Now, when it comes to Amazon, there’s a term called FBA. You will see it all the time and it means ‘Fulfilled By Amazon’. Its where a seller sends products into Amazon’s warehouses in Melbourne and Sydney and then when a sale is made, they will pick it, pack it, and ship it to your customer. It’s an amazing fulfillment model that can really help you simplify your logistics and the whole supply chain.
The other alternative is FBM which means Fulfilled By Merchant. This is where as the seller, you fulfill the order yourself from your existing inventory using your existing freight partners.
So what are the pros and cons and which fulfillment model is best? with that?
Firstly, Fulfilled By Amazon (FBA) has a definite algorithm benefit. Amazon wants to promote your product because they’re going to make money on the fulfillment as well. Secondly, it’s hands-off. You don’t need to worry about the fulfillment logistics other than getting the stock to Amazon. Once it’s in there everything gets taken care of including the customer service experience.
An added benefit is if you are an Amazon Prime member, you get a free two-day shipping on your Prime-eligible products, which are stocked in the FBA warehouses. In the U.S.A., this is a huge deal and it will definitely start to happen here in Australia in time!
FBA becomes problematic when you have a product that doesn’t fit or work well with the FBA model in terms of the dimensional weights, where it might be a bigger or heavier type product. The charge rate, holding and fulfillment cost start to outweigh the cost benefit of FBA and you would be better off using your own fulfilment.
Also, early on in your Amazon channel start-up, it can make sense to just use your own fulfilment logistics (FBM) to just test the market. That reduces your early investment and commitment of investment of inventory into the Amazon warehouses. Downside is this will suppress your conversion rates, but is a good way to test the market to see just how much stock you should commit.
Hopefully that helps you understand Fulfilled By Amazon versus Fulfilled By Merchant.
We suggest you use FBA where you can on your best-selling products, the ones you know are going to move. Where you are testing the market or where the dimensions of your product sit outside of the Amazon FBA specification, then FBM is the best model. But if you are shipping from U.S.A, then FBA is definitely where it is at.