Navigating the world of Amazon can be challenging for businesses, as there are numerous selling and fulfillment options to choose from. To make the best decision for your specific needs, it’s crucial to weigh the pros and cons of each option. The major options available are Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Amazon Vendor Central, each with its own set of advantages and disadvantages. Understanding these options can help businesses optimize their operations and maximize their success on the platform.
Navigating Amazon can be a complex process for businesses, with multiple selling and fulfillment options available. To make an informed decision, it is crucial to weigh the pros and cons of each option. Here, we discuss the major options: Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Amazon Vendor Central.
Fulfillment Option
1. Fulfillment by Amazon (FBA)
Pros:
- Prime eligibility: FBA products are eligible for Amazon Prime, attracting more customers due to faster shipping and other benefits.
- Amazon handles fulfillment: Amazon takes care of storage, packing, shipping, and customer service, allowing you to focus on growing your business.
- Global reach: FBA enables you to reach international customers, expanding your market potential.
- Amazon reputation: By using FBA, your products are backed by Amazon’s customer service and return policies, increasing customer trust.
Cons:
- Fees: FBA charges storage and fulfillment fees, which can cut into your profit margins, especially for low-priced or slow-moving items.
- Inventory management: You need to monitor your inventory levels closely to avoid running out of stock or incurring long-term storage fees.
- Product prep: You must ensure products are packaged according to Amazon’s requirements, which may require extra time and resources.
- Limited control: You have less control over shipping and handling, which may lead to delays or other issues beyond your control.
2. Fulfillment by Merchant (FBM)
Pros:
- Cost control: You can avoid FBA fees by handling your storage, packing, and shipping, potentially increasing your profit margins.
- Inventory control: You have more control over your inventory, enabling you to manage stock levels and restocking more efficiently.
- Flexibility: FBM allows you to set your shipping rates and policies, giving you greater control over your business operations.
Cons:
- No Prime eligibility: FBM products are not eligible for Amazon Prime, potentially reducing your customer base and visibility.
- More responsibility: You are responsible for all aspects of fulfillment, including shipping, returns, and customer service, requiring more time and resources.
- Limited global reach: FBM can limit your ability to sell internationally, restricting your market potential.
Pros:
- Bulk orders: Amazon purchases your products in bulk, giving you a more predictable sales volume and reducing the need to manage individual orders.
- Marketing support: Amazon provides additional marketing support, such as A+ content, Amazon Vine, and Subscribe & Save options.
- Amazon handles fulfillment: Similar to FBA, Amazon takes care of storage, shipping, and customer service.
Cons:
- Limited control: You have less control over pricing, as Amazon sets the retail price and can negotiate lower costs from you.
- Payment terms: Amazon has longer payment terms, which can impact your cash flow.
- Invitational: Vendor Central is an invite-only program, making it less accessible to smaller businesses or those without a strong sales history.
In summary, the choice between FBA, FBM, and Amazon Vendor Central depends on your business needs and priorities. Factors such as cost, control, customer reach, and Prime eligibility should be carefully considered when making your decision.
Fulfillment By Amazon (FBA)
Fulfillment by Amazon (FBA) is a service provided by Amazon that allows sellers to store their products in Amazon’s fulfillment centers. Once a customer places an order, Amazon takes care of the storage, packing, shipping, and customer service for these products on behalf of the seller. This service enables businesses to leverage Amazon’s extensive infrastructure, offering a streamlined selling process and access to a wider customer base. Key features of FBA include:
Prime Eligibility
FBA products are eligible for Amazon Prime, offering customers faster shipping and additional benefits, which can lead to increased sales and visibility on the platform.
Amazon Handles Fulfillment
Amazon takes care of the entire fulfillment process, including storing products in their warehouses, picking and packing items when an order is placed, shipping products to customers, and handling customer service and returns.
Global Reach
FBA allows sellers to tap into Amazon’s global network of customers, expanding their market potential and helping them reach international buyers.
Amazon Reputation
FBA sellers benefit from the trust customers have in Amazon’s customer service and return policies, which can lead to higher customer satisfaction and repeat purchases.
However, it’s important to consider the potential challenges and costs associated with FBA, such as fees for storage and fulfillment, inventory management, compliance with Amazon’s packaging and labeling requirements, and limited control over the shipping and handling process. Weighing the pros and cons can help businesses decide whether FBA is the right fit for their specific needs and objectives.
Prime Eligibility
Prime eligibility is a significant advantage of using Fulfillment by Amazon (FBA) for sellers. When products are fulfilled through FBA, they automatically become eligible for Amazon Prime, a subscription-based program that offers customers a range of benefits. Some of the key benefits of Prime membership include:
Faster Shipping
Prime members enjoy free two-day shipping on eligible items, and in some cases, even same-day or one-day shipping. This fast delivery can be a strong incentive for customers to choose a Prime-eligible product over a non-eligible one.
Prime Video
Members have access to a vast library of movies and TV shows available for streaming through Prime Video.
Prime Music
Subscribers can enjoy ad-free music streaming through Prime Music, which offers a curated selection of songs and playlists.
Exclusive Deals And Discounts
Prime members have access to exclusive deals and discounts on various products, including early access to Lightning Deals and special promotions during events like Prime Day.
By offering products that are Prime-eligible, sellers can attract more customers and increase sales on the Amazon platform. Prime members are more likely to purchase items with Prime benefits, as they want to make the most of their subscription. This increased likelihood of purchase can lead to higher visibility for the seller’s products and better overall performance on the platform.
Amazon Handles Fulfillment
One of the key benefits of using Fulfillment by Amazon (FBA) is that Amazon handles the entire fulfillment process on behalf of the seller. This can be a game-changer for businesses, as it allows them to focus on other aspects of their operations while Amazon takes care of the following:
Storage
Amazon stores sellers’ products in their fulfillment centers, which are strategically located across the world. This means that products are closer to customers, resulting in faster delivery times.
Packing
When a customer places an order for an FBA product, Amazon’s staff picks the item from the inventory and securely packages it according to Amazon’s packaging guidelines. This ensures that products are properly protected during transit.
Shipping
Amazon handles the shipping process, including generating shipping labels, selecting the appropriate carrier, and dispatching the package to the customer. They also offer various shipping options, such as standard, expedited, and priority shipping, depending on the customer’s preferences and location.
Customer Service
Amazon handles customer service inquiries related to FBA orders, including questions about shipping, tracking, and returns. They also manage the return process for FBA products, making it easier for sellers to deal with returns and refunds.
By delegating the fulfillment process to Amazon, businesses can save time, effort, and resources that would otherwise be spent on logistics and customer service. This allows sellers to focus on growing their business through activities such as product development, marketing, and expanding into new markets. Furthermore, Amazon’s vast infrastructure and expertise in fulfillment can help improve the overall customer experience, which can lead to higher customer satisfaction and repeat purchases.
Global Reach
Fulfillment by Amazon (FBA) provides sellers with the opportunity to expand their market reach by accessing Amazon’s global customer base. With FBA, businesses can sell their products to customers around the world, unlocking new growth potential. Here’s how FBA enables global reach:
International Fulfillment Center
Amazon operates a vast network of fulfillment centers across the globe. By storing your products in these centers, you can ensure that your items are closer to international customers, resulting in faster delivery times and lower shipping costs.
Amazon Global Selling
Through the Amazon Global Selling program, FBA sellers can list their products on multiple Amazon marketplaces, such as Amazon.com, Amazon.co.uk, Amazon.de, and more. This allows businesses to reach customers in various countries and regions, expanding their market presence.
Exporting Made Easy
FBA handles the complexities of international shipping, including customs clearance and compliance with import/export regulations. This simplifies the process of selling internationally, allowing businesses to focus on other aspects of their operations.
Currency Conversion
Amazon’s currency conversion services enable customers to shop in their local currency, making it easier for international buyers to purchase products from FBA sellers. This feature can help improve the overall customer experience and encourage more international sales.
International Customer Service
Amazon provides customer service in the local language of each marketplace, ensuring that international customers receive support tailored to their needs. This can lead to higher customer satisfaction and a better overall experience for buyers.
By leveraging FBA’s global reach, businesses can tap into new markets and increase their sales potential. Expanding internationally can also help diversify revenue streams, reduce dependence on a single market, and create opportunities for growth in emerging markets.
Amazon Reputation
Amazon’s reputation for exceptional customer service and reliable return policies plays a significant role in enhancing customer trust and satisfaction. When sellers use Fulfillment by Amazon (FBA), their products are backed by Amazon’s well-established systems, providing customers with confidence in their purchases. Here’s how using FBA can increase customer trust:
Consistent Customer Service
Amazon handles customer service inquiries related to FBA orders. As Amazon is known for its prompt and efficient customer support, buyers can expect a consistent and high-quality experience. This can lead to increased customer satisfaction and positive reviews, which in turn can improve a seller’s reputation on the platform.
Reliable Return Policies
Amazon manages the return process for FBA products, adhering to its comprehensive return policies. These policies provide customers with a sense of security when making purchases, knowing that they can return items that don’t meet their expectations. This can encourage customers to make a purchase, even if they are unfamiliar with the seller or the product.
A-To-Z Guarantee
FBA products are covered under Amazon’s A-to-z Guarantee, which ensures that customers receive their orders in the condition and within the timeframe promised. If there is an issue with an order, customers can file a claim under the A-to-z Guarantee, and Amazon will step in to resolve the problem. This guarantee provides an additional layer of protection for buyers and fosters trust in the transaction.
Increased Visibility
FBA products often receive higher visibility on the platform due to their Prime eligibility and other factors. This increased visibility, combined with Amazon’s reputation, can lead to higher click-through rates and conversions, as customers may perceive FBA products as more trustworthy than non-FBA products.
By leveraging Amazon’s reputation through FBA, sellers can instill confidence in their products, leading to higher customer trust, improved satisfaction, and ultimately, increased sales.
Fees
Fulfillment by Amazon (FBA) simplifies the selling process for businesses by handling storage, packing, shipping, and customer service. However, this convenience comes at a cost, as FBA charges various fees that can impact profit margins. Sellers need to understand and consider these fees when deciding whether FBA is the right fit for their business. The primary fees associated with FBA are storage and fulfillment fees:
Storage Fees
Amazon charges storage fees for holding your products in their fulfillment centers. These fees are based on the amount of space your inventory occupies and are calculated per cubic foot. Storage fees are typically charged monthly, and rates can vary depending on the time of year, with higher fees during peak periods like Q4.
Two types of storage fees to consider are:
Monthly Inventory Storage Fees
These are the standard fees for storing your products in Amazon’s fulfillment centers, and they apply to all items, regardless of how quickly they sell.
Long-Term Storage Fees
If your products remain in Amazon’s fulfillment centers for an extended period (typically over 180 days), you may incur long-term storage fees. These fees can be significantly higher than regular storage fees, so it’s essential to monitor your inventory levels and turnover rates to minimize these costs.
Fulfillment Fees
Fulfillment fees cover the cost of picking, packing, and shipping your products, as well as handling returns. These fees are determined based on the size and weight of the items, with different pricing tiers for standard-size and oversize items. Additionally, the fees may vary depending on the destination (domestic or international) and the time of year (peak or non-peak).
For low-priced or slow-moving items, storage, and fulfillment fees can substantially cut into profit margins. Sellers must analyze these costs and factor them into their pricing strategy. In some cases, businesses may find that using an alternative fulfillment method, such as Fulfillment by Merchant (FBM), might be more cost-effective for certain products. To make informed decisions, sellers should carefully evaluate the potential impact of FBA fees on their overall profitability.
Inventory Management
Inventory management is an essential aspect of using Fulfillment by Amazon (FBA), as maintaining optimal inventory levels can help maximize sales, minimize storage fees, and ensure customer satisfaction. When using FBA, sellers need to monitor their inventory levels closely to avoid potential issues, such as running out of stock or incurring long-term storage fees. Here are some key points to consider for effective inventory management:
Stock Replenishment
Regularly monitoring your inventory levels allows you to identify when stock is running low, ensuring that you can replenish it before running out. Running out of stock can lead to lost sales and a decline in your product’s ranking on Amazon, as the platform prioritizes Sellers must analyze.
Inventory Turnover
Tracking your inventory turnover rate (the number of times your inventory is sold and replaced within a specific period) can help you determine the optimal frequency for replenishing your stock. This can help prevent stockouts and minimize the risk of incurring long-term storage fees.
Seasonal Fluctuations
Be mindful of seasonal fluctuations in demand for your products. By anticipating increased demand during peak seasons, you can adjust your inventory levels accordingly, ensuring that you have enough stock to meet customer demand while avoiding overstocking and excess storage fees.
Long-Term Storage Fees
To avoid incurring long-term storage fees, it’s essential to monitor the age of your inventory in Amazon’s fulfillment centers. Items stored for more than 180 days can incur additional charges. By tracking your inventory age, you can take proactive measures to sell or remove slow-moving items before these fees are applied.
Demand Forecasting
Utilize historical sales data and market trends to forecast demand for your products. Accurate demand forecasting can help you optimize inventory levels, reduce storage fees, and ensure that you have sufficient stock to meet customer needs.
Proper inventory management is critical for maximizing profitability and maintaining a successful FBA business. By closely monitoring inventory levels, anticipating fluctuations in demand, and optimizing stock replenishment, sellers can avoid issues related to stockouts and long-term storage fees, ultimately improving their overall performance on the platform.
Product Prep
Preparing products for Fulfillment by Amazon (FBA) involves adhering to Amazon’s packaging and labeling requirements. Proper product preparation ensures that items are protected during storage and shipping, reduces the risk of delays or issues in the fulfillment process, and enhances the overall customer experience. However, this preparation can require extra time, resources, and attention to detail. Here are some essential aspects of product preparation for FBA:
Packaging
Amazon has specific packaging requirements to ensure that products are protected during storage and transit. Sellers must use appropriate packaging materials, such as boxes, polybags, or bubble wrap, depending on the nature of the product. Fragile items may require additional protective readily available items, like foam inserts or air pillows, to prevent damage.
Labeling
Each item sent to Amazon’s fulfillment centers must have a scannable barcode or label, typically an Amazon barcode (FNSKU) or a manufacturer barcode (UPC/EAN). This allows Amazon to track and manage inventory effectively. Properly labeled products also ensure accurate order fulfillment and reduce the risk of shipping errors.
Prep Requirements
Some products have specific preparation requirements, such as bundling multiple units together, applying suffocation warning labels on polybags, or securing products with sharp edges. Sellers must be familiar with these requirements and ensure that their products are prepared accordingly.
Restricted Products
Amazon has restrictions on certain products, such as hazardous materials or items that require additional permits or certifications. Sellers must ensure that their products comply with Amazon’s policies and regulations, including obtaining any necessary approvals or certifications.
Quality Control
Before sending products to Amazon’s fulfillment centers, it’s essential to conduct quality control checks to ensure that items are in good condition and meet Amazon’s requirements. This can help prevent customer complaints, returns, or negative feedback.
While product preparation for FBA may require extra time and resources, it’s a crucial step in ensuring a smooth fulfillment process and maintaining high customer satisfaction. By familiarizing themselves with Amazon’s packaging and labeling requirements and diligently preparing their products, sellers can minimize potential issues and enhance their overall performance on the platform.
Limited Control
Using Fulfillment by Amazon (FBA) offers many benefits, such as access to Amazon Prime customers, global reach, and Amazon’s customer service. However, a trade-off is that sellers have limited control over certain aspects of the fulfillment process, particularly shipping and handling. Here are some potential concerns related to this limited control:
Shipping Delays
While Amazon generally has an efficient fulfillment system, shipping delays can still occur due to factors such as carrier issues, weather disruptions, or peak season volume. As a seller, you have limited influence over these factors, which can lead to customer dissatisfaction and negative feedback.
Handling Issues
Since Amazon is responsible for packing and shipping your products, any mistakes or mishandling during this process are beyond your control. For example, products may be damaged during packing, or the wrong item may be shipped to a customer. These issues can result in returns, refunds, or negative reviews.
Customer Service Limitations
Although Amazon handles customer service for FBA orders, you might feel disconnected from the process and unable to address specific customer concerns directly. This limited interaction with customers can make it challenging to build strong relationships and gather feedback to improve your products and services.
Customization Restrictions
With FBA, you have limited options for customizing your product packaging or including personalized inserts, such as promotional materials or thank-you notes. This can make it harder to differentiate your brand and establish a unique customer experience.
Returns And Refunds
Amazon handles returns and refunds for FBA orders according to their policies, which may not always align with your preferences. For instance, you may have limited control over the conditions under which a customer can return an item or the amount of a refund.
While using FBA can simplify the fulfillment process and provide numerous benefits, it’s essential to weigh these advantages against the potential drawbacks of limited control over shipping, handling, and customer service. Sellers should consider their specific business needs and priorities when deciding whether FBA is the right choice for their operations.
Fulfillment By Merchant (FBM)
Fulfillment by Merchant (FBM) is a method of selling on Amazon where the seller is responsible for managing their packaging storage, packing, shipping, and customer service, instead of relying on Amazon’s fulfillment services as in Fulfillment by Amazon (FBA). FBM offers advantages and disadvantages, depending on the seller’s specific needs, resources, and business goals. Here’s an in-depth look at FBM and its key components:
Storage
In FBM, sellers store their products in their own warehouse or storage facility. This allows for more control over inventory management and can help save on storage fees that are associated with FBA. However, sellers must ensure that their storage facilities are organized and efficient to minimize the risk of delays or errors in the fulfillment process.
Packing
Sellers are responsible for packing their products to ensure they are protected during shipping. This includes using appropriate packaging materials and adhering to any specific requirements set by carriers. FBM allows for greater customization of packaging, including the addition of branded materials or promotional inserts, which can help create a unique customer experience.
Shipping
In FBM, sellers manage their shipping process, including selecting carriers, negotiating shipping rates, and ensuring timely delivery. This provides greater control over shipping costs and the ability to choose shipping methods that best suit the seller’s products and customer needs. However, managing to ship can be time-consuming and may result in higher costs, particularly for international orders, compared to FBA’s competitive shipping rates.
Customer Service
FBM sellers handle their customer service, including answering inquiries, addressing issues, and managing returns and refunds. This direct interaction with customers allows sellers to build stronger relationships and gather valuable feedback. On the other hand, managing customer service can be resource-intensive, and sellers must maintain high standards to meet Amazon’s seller performance metrics.
Seller Performance Metrics
To succeed as an FBM seller, it’s crucial to maintain high seller performance metrics, such as on-time shipping, order defect rate, and valid tracking rate. These metrics influence your visibility on the platform and can impact your ability to win the Buy Box. Failing to meet Amazon’s performance standards can lead to reduced visibility, account suspension, or even termination.
While FBM offers increased control over the fulfillment process and potential cost savings, it also requires a significant investment of time and resources. Sellers should carefully evaluate their business goals, resources, and priorities to determine whether FBM or FBA is the best fit for their operations.
Cost Control
Cost control is one of the main advantages of using Fulfillment by Merchant (FBM) over Fulfillment by Amazon (FBA). By managing your storage, packing, and shipping, you can avoid or reduce FBA fees, potentially increasing your profit margins. Here’s how cost control works in FBM:
Storage Costs
With FBM, you store your products in your own warehouse or storage facility, which allows you to control storage costs. This can be particularly beneficial if you have low-priced, slow-moving, or bulky items, as Amazon’s storage fees can be higher for these types of products. Additionally, FBM allows you to avoid long-term storage fees that may be incurred if your inventory remains in Amazon’s fulfillment centers for an extended period.
Packing Costs
By handling your packing, you have more control over the packaging materials and methods used, which can help you optimize costs. This can also provide you with the opportunity to negotiate better prices on packaging materials, especially when purchased in bulk.
Shipping Costs
In FBM, you are responsible for shipping your products to customers. This allows you to negotiate shipping rates with carriers directly, potentially securing more favorable rates compared to the fees charged by FBA. However, it’s essential to consider that Amazon’s extensive logistics network can sometimes offer more competitive shipping rates, particularly for international orders.
No Fulfillment Fees
FBM sellers do not incur Amazon’s fulfillment fees, which are charged to FBA sellers for picking, packing, and shipping products. By managing these tasks yourself, you can potentially reduce your overall costs.
Customization Without Additional Fees
With FBM, you can customize your product packaging and add branded materials or promotional inserts without incurring additional fees that may be associated with custom packaging in FBA.
While FBM can offer cost control benefits, it’s important to consider the trade-offs, such as increased time and resource investment, the absence of Prime eligibility, and the need to maintain high seller performance metrics. Carefully evaluating the potential savings against these factors will help you decide whether FBM is the right choice for your business.
Inventory Control
Inventory control is an essential aspect of managing an e-commerce business, and with Fulfillment by Merchant (FBM), sellers have more control over their inventory compared to Fulfillment by Amazon (FBA). This control can lead to more efficient stock-level management and restocking processes. Here’s how FBM offers better inventory control:
Real-Time Inventory Management
With FBM, you store your products in your own warehouse or storage facility, giving you direct access to your inventory. This allows you to monitor stock levels in real time, making it easier to identify when products are running low and need to be restocked.
Faster Restocking
Since you manage your inventory, you can restock products more quickly when they run low or sell out. This can help you maintain consistent stock levels and avoid out-of-stock situations that can lead to lost sales and customer dissatisfaction.
Flexible Inventory Allocation
With FBM, you have the flexibility to allocate inventory to different sales channels as needed. For example, if you sell on multiple platforms or have your e-commerce website, you can easily adjust stock levels between channels to optimize sales and meet customer demand.
No Amazon Storage Restrictions
FBA has specific storage limits and restrictions, such as long-term storage fees for items that remain in their fulfillment centers for an extended period. With FBM, you control your storage, allowing you to manage inventory without worrying about Amazon’s storage fees or restrictions.
Better Control Over Seasonal Inventory
During peak seasons or promotions, managing inventory can be challenging. With FBM, you have more control over your inventory levels, enabling you to plan for seasonal fluctuations and ensure you have enough stock to meet increased demand.
While FBM provides better inventory control, it also requires more time and resources to manage storage, packing, shipping, and customer service. Additionally, FBM products are typically not eligible for Amazon Prime benefits, which can impact sales and visibility on the platform. Sellers should carefully consider the advantages and disadvantages of FBM and FBA to determine which option best aligns with their business goals and priorities.
Flexibility
Fulfillment by Merchant (FBM) offers sellers greater flexibility in various aspects of their business operations, including setting shipping rates and policies. This control can help sellers tailor their services to better meet their customer’s needs and preferences. Here’s how FBM provides flexibility:
Shipping Rates
With FBM, you have the freedom to set your shipping rates based on factors such as product weight, dimensions, shipping distance, and carrier fees. This allows you to offer competitive shipping rates that align with your business strategy, whether you choose to offer free shipping, flat rates, or real-time carrier rates.
Shipping Methods
FBM sellers can choose from various shipping methods and carriers that best suit their products and customers. This flexibility enables you to select the most cost-effective and reliable shipping options for your business.
Shipping Policies
FBM allows you to create and implement your shipping policies, such as handling time, shipping destinations, and delivery timeframes. This control enables you to set expectations with your customers and provide a level of service that aligns with your brand values and customer needs.
Return Policies
Unlike FBA, which has predefined return policies, FBM gives you the ability to set your return policies. This means you can decide the conditions under which customers can return items, the return process, and any associated fees, giving you more control over how you handle returns and refunds.
Customer Service
FBM sellers handle their customer service, allowing you to directly address customer inquiries and concerns, tailor your responses to individual situations, and build stronger relationships with your customers.
While FBM provides greater flexibility and control over your business operations, it also requires more time and resources to manage fulfillment, shipping, and customer service. Moreover, FBM products are generally not eligible for Amazon Prime benefits, which can impact visibility and conversion rates on the platform. Sellers should weigh the benefits of flexibility against the potential drawbacks and determine whether FBM or FBA is the best choice for their business.
No Prime Eligibility
No Prime eligibility is one of the main drawbacks of using Fulfillment by Merchant (FBM) compared to Fulfillment by Amazon (FBA). FBM products are generally not eligible for Amazon Prime benefits, which can impact the visibility and attractiveness of your products to potential customers. Here’s how this lack of Prime eligibility can affect your business:
Reduced Visibility
Prime-eligible products are often more visible in search results and can be filtered specifically by customers searching for Prime items. Without Prime eligibility, your FBM products may appear lower in search results, making it harder for potential customers to discover them.
Lower Conversion Rates
Many Amazon customers are Prime members who value the fast and free shipping benefits that come with their membership. Since FBM products are not Prime-eligible, these customers may be less likely to purchase your products, leading to lower conversion rates.
Competitive Disadvantage
FBA sellers who offer Prime-eligible products may have a competitive edge over FBM sellers, as their products can be more attractive to the large base of Amazon Prime members. This can make it more challenging for FBM sellers to compete in the marketplace.
Limited Access To The Buy Box
The Buy Box is the section on Amazon product pages where customers can directly add items to their shopping carts. Prime-eligible products have an advantage in winning the Buy Box, meaning FBM products may have fewer chances to appear in this high-conversion area.
While the lack of Prime eligibility is a notable disadvantage of FBM, sellers should consider their overall business goals, resources, and priorities when deciding between FBA and FBM. In some cases, the cost savings and increased control offered by FBM may outweigh the benefits of Prime eligibility, depending on the specific needs and strategies of the seller.
More Responsibility
When using Fulfillment by Merchant (FBM), sellers take on more responsibility for various aspects of their business operations, including shipping, returns, and customer service. This increased responsibility can require more time and resources, which may impact your overall business efficiency and growth. Here’s how FBM’s added responsibilities can affect your business:
Shipping Management
FBM sellers are responsible for handling the entire shipping process, from selecting carriers and negotiating rates to ensuring timely delivery. This can be time-consuming and may demand additional resources to manage effectively.
Returns Management
In FBM, sellers are responsible for handling their returns and refunds. This means you need to create and manage a return policy, process returned items and issue refunds. Managing returns can be challenging and time-consuming, especially if your products have a high return rate.
Customer Service
FBM sellers handle all customer inquiries and concerns, which can be resource-intensive, particularly during peak seasons or promotions. Maintaining high-quality customer service is crucial for meeting Amazon’s seller performance metrics and building a strong reputation on the platform.
Inventory Management
With FBM, sellers must store and manage their inventory. This requires maintaining an organized storage facility, monitoring stock levels, and restocking products as needed. Managing inventory can be labor-intensive and necessitate additional resources.
Seller Performance Metrics
FBM sellers must maintain high seller performance metrics, such as on-time shipping, order defect rate, and valid tracking rate. Failing to meet these performance standards can lead to reduced visibility on the platform, account suspension, or even termination. This adds pressure to manage all aspects of fulfillment efficiently and effectively.
While FBM gives sellers more control over their business operations, it also comes with the added responsibility of managing all aspects of fulfillment. Sellers should carefully consider their capacity to handle these responsibilities, as well as the potential trade-offs, such as the lack of Prime eligibility and increased resource investment when deciding between FBA and FBM.
Limited Global Reach
Using Fulfillment by Merchant (FBM) can limit your ability to sell internationally, as handling international shipping and logistics can be more challenging and resource-intensive compared to Fulfillment by Amazon (FBA), which offers a more seamless global selling experience. The limited global reach in FBM can restrict your market potential in the following ways:
Complex International Shipping
FBM sellers are responsible for managing international shipping themselves, which can be complicated due to customs requirements, varying shipping rates, and differing delivery timeframes. This can make it more difficult to offer competitive shipping options to international customers.
Increased Shipping Costs
International shipping can be more expensive than domestic shipping, especially when managing it independently. FBM sellers may struggle to secure competitive shipping rates and may need to pass these costs onto customers, potentially reducing the attractiveness of their products to international buyers.
Customs And Duties Management
When shipping products internationally, FBM sellers need to navigate customs regulations, duties, and taxes for each destination country. This can be a complex and time-consuming process, requiring a thorough understanding of international trade laws and procedures.
Slower Delivery Times
FBM sellers may find it challenging to offer fast and reliable delivery times to international customers, as they do not have access to Amazon’s extensive global logistics network. Slower delivery times can impact customer satisfaction and potentially lead to negative reviews or feedback.
Limited Access To Global Marketplaces
FBA offers a program called Amazon Global Selling, which allows sellers to list their products on multiple Amazon marketplaces around the world with relative ease. In contrast, FBM sellers may face more challenges when trying to expand their business to international Amazon marketplaces, limiting their global reach.
While FBM can limit your global reach, it may still be the right choice for some sellers who prefer more control over their business operations or who primarily focus on domestic markets. When deciding between FBA and FBM, it’s essential to consider your business goals, resources, and target markets to determine which option is best suited to your needs.
Amazon Vendor Central
Amazon Vendor Central is a platform used by manufacturers and distributors to sell their products directly to Amazon. When using Vendor Central, you become a first-party seller, meaning Amazon purchases your products in bulk and takes over the responsibility of selling and fulfilling orders to end customers. Amazon Vendor Central is an invitation-only program, and businesses need to be approved by Amazon to join.
Here are some key aspects of Amazon Vendor Central:
Wholesale Relationship
Unlike Seller Central, where you list and sell your products directly to customers, Vendor Central establishes a wholesale relationship between you and Amazon. Amazon buys your products at wholesale prices and then sells them to customers, effectively making Amazon the retailer.
Pricing Control
In Vendor Central, Amazon sets the retail price for your products. While you can suggest a retail price, Amazon ultimately has the final say and may adjust prices based on its pricing algorithms, market conditions, or promotions.
Payment Terms
With Vendor Central, Amazon typically pays on a net payment basis (e.g., Net 30, Net 60), meaning you receive payment for your products after a predetermined number of days following the invoice date. This is different from Seller Central, where payments are typically made every two weeks.
Marketing Tools
As a Vendor Central participant, you gain access to Amazon Marketing Services (AMS) and other promotional tools, such as A+ Content, Amazon Vine, and Subscribe & Save, to enhance your product listings and improve visibility.
Amazon Handles Fulfillment
When you sell through Vendor Central, Amazon takes care of storage, packing, shipping, and customer service, allowing you to focus on other aspects of your business.
Limited Control
As a vendor, you have less control over your products and sales on Amazon. For example, Amazon manages inventory, order fulfillment, and customer service, which can lead to potential issues that are beyond your control.
Amazon Vendor Central can be a suitable option for manufacturers and distributors who prefer a hands-off approach to selling on Amazon and are willing to relinquish some control in exchange for Amazon handling various aspects of the sales process. However, it is essential to carefully consider the trade-offs and determine if this model aligns with your business goals and needs.
Bulk Orders
When using Amazon Vendor Central, one of the key benefits is that Amazon purchases your products in bulk. This can provide several advantages for your business, including a more predictable sales volume and reduced need to manage individual orders. Here’s how bulk orders can benefit your business:
Predictable Sales Volume
With Amazon purchasing your products in bulk, you can anticipate a more consistent sales volume, making it easier to plan production, inventory, and cash flow. This predictability can help you optimize your manufacturing processes and supply chain management.
Reduced Order Management
Since Amazon buys your products in bulk and handles the individual sales to end customers, you don’t need to manage each order separately. This can save time and resources, allowing you to focus on other aspects of your business, such as product development, marketing, or expanding to new markets.
Streamlined Shipping
Shipping your products in bulk to Amazon’s fulfillment centers can be more efficient than shipping individual orders to customers. This can lead to reduced shipping costs and simplified logistics, particularly if you’re shipping large quantities of products.
Enhanced Cash Flow
Bulk orders from Amazon can help you generate significant revenue in a shorter timeframe compared to selling products individually. This can improve your cash flow, which is particularly beneficial for businesses with high upfront costs or seasonal fluctuations in sales.
Greater Exposure
When Amazon purchases your products in bulk, they have a vested interest in promoting and selling your products. This can result in increased visibility on the platform, as Amazon may feature your products in promotions, deals, or bestseller lists.
While bulk orders can offer several advantages, it’s essential to remember that selling through Amazon Vendor Central involves relinquishing some control over pricing, fulfillment, and customer service. Additionally, the program is invitation-only, so not all businesses will have the opportunity to participate. It’s crucial to weigh the benefits of bulk orders against the potential drawbacks and determine if Amazon Vendor Central aligns with your business goals and needs.
Marketing Support
When you sell through Amazon Vendor Central, you gain access to a range of marketing support and promotional tools that can help enhance your product listings, increase visibility, and drive sales. Some of the key marketing support options available to vendors include:
A+ Content
A+ Content allows you to create enhanced product descriptions with rich media elements, such as images, comparison charts, and videos. This can help improve the customer shopping experience by providing more detailed and engaging information about your products, which can lead to higher conversion rates and potentially better search rankings.
Amazon Vine
The Amazon Vine program is an invitation-only service that allows vendors to offer their products to a select group of trusted reviewers, known as Vine Voices. These reviewers provide honest and unbiased feedback on your products, which can help generate early reviews and increase customer trust. Positive reviews from Vine Voices can also influence purchasing decisions and improve your product rankings.
Subscribe & Save
The Subscribe & Save program allows customers to sign up for regular deliveries of your products at a discounted price. This can help build customer loyalty, increase repeat purchases, and provide a more predictable revenue stream. Additionally, products with a Subscribe & Save option often have higher visibility and appeal to customers who value convenience and savings.
Amazon Marketing Services (AMS)
As a Vendor Central participant, you can access Amazon Marketing Services, which includes various advertising solutions, such as Sponsored Products, Sponsored Brands, and Sponsored Display ads. These advertising options can help increase product visibility, drive targeted traffic to your listings, and boost sales.
Amazon Storefronts
Vendors can create a customized Amazon Storefront to showcase their brand and product portfolio. This branded destination can help you tell your brand story, engage customers, and drive sales across your product range.
While Amazon Vendor Central provides additional marketing support, it’s important to remember that the platform is invitation-only and requires relinquishing some control over pricing, fulfillment, and customer service. When considering whether Vendor Central is the right choice for your business, weigh the benefits of these marketing tools against potential drawbacks to ensure the platform aligns with your overall business goals and needs.
Amazon Handles Fulfillment
When you sell through Amazon Vendor Central, Amazon takes on the responsibility of handling storage, shipping, and customer service for your products, similar to Fulfillment by Amazon (FBA) for Seller Central users. This can provide several benefits for your business:
Storage
Amazon stores your products in its fulfillment centers, which can save you the time and expense of managing your storage facilities. This can be particularly beneficial for businesses with limited warehouse space or those that want to avoid the costs associated with leasing or purchasing additional storage.
Shipping
Amazon handles all aspects of shipping, including packaging, labeling, and delivering your products to customers. This can streamline your logistics, reduce shipping errors, and help ensure that your products reach customers promptly. Additionally, Amazon’s vast fulfillment network enables them to offer fast and reliable shipping, which can improve customer satisfaction and lead to better reviews and repeat purchases.
Customer Service
Amazon takes care of customer service on your behalf, handling inquiries, complaints, and returns. This can save you time and resources that would otherwise be spent managing customer interactions, allowing you to focus on other aspects of your business, such as product development or marketing.
Returns Management
Amazon manages the entire returns process, including receiving and inspecting returned items, processing refunds, and restocking inventory. This can simplify your returns process and reduce the amount of time and resources required to manage returns internally.
Access To Amazon Prime
Although Amazon Vendor Central differs from FBA in terms of the relationship between the seller and Amazon, both options provide access to Amazon Prime, giving your products increased visibility and appealing to Prime members who value fast shipping and other membership benefits.
While having Amazon handle fulfillment offers several advantages, it’s important to consider the trade-offs, such as relinquishing control over pricing, inventory management, and customer service. Additionally, Amazon Vendor Central is an invitation-only platform, which may not be an option for all businesses. Before deciding whether Vendor Central is right for your business, weigh the benefits against potential drawbacks to ensure the platform aligns with your overall goals and needs.
Limited Control
When you sell through Amazon Vendor Central, you relinquish some control over your pricing, as Amazon ultimately sets the retail price for your products. This can have several implications for your business:
Pricing Control
While you can suggest a manufacturer’s suggested retail price (MSRP) for your products, Amazon has the final say on the selling price. Amazon may adjust prices based on its pricing algorithms, market conditions, promotions, or competitive pricing strategies. This can result in fluctuating prices or prices that differ from your initial MSRP, which might affect your brand perception or profit margins.
Wholesale Negotiations
Since Amazon acts as a retailer when purchasing products from vendors, they may negotiate lower wholesale prices to maximize their profit margins. This can put pressure on your margins and might require you to find ways to reduce production costs or adjust your pricing strategy to maintain profitability.
Influence On Promotions And Discounts
With Amazon controlling the retail price, you have limited influence over promotions and discounts offered on your products. While Amazon may run promotions to boost sales, these discounts can sometimes come at your expense, impacting your bottom line.
Difficulty In Maintaining Price Consistency
If you sell your products through other channels, such as your website or other online marketplaces, it can be challenging to maintain consistent pricing across all platforms. Amazon’s dynamic pricing strategy may result in lower prices on their platform compared to others, potentially causing channel conflict or customer confusion.
Potential Impact On Brand Image
If Amazon aggressively discounts your products, it might affect your brand image and perceived value in the eyes of customers. This can have long-term implications on your brand positioning and pricing strategy across all sales channels.
While Amazon Vendor Central can provide benefits, such as bulk orders, marketing support, and Amazon handling fulfillment, it’s crucial to carefully consider the drawbacks of limited control over pricing. Before deciding whether Vendor Central is right for your business, weigh the benefits against potential drawbacks to ensure the platform aligns with your overall goals and needs.
Payment Terms
When selling through Amazon Vendor Central, one of the potential drawbacks is Amazon’s longer payment terms. This can have an impact on your business’s cash flow, which is important to consider when evaluating whether Vendor Central is the right choice for your business. Here’s how these longer payment terms can affect your cash flow:
Delayed Payments
Amazon’s payment terms can range from 30 to 90 days, depending on your agreement with them. This means you may need to wait for a longer period to receive payment for the products you’ve sold compared to other sales channels or if you were using Amazon Seller Central. This can create cash flow challenges, especially for smaller businesses or those with tight cash flow management.
Impact On Working Capital
Longer payment terms can tie up your working capital, making it more difficult to invest in new inventory, product development, marketing efforts, or other growth initiatives. This may limit your business’s ability to respond to market opportunities or scale quickly.
Increased Reliance On Financing
With longer payment terms, you might need to rely more on external financing, such as business loans or lines of credit, to maintain a healthy cash flow. This can result in additional financing costs and potentially impact your business’s credit rating.
Difficulty In Forecasting Cash Flow
Longer payment terms can make cash flow forecasting more challenging, as payments from Amazon may not align with your expected sales volume or other financial metrics. This can lead to uncertainty and make it more difficult to plan for future investments or expenses.
Potential For Late Payments
While Amazon generally has a reputation for paying vendors on time, there is always a risk of late payments or disputes that can further delay your cash flow. This can exacerbate cash flow challenges and may require additional financial planning or resources to address.
When considering Amazon Vendor Central as a sales channel for your business, it’s essential to weigh the potential benefits, such as bulk orders, marketing support, and Amazon handling fulfillment, against the drawbacks, including limited control over pricing and longer payment terms. Evaluate how these factors may impact your cash flow and overall business strategy before deciding whether Vendor Central is the right choice for your business.
Invitational
Amazon Vendor Central is an invitation-only platform, which means that it is not accessible to all businesses. Amazon selects vendors based on factors such as sales history, product quality, and market demand. The invitational nature of the program can present challenges for smaller businesses or those without a strong sales history:
Limited Accessibility
Since Vendor Central is invite-only, not all businesses will have the opportunity to participate. This may limit your options when considering different selling channels on Amazon.
Smaller Businesses At A Disadvantage
Smaller businesses, startups, or those with a limited sales history might have a harder time gaining access to Vendor Central. These businesses may need to prove their success on other platforms or through Amazon Seller Central before receiving an invitation to join Vendor Central.
Uncertainty
The invitation process for Vendor Central is not transparent, which can make it difficult for businesses to plan their Amazon strategy. It may be challenging to know what criteria Amazon uses to select vendors or how to improve your chances of receiving an invitation.
Potential Missed Opportunities
If your business is not invited to join Vendor Central, you may miss out on potential benefits such as bulk orders, marketing support, and Amazon handling fulfillment. However, it’s important to note that other Amazon selling options, such as Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM), are still available to businesses that do not have access to Vendor Central.
Competition With Established Brands
Amazon tends to invite established brands and successful sellers to join Vendor Central, which means that smaller businesses or those without a strong sales history might face increased competition from more prominent players in the market.
While the invitational nature of Vendor Central can limit access for some businesses, it’s essential to consider other selling options available on Amazon, such as FBA or FBM, and weigh their respective pros and cons. By evaluating the different selling channels and how they align with your business goals and needs, you can make an informed decision about the best approach for your business on Amazon.
In conclusion, choosing the right selling and fulfillment option on Amazon depends on a variety of factors, including cost, control, customer reach, and Prime eligibility. By carefully considering the pros and cons of FBA, FBM, and Amazon Vendor Central, businesses can make an informed decision that aligns with their goals and objectives. As the e-commerce landscape continues to evolve, staying informed and adaptable is crucial for success on Amazon and beyond. You can find more tips and strategies by joining our coaching program.