip: Scale your eCommerce customer service with these tools

FBA is clearly feeling the strain of increased demand and reduced capacity. This could result in customer returns and exchanges taking longer than usual and frustrating customers. By handling your own returns and exchanges, you have the power to turn a negative customer experience into a positive one.

Amazon Prime

FBA automatically qualifies sellers for Amazon Prime. Amazon Prime benefits include free fast shipping for customers, and increased visibility, more chances of winning the buy box, and inclusion in Prime-filtered search results for sellers.

Although the Prime fast delivery promise is currently relaxed, Amazon has not said that FBA sellers will lose their Prime badge as a result. And this would be highly unlikely.

FBM sellers do not automatically qualify for Amazon Prime. Instead, they must qualify themselves via Seller Fulfilled Prime. This requires meeting specific metrics that can be challenging to achieve in-house.

However, an outsourced fulfillment provider can help you meet shipping speed metrics, allowing you to benefit from Amazon Prime and maintain the Prime delivery standard even when FBA can’t.

The buy box

Typically, the buy box favors FBA listings because they automatically qualify for Amazon Prime.

However, the buy box algorithm has recently been changed in response to FBA’s COVID-19 limitations. The buy box is now awarded according to overall performance in the following metrics:

  • Fast shipping
  • Competitive pricing
  • Well-stocked inventory
  • Positive customer reviews
  • Well-optimized listings

Accordingly, FBM sellers have more chance of winning the buy box currently and an equal chance of winning it in the future.

Multi-channel selling

We’ve already mentioned that FBA charges higher fees for fulfilling multi-channel orders. However, that’s not the only consideration.

If you want to qualify for Walmart 2-day delivery, eBay Fast ‘N Free, or Wish Express, it’s important to use a fulfillment service that qualifies you for these fast shipping programs.

Currently, FBA cannot achieve the speeds required, making FBM in-house or outsourced your only option. This may change in the future, but the cost of multi-channel FBA certainly won’t.

Customer satisfaction

The fulfillment methods best for you might not be best for your customers. The FBA service has extensive experience delivering items quickly and professionally – even during busy times such as on Prime Day and over Black Friday/Cyber Monday weekend.

However, FBA doesn’t hold a pristine reputation. Missing items, damaged boxes, and conspicuous delivery places aren’t unheard of.

With FBM, you have more control over the delivery experience your customers receive either through your own methods or your fulfillment partner’s.

When it comes to saving time and improving delivery standards, FBA is the natural choice. However, the COVID-19 restrictions and the emergence of FBA-like fulfillment providers such as Deliverr mean that FBA is no longer the only option for merchants who want fulfillment help.

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