So what is the difference between FBA and FBM?
What do they mean, and which option is best for you if you're just starting out selling private level
products on Amazon? In this video, I'll go over all of these questions, as well as the pros and cons of each and from my experience, which option is best?
As there are a bunch of issues that beginners often overlook when it comes to choosing FBA or FBM.
But 1st My name is Crescent, and this is our 1st time meeting.
Welcome to my channel. My passion is sharing tips and strategies on how you can create a successful Amazon FBA private label business.
So if you enjoy videos like this, or especially if you've been around my channel, consider suscribing.
All right, let's get started. OK, so 1st, what is FBA and f BM?
FBA and FBM are two different methods of fulfilling orders on Amazon.
This is not the same as private label wholesale or arbitrage, which are different methods of selling products on Amazon.
FBA, which stands for Fulfillment by Amazon, means Amazon will store your inventory at their fulfillment centers across the country, and each time an order is placed, amazon will handle all of the fulfillment, from picking, packing and shipping the product to the buyer.
This includes most of the customer service and returns.
You don't have to do anything other than creating the product listing on Amazon, maintaining your inventory levels and handling any product related questions potential buyers might have.
FBM on the other hand, stands for fulfillment by merchant.
You being the merchant, this means you're responsible for storing all of your inventory, whether that's at your home or at a storage facility, and you handle all the logistics of fulfilling orders, that's picking, packing and shipping each order, handling returns and customer service.
So if you're just starting out on Amazon selling private liberal products, which option is best for you?
Let's go over the pros and cons of each, and it should be pretty clear which option I recommend and is the best.
Okay, so with FBA, the obvious pro is that Amazon takes care of all the storage and fulfillment for you.
This means you can ship your products directly from your supplier to Amazon, and essentially never have to see or touch your products.
And each time an order is placed, amazon will ship the product for you and handle any customer service, including refunds and returns.
The advantage also here is is if there's ever an issue with the fulfillment process, such as a shipping related problem, amazon will take full responsibility for it and remove any bad reviews and buy your leaves on your account, as well as refund you any fees or unit costs associated with lost or damaged products.
With FBA, you also have the prime badge on your listing, and you're also able to offer prime shipping, which is one or today shipping.
This is a huge advantage over FBM sellers, as everyone wants their purchases as soon as possible, and people will almost always have more trust and prefer to buy from a listing with prime shipping over one that does not.
FBA also provides bybox preference over FBM sellers, and FBA sellers are almost always win the buybox over any FBM seller, even if their price is slightly higher than the FBM price.
And having the buybox is a huge factor when it comes to conversions.
One point of confusion I want to address here is that offering prime shipping for your products has nothing to do with whether or not you have an Amazon prime membership yourself.
By doing FDA with your products, your products will always offer prime shipping to any buyer that has a prime membership.
OK, I hope that makes sense.
Now, when it comes to shipping cost of FBA versus FBM, you're most likely not going to be able to match or beat the shipping rates that Amazon is able to get with the couriers.
The shipping costs for FBA are factored in as part of the FBA fees that you pay with each sale, whereas you have to pay for shipping with FBM, and any volume discount that you might get won't come close to what Amazon can get, and therefore cut into your margin, and we'll get into this more later on in this video.
Now, most importantly, when it comes to the prose of FBA is that it allows for the flexibility of having a truly passive income business and an easily scalable business, where you can focus your time and energy on growing your business, rather than the logistics of order fulfillment.
So what are the cons with FBA?
Well, besides having to pay the obvious fulfillment fees, some categories have higher or additional fees, and Cue Four also has additional fees.
Fees can be difficult to calculate too, but it's important that you figure it out ahead of time, so that you're fully aware of what your profit margin is before committing to a product.
If you're wondering how to calculate death BA fees, I have a video on this here, and also leave a link to it in the video description below with FBA.
You also have limited access to your inventory, since it's all stored at amazon's fulfillment centers, so if there's ever any issues with your product, it's more difficult to resolve and can cost you a bit more money to fix them.
Also, along the same lines, you won't be personally handling each shipment, so you can't inspect each unit as they ship.
So quality control can suffer, like if a package is damaged or if you discover a problem, E.G.
But these things are rare, especially if you had an inspection done prior to your product leaving your suppliers warehouse.
And I always suggest having an inspection.
I have a video I'm doing inspections here, if you'd like to learn more about it.
Now, moving on to FBM. The main pro to going with FBM is that you pay less fees.
You only have to pay the referral fee, which is typically 15% of the sale price, or $1, whichever is higher.
This can lead to higher margins, but not always, and the slightly higher margins may not be worth your while, which you'll realize when we get to the with FBM.
You can also get the prime badge and offer prime shipping, but you have to meet very strict eligibility requirements and maintain a very high account health standard.
And lastly, a pro fulfilling your own orders.
Like you mentioned earlier, you get to handle every order personally, so you can maintain your own level of customer service and product inspection each time you can fill in order, if that's something you wish to control.
Now, under the kinds of FBM, and this is something that a lot of beginners fail to consider and overlook.
And these are the specific reasons why I don't do FBM, or suggest beginners to do either.
1st, you take 100% full responsibility of fulfilling the orders.
This means you store all of the inventory at your house, or at a storage facility, which can take up a lot of room.
You have to pick, pack and ship all of your orders.
This may not seem like a big deal in the beginning, but if you start moving a lot of product, especially with high volume products, this will take a lot of time, and I mean a lot time that can be otherwise be spent building your business instead.
E.g., besides the fact that I hate doing yard work, the hour or two would take me to cut the grass, I can make a thousand dollars working on my own businesses.
That's why I pay someone $100 to do it.
Instead. Beginners often forget that because you have to handle all of the shipping, you also bear the cost of all the shipping supplies.
That means you need to print all of the orders and shipping labels.
You need to stalk all of the shipping materials, like boxes, packaging material, tape, paper labels, printers ink, as well as process, pay and ship all of the orders.
These are all additional time and overhead expenses that beginners fail to consider when it comes to FBM, whereas paying the small FBA fee takes care of all of these logistics for you, just the logistics of fulfillment alone is daunting, unless you already have a business where you've already figured out all of these issues and you're just building a new Amazon business that can take advantage of this.
You also have to handle all of the customer service and returns, which again takes time.
You are also disadvantaged against FBA sellers when it comes to the by box eligibility, like a mentioned earlier, and this can dramatically affect your sales.
And on top of that, if you don't qualify for prime shipping, you will ms.
out on sales from prime members, as they tend to prefer buying from prime sellers to get the faster shipping.
So as you can see, FBM comes with a lot of logistics, additional labor responsibility and overhead expenses that isn't conducive to building a business with the freedom and scalability that most people are after, which is expressly why I don't do FBM and never even considered it.
With that said, it doesn't mean that it's not right for everyone.
If you run the numbers and it makes sense for you, your goals and your lifestyle, then, by all means, go for it.
