Amazon FBA vs FBM vs Dropshipping: Which Amazon Fulfillment Option is the Best?
With 1.6 million sales resulting in about $385 million per day, Amazon is the premier place to sell stuff online. Whether you’re looking to expand your business or start a new one, Amazon can be part of that next step.
There are plenty of options when it comes to selling products on Amazon. Namely, Fulfillment By Amazon (FBA), Fulfillment By Merchant (FBM), or Dropshipping.
Each of these options has its own pros and cons. Sellers on Amazon have very strong opinions about Amazon FBA, Amazon FBM, and Amazon Dropshipping. Today, we’re going to explain the differences between them.
Your goal on Amazon is to make good profit margins. You want your invested time, money, and effort to be rewarded. That’s the bottom line. But how you go about doing that is dependent on the type of seller you are and the business you want to build.
Let’s go over what Amazon Fulfillment option is best for you and your business.
What is Amazon FBA?
Let’s get into depth about what Amazon FBA is and what it could do for your business.
The Fulfillment by Amazon program allows sellers to outsource a lot of the work that goes into running an eCommerce business to Amazon itself.
Amazon will take care of inventory storage, product shipping, and customer support. There are plenty of perks that come with participating in Amazon’s FBA storage. So it’s your job to put your product on Amazon’s platform, take care of marketing, and figure out how to actually make the product.
Once you send inventory to Amazon’s warehouses, customers can order it from the platform. Amazon would then pick, pack, and ship your product directly to the customer. After that, they would deal with customer support and returns.
But this level of support from Amazon does come with a cost. Amazon charges you to keep your inventory in their warehouses and for service fees. We’ll go over the costs later when we talk about the pros and cons of Amazon FBA.
What is Amazon FBM?
Now, let’s talk about what Amazon FBM is.
Whereas Amazon FBA is all about Amazon doing most of the legwork for sellers, Amazon FBM is on the other end of that spectrum.
Amazon’s Fulfillment by Merchant program is just what it sounds like. The merchant (or seller) is responsible for creating the product listing on Amazon, making the product, sorting orders, packaging, marketing, customer support, shipping, and dealing with returns. Yeah, it’s a lot of hats to wear.
So once an order is placed on Amazon’s platform, you have to find the product in your storage (or make it), package it, and send it straight to the customer. Once that’s done, you might have to deal with potential complaints or returns.
While it is more work than Amazon FBA, you don’t have to pay as many fees as FBA sellers do. Keep in mind that you can’t sell on Amazon for free, but with FBM you don’t have to pay for any storage or service fees.
We’ll go over how this could affect your profit margins later when we go over the pros and cons of Amazon FBM.
What is Dropshipping?
Dropshipping is a process in which you (the seller) will put up the Amazon listing, deal with marketing, and take orders. But the big difference is that you don’t directly oversee the production of your products. You outsource it to a vendor, commonly a wholesale company. You “drop” the order to them and they ship it to your customer or Amazon.
You don’t own any inventory or purchase stock in bulk. This practice of online retail has been one of the most trending online businesses in recent years. It’s a very low-risk fulfillment method with an easy barrier of entry.
The Pros and Cons of Amazon FBA
Amazon FBA is an extremely popular fulfillment choice among sellers. Let’s go over the pros and cons to find out why that is.
Pros of Amazon FBA
Here are some of the Amazon FBA pros:
1. Get More Time Back
With Amazon handling all customer service, picking, and packaging—you get more time to focus on your business. Running the logistics behind your operation could be very demanding. With Amazon handling most of it, your energy could be put somewhere else. This is the biggest advantage to FBA.
2. It’s Easy to Build a Brand
You’re selling on Amazon, one of the biggest brands in history. With that, a sense of branding and a good reputation is established with potential buyers. Plus, it’s easy for customers to leave reviews and ratings. This could lead to an even better reputation on the platform if they’re positive.
3. Get Access to Amazon Prime
If Amazon is handling all your inventory, then that means they get to deliver your products to customers in 2 days or less with Amazon Prime. There are 148.6 million Amazon Prime members in the United States alone. Most of these customers are only going to buy products with that Prime logo next to them. If you sold products through FBM, your products wouldn’t be able to opt into Amazon Prime’s program.
4. Search Ranking & Buy Box Advantages
The secrets of the Amazon Search Engine are locked behind closed doors… and guarded by an army. But sellers have suspected that FBA products perform much better on the search ranking than FBM products.
Selling FBA products also gives you access to the Buy Box. The Buy Box is near the “Add to Cart” and “Buy Now” buttons are located on a product’s page—85% of all Amazon products are sold here.
Plus, it’s space on your competitor’s page. That’s an insane advantage to have over the competition. While not necessarily exclusive to FBA products, it’s almost an unspoken rule that sellers have noticed about the platform.
Cons of Amazon FBA
Unfortunately, nothing is perfect. That statement definitely applies to Amazon FBA. Let’s go over the cons.
1. The Fees
Nothing is free. Amazon charges you to basically do half your job (shocking). They charge a service fee, an inventory fee, and another inventory fee if you aren’t selling products and hoarding them in warehouses.
Fees vary by how much space the product takes up and how much it weighs. Click here for an extensive chart of the FBA fees.
If you can’t dedicate the time to monitoring sales and managing inventory, then Amazon FBA is not for you. Inventory management is so important because if you overstock Amazon’s warehouses, you’re going to get charged. A lot. But if you’re out of stock, then say goodbye to your ranking on Amazon’s search engine.
2. Occasional Packaging Problems
The most common complaint among FBA sellers (Besides the fees) is the occasional packaging problem.
Customers could receive poorly packaged products resulting in potential damage. And Amazon would deal with customer support and the return, it still might leave a stain on your reputation in the form of a poor review.
The Pros and Cons of Amazon FBM
Business owners have fallen in love with Amazon’s FBM program. Let’s go over the pros and cons of Amazon FBM.
Pros of Amazon FBM
Here are some Amazon FBM pros:
1. Customize the Experience
With Amazon FBM, you are in control. Of everything. So while you’re responsible for keeping an inventory, picking orders, packaging, and shipping—it gives you complete control of the whole experience.
You can stand out from other sellers by putting products in custom packages or even including a hand-written “thank you” note. This could really improve your reputation among buyers.
2. Tighter Quality Control
Not to bash on Amazon because their quality control is great, but sometimes you just want to have that responsibility. Especially if you’re dealing with hand-crafted, delicate, or complicated items to ship.
3. Fewer Fees
Amazon still charges you to list your products on their website, but you don’t have to deal with all the fees that FBA sellers do. Profit margins could often be much larger with FBM sales.
Cons of Amazon FBM
There are some Amazon FBM cons:
1. It’s a Lot of Work
Obviously. You’re the captain of the ship. Manufacturing, quality control, keeping storage, moving inventory, dealing with orders, marketing, customer support, and more. It’s a lot. But this might not even be a con to some people. FBA and Dropshipping are also a ton of work.
2. No Amazon Prime Advantages
Okay, this one might sting. But you don’t get access to the Amazon Prime advantages that FBA sellers do. This means no 2-day delivery, no Prime stamp, and worse performance on Amazon’s search engine and ranking.
A very common complaint that FBM sellers have is that they lose sales to FBA sellers.
So, it’s settled. Ditch FBM in favor of FBA, right? Well, not quite.
There’s still a way for FBM sellers to enjoy the benefits of Prime without having to opt-in to Amazon’s expensive fees. Seller Fulfilled Prime is the blessing that FBM sellers have been asking for a long time. It’s a program in which FBM sellers could get the Prime stamp, as long as they can ship on the same day orders are placed to be consistent with the 2-day delivery promise that comes with Prime.
This sounds great, so of course, any FBM seller would want to participate. First, sellers must apply to the program and complete the trial period in which they prove that they can keep up with orders. Then they keep inventory in their own warehouse, process orders and buy shipping labels from carriers, and ship orders on the same day. Finally, the carriers collect and deliver the package within 2 days.
The Pros and Cons of Amazon Dropshipping
Amazon dropshipping is the easiest fulfillment method to start with, but there are some serious pros and cons.
Amazon Dropshipping Pros
Let’s go over dropshipping pros:
1. Low Commitment
It’s very easy to start dropshipping on Amazon. Dropshipping is infamous for its cheap entry fees. It’s less risky than the other fulfillment options. It’s also less responsibility. This means that you get to save time and work from pretty much anywhere. You’re acting as the middle person between the vendor and Amazon.
2. Very Hands-Off
You aren’t dealing with packaging, manufacturing, inventory, or overseeing any of these processes. You’re just telling your vendor how many orders there are and where to send them to.
3. There’s Money to be Made
Because of how easy it is to run a dropshipping operation, you can do it for more than one product. You can multiply the number of operations you have going on at once. Keep in mind that it’s not insanely easy. If it was then everyone would be doing it. But there is money to be made.
Amazon Dropshipping Cons
Here are some of the Amazon dropshipping cons:
1. Low-Profit Margins
The profit margins in dropshipping are extremely thin. You’re going to need to scale your operation in order to see a lot of income.
2. Less Control
Because dropshipping is very hands-off, it’s hard to know what’s really going on behind the scenes. This also could explain the very sketchy reputation behind dropshipping as a whole. But because there’s not much control, that means you lose: access to promotional deals, product and supply chain control, and the ability to build a meaningful brand. That might not sound too bad if you’re just trying to make some extra income, though.
3. Cutthroat Competition
Dropshipping is an easy business to get into. Low commitment and cheap cost of entry. Naturally, there’s going to be a lot of competition. A lot. You have to do whatever you can to cut costs and offer products lower than your competition. It could get very competitive so you have to know what to do and get ready to lower prices at a moment’s notice.
Which Fulfillment Option is the Best for Sellers?
Well, that depends. Very underwhelming, I know. But it’s true.
What are your goals? Are you building a business or expanding on an existing one? Do you want an extra source of income or are you chasing your eCommerce dreams?
I’m going to try to simplify this, but keep in mind that you need to consider your wants, needs, and scenario.
Amazon FBA is best for sellers who want to outsource most of the work to Amazon. If you can get a logistics center to handle your production, then you can just send inventory straight there.
Amazon FBM is best for sellers who are selling as a hobby or have a full-scale operation going on. You’re either hand-making products or have your own brick-and-mortar store/eCommerce site. You have to fulfill your own orders so you need a full-time staff to handle whatever’s thrown your way.
Amazon Dropshipping is best for sellers who want to make some extra income. You’re not passionate at all about the product you’re selling and you’re not solely reliant on this for income. You get the freedom to work from wherever you want and not have to deal with most of the things that go into making and shipping products.
There are plenty of other things to keep in mind. Like how much shipping would cost with FBA vs FBM, how much manufacturing would cost, how much profit you’d be making, how much shipping is per unit, how much time you can commit, how much of the manufacturing you’d be involved in—it’s a lot.
But if you stay level-headed and on top of things, then you’ll be making a profit from your online business in no time.
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