Stefaniy Martynenko

FBA or FBM in Private Label: what to choose and when? Comparative analysis

The fulfilment method you choose is one of the key indicators of business success.

At the same time, not always logical (at first glance) conclusions will lead you to big sales. There are many variables in this matter that are important to consider before launching. We will try to explain in detail and with examples the differences between FBA and FBM and which model will be most effective in your case.

Theoretical framework

The global difference between fulfilment lies in the object that performs the action. That is, the one who is engaged in logistics, storage, packaging, and customer service.

In the case of FBA, this is taken care of by Amazon, while in the FBM model, it is fulfilment by merchant, i.e. carried out by the business owner. Simply put, you do it yourself, without using the services of a marketplace.

However, you can also choose an alternative model – use numerous private fulfilment services that will offer you a full package of services, provide warehouses and assistance cheaper than Amazon.

If you look at the statistics, the FBA model is the undisputed leader among marketplace sellers.

But, as we said earlier, there are many nuances here. The FBM model can also be very profitable (if applied correctly and in a timely manner).

Advantages and disadvantages of FBA

The first and foremost advantage is gaining the maximum level of customer trust and loyalty. As a result, you can promote your business faster by receiving positive feedback and repeat sales. Next, let’s take a closer look at the other pros and cons of FBA.

FBA is also among the advantages:

Participation in the Amazon Prime programme, which provides customers with free 2-day shipping. Your products will be marked accordingly.

Currently, there are more than 100 million Prime members in the United States alone, which is a huge opportunity for your growth and promotion.

Fast order processing in the Amazon service centre. It is unlikely that you will be able to organise the same fast processing of incoming orders, especially at the start of your business. Of course, if we’re not talking about a hobby with a turnover of 1-2 orders per day, but a full-fledged business with hundreds of incoming messages.

Returning customers through quality service. Customers receive round-the-clock and timely support. The implicit advantage is the fact that delayed orders, damaged packaging, and other delivery problems will not affect your rating. Under the FBA model, Amazon itself takes care of all these negative issues.

Saved time that you can spend on improving your business, taking a holiday, rather than on mundane tasks or communicating with customers and finding out the nuances of their orders. This also includes saved nerve cells, because even if your logistics work like clockwork, no one is immune to force majeure.

Scale up without additional costs: firstly, Amazon warehouses have no storage limits, and secondly, you can sell goods not only in the US but also in more than 100 countries thanks to FBA Pan-EU.

The downside is that the pricing policy of the marketplace is very dynamic. And you cannot influence it. At any time, Amazon can raise the cost of service.

Advantages and disadvantages of FBM

The main advantage of FBM is that you have full control over the process, you influence the cost of delivery yourself, have the opportunity to optimise costs and are not burdened with regular payments.

The FBM model is perfect for selling bulky goods.

For example, if you decide to supply SUP boards to the site, you will pay about $83 per unit for the service under the FBA model. And this is without taking into account how much you will spend on shipping such goods to the US warehouse.

What to choose and at what point in time?

Process controlParticipation in listing and marketingFull immersion at all stages
Premises and staff costsAbsentDepends on the decisions you make
Sale of bulky goodsNot profitableProfitable
Organisation of fast turnoverSimple and fastComplicated and costly
Participation in the Amazon Prime programmeFree of chargePaid for by.
Regular payments for warehouse balancesFor goods stored for more than a yearAbsent
Seller rating and negative feedbackNo impact if it is a logistics errorStrong dependence

The FBM model always performs poorly at the start of a business, because Amazon is more interested in promoting FBA business and earning more from it.

In addition, many merchants observe a decline in sales when switching to “by merchant”. However, the pros and cons of FBM are very conditional and subject to adjustment. For example, when a business already has a good pool of regular customers, it can be beneficial.

If you are still unsure about the right executive model, want to get a detailed calculation of your prospects based on your business plan, and thus save thousands of dollars, contact us using the form below.

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