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Want to sell on Amazon?
You can become an FBM seller and fulfill orders on your own. Or, you can go the FBA way and let Amazon fulfill orders on your behalf.
Amazon has an ever-growing landscape of over two million strong sellers. You can be part of that community while taking the FBM route.
But what is FBM actually? How does it work? How does FBM fare as compared to the other fulfillment option (FBA)?
In this detailed post, you will try to find the answers to all such and many other FBM-related questions.
FBM stands for Fulfillment by Merchant. As the term suggests, this business model is about sellers fulfilling their orders via Amazon marketplaces. In other words, sellers themselves pick, store, pack and ship a product to buyers. The FBM approach proves to be a better business prospect for some Amazon sellers. Those sellers improve their margins by saving money that otherwise goes into using Amazon’s fulfillment machinery.
FBA is undoubtedly more popular among sellers for its multiple edges on FBM. Nonetheless, FBM is still an integral part of Amazon's economy, and hundreds and thousands of sellers take that route. So, there must be some valid reasons why they do that.
Here, we’re going to list all the reasons for which opting for FBM makes more sense.
Before discussing how the fulfillment by merchant model works, it is essential to look at its prerequisites. Here, we’ll have a quick run-through of what you need to do before finalizing your pick between FBA and FBM.
First of all, you need to select the Amazon marketplace you want to operate in. Amazon has 19 global marketplaces that span six continents. You can choose single or multiple marketplaces (based on your location, budget, and product). For instance, you may find it easy to start your journey from the Amazon India marketplace if you're based in India.
The same goes for Amazon Germany, France, Italy, and the Netherlands for those living in the EU region. For international sellers, the United States is considered the most lucrative Amazon marketplace due to its size. The ease of doing business also makes it simple for international sellers to start their journey from the US instead of any other Amazon marketplace.
Amazon marketplace is not a one-dimensional commercial space offering a single selling approach. Instead, the e-commerce giant lets sellers pick from the four basic business models.
Private label is the most opted business model on Amazon. Private label sellers manufacture or procure white-label products and then sell them with their own branding. Then, there’s the wholesale model that involves buying branded products in bulk and listing them on Amazon with a margin. It is the second most popular business model on Amazon.
Amazon also offers low-investment options with its arbitrage and dropshipping business models. With Amazon arbitrage, you can generate an income stream by buying retail items at a discounted price and reselling them at a margin (keeping the profit). In dropshipping, you market and list products for third-party brands on Amazon. Then, the brands themselves carry out the order fulfillment.
Amazon primarily offers two selling plans to sellers: Individual and Professional. The charges for the individual plan are based on the per-sale model, i.e. $0.99 on every sale. On the other hand, the professional plan has a fixed-rate subscription, i.e. $39.99 per month. The professional selling plan works better for any seller seriously looking into making Amazon an income avenue.
Once you pick the marketplace, business model, and seller plan, create your seller account on Amazon. With a valid credit card, tax ID, and bank account, you can easily create an Amazon seller account as an individual or a business entity.
Finally, you have to list the products you want to sell through Amazon. While listing a product, you need to fill in its attributes, e.g. price, condition, and dimension. This is when you also have to pick the fulfillment method. For example, if you're opting for FBM, choose “I will ship this item myself”.
When you opt for Fulfillment by Merchant while listing a product, you take a different trajectory than an FBA seller.
At the onset, the backend of FBM looks quite simple. You put your product listing on Amazon, customers place orders, Amazon notifies you about them, and finally, you fulfill those orders. However, a lot is happening amid these apparently simple stages.
Here, we will break down and discuss all those FBM details that pave the way for a successful selling journey.
Sufficient inventory is the lifeline of any product-based business operations. There is no exception for FBM sellers as well. The conventional wisdom suggests that you must have three months of inventory at your disposal whether you do FBA or FBM.
As a private-label or wholesale FBM seller, you must have your own dedicated storage space for the inventory. You will use this space to receive, store, pack, and dispatch your products. Therefore, it is important to set up this storage center/fulfillment center while taking care of warehousing basics.
You must predefine the protocols for the drop-off, packing, and other elements of inventory management. Having all this information sorted beforehand will streamline your in-house fulfillment process.
Once you have the venue for keeping and packing products, you can set the supply chain for your Amazon FBM business in motion. It fundamentally means getting products delivered to the storage center or picking them yourself from the manufacturer/distributor. Then, sort out that inventory in your warehouse in a manner where you can easily procure an item upon receiving a related order.
As a customer successfully places an order, you need to start processing it. After receiving an order notification, procure the item from your inventory and start packing it for delivery. From boxes to bubble wraps and poly bags to tapes, you will need a bulk of packaging stuff for your FBM operations.
Some products will be packed and shipped in boxes. Then, some of them will be sent in poly bags. Also, you may need air fillers and bubble wraps with items where fragility comes into the equation. Moreover, you may have to over-box some heavy items to ensure safe shipping and transit handling.
If you want products to remain intact and undamaged in transit, follow the packaging compliances that Amazon has established for its FBA operations.
You can modify several settings and features on Seller Central to make merchant fulfillment easier. For instance, creating customized shipping templates is one of the key things you can do to streamline your FBM operations. You can predefine and customize the shipping details (rates, destinations, handling time, etc) for different SKUs with shipping templates.
For instance, if you’re offering one-day delivery only for particular items, you can take care of it by making a specific shipping template and linking it to the relevant SKUs. Similarly, shipping templates allow you to set shipping prices based on weight and price bands.
Follow these steps to make shipping templates on your Seller Central account.
Once a shipping template is ready, you can assign it to particular SKUs from the Manage Inventory page.
Note: Amazon advises FBM sellers to keep shipping free. Free shipping helps sellers win the featured offer spot that subsequently improves their sales.
Besides creating shipping templates, you should also set Order Handling Capacity on Seller Central. By setting a particular handling capacity, you fix a maximum number of orders you can handle in a day. When this limit reaches, the subsequent orders automatically add one day to their handling time. Therefore, setting order handling capacity will ensure you can successfully see off the periods with a high surge of orders.
It is one of the final and most crucial phases of FBM. Here, you need to be mindful of one necessary Amazon FBM shipping requirement, i.e. maintaining the Valid Tracking Rate (VTR) of 95% and above. VTR essentially measures the percentage of FBM parcels that possess a valid tracking number. Falling below this VTR percentage can get you banned from carrying out merchant-fulfilled operations.
You can ensure good VTR by choosing Amazon-integrated carriers. Those carriers are part of Amazon’s VTR network and provide real-time tracking status to the platform. For instance, these are the integrated carriers for domestic shipping in the US.
If you’re not sure how to deal with the shipping part of FBM, you can make use of Amazon Buy Shipping Services. You can buy shipping labels, handle and confirm orders, and track shipments through this service. Names like FedEx, Ontrac, UPS, USPS, DHL Express International, and China Post are part of this service for FBM sellers.
Using shipping services appraised and approved by Amazon will help you keep your VTR high and negative feedback and return claims low.
FBM sellers also have to fully take care of customer service themselves. Allowing buyers to ask questions before purchasing, managing returns, entertaining A-to-Z guarantee claims, and getting back to customers’ messages in time are some of the essential pointers of FBM-related customer service.
Also, managing return orders in FBM is slightly different than how you do it in FBA. For instance, you have to provide prepaid return labels to customers for most items. Then, you also have the option to file for prepaid return label exemption for some SKUs.
We can break down the cost of FBM operation in various parts. For starters, the cost of goods (products you will sell) will be the main expense of your FBM business. After that, running your own storage/fulfillment center will also entail a cost. You will also need a budget for the procurement of packaging items.
Then, there are some Amazon fees you need to take care of. Finally, you also have to pay for the shipping since you’re fulfilling orders yourself.
The cost of goods and expenses of running a warehouse depends on the size, scale, and product portfolio of a business. So, they can vary from seller to seller.
However, Amazon fees, packaging costs, and shipping rates remain the same for everyone. Let’s discuss them in more detail.
If you have opted for the Professional selling plan, you will have to pay flat $39.99 per month irrespective of how many sales you make. Then, you have to pay a referral fee that is charged on every sale. It is essentially the commission that Amazon takes to provide you with a selling platform. The referral fee varies for different product categories, ranging from 6% to 45%. For most product categories, it remains 15%.
Generally, shipping rates for FBM sellers are determined by these factors.
Shipping rates also depend on the carrier you choose. For instance, USPS users will certainly pay differently than sellers using FedEx.
Here is the USPS cost calculator to estimate your FBM shipping costs. FedEx also offers a calculator to estimate the shipping costs beforehand. You can find similar cost calculators for other Amazon-integrated carriers as well. Use these calculators to make a cost comparison for the services of different carriers.
We’ve calculated the 2-day delivery cost of a 1-lb boxed package from Los Angeles to NYC from USPS and FedEx. The USPS rates are exceedingly lower than what FedEx quotes.
If you are handling large product volumes with your FBM operations, reach out to the customer support of relevant carriers. You may get discounted quotes for bulk orders.
FBM sellers also have to account for the packaging cost. All the envelopes, corrugated boxes, bubble wraps, and poly bags used for packing orders will also cost a significant amount. Depending on what you pack, per-item packaging cost can be as low as a few cents and as high as $10.
Amazon can be your one-stop shop for all the packaging and shipping supplies. From mailers to corrugated boxes and bubble wraps to sealing tapes, you can find everything needed for FBM packaging on Amazon from multiple vendors and at reasonable prices.
Many sellers don’t go the FBM way due to the overwhelming task of order fulfillment. However, FBM sellers have to work in the same manner as any other e-commerce seller who fulfills orders themselves. Similarly, FBM ventures can achieve all the success that any self-sufficient e-commerce business can get.
Here are some tips that can help Amazon sellers reach the maximum potential of FBM.
Having sufficient inventory is a prerequisite for FBM operations. You can’t wait for customers to place orders to procure the inventory. Always keep inventory that can take care of 8-12 weeks of your sales forecast. Make the most of your FBM storage space and fill it with in-demand products.
An inventory management tool can also come in handy if you handle high sales volume and multiple product portfolios. Synching inventory management software with your Seller Central account will ensure you're never late for procuring the next batch of products.
Amazon counts shipping time by adding the handling and transit durations. While your carrier will ensure you get the required transit time, you will be solely responsible for the handling time. If you want to keep your shipping turnaround quick, try to keep it the same-day handling time. It means you should be able to get an order packaged and ready for the carrier the same day you receive the order.
Securing a good shipping deal with a carrier is very critical to the success of FBM operations. A good shipping deal is where you can get the delivery durations you want at reasonable prices. In other words, a good shipping deal can improve customer satisfaction and increase per-sale margins.
Therefore, practice due diligence before picking your FBM carrier. Always compare prices between carriers for every aspect of delivery. For instance, compare the rates for 1-day and 2-day deliveries for both envelope and box-based shipments. Moreover, see if a carrier offers a better price for bulk orders.
It is a remarkable feat for any FBM seller to become part of Seller-Fulfilled Prime. This program allows you to fulfill Amazon Prime orders from your own warehouse, given that you maintain a 2-day delivery time. Catering to Prime members can help you significantly improve your sales number. To be part of Seller-Fulfilled Prime, you need to fulfill these requirements.
The evolving e-commerce landscape has made customers expect more from online sellers. They want cheaper shipping, quick delivery, and real-time tracking of their orders. As an FBM seller, you are exclusively responsible for taking care of all these things. You can keep shipping charges low by adding some of your shipping costs to the product price. For real-time tracking and quick deliveries, always partner with any reliable Amazon-integrated carrier.
While discussing FBM, it is almost impossible not to talk about FBA and compare these two business models. The best way to compare FBM and FBA is to list down the advantages and downsides of both.
FBM has its strong suits and weak links. Let’s quickly go through them.
FBA is more popular than FBM due to its scores of upsides. However, the model still has some shortcomings. Here, we will look at both sides of the FBA coin.
Before wrapping up the article, let’s answer some of the frequently asked questions about FBM operations.
Yes, you can do both FBA and FBM from the same seller account. Many Amazon sellers use both fulfillment routes to leverage their respective benefits. Some sellers often keep FBM as their fallback option in case something unforeseen happens where they can’t continue with their FBA operations.
There is no definite answer to this question. Which Amazon business model is better depends on several terms and conditions. If you already have the resources to store, pack, and ship or want to sell heavy and oversized items, FBM will be better for you. However, in general, FBA is a better option than FBM for most sellers.
No, Amazon doesn’t collect and pay sales tax for FBM sellers. As an FBM seller, you have to keep a record of the collected tax and pay it yourself.
Amazon takes the same commission on FBM orders as it takes on FBA orders in the form of the referral fee.
We hope that the above discussion helps you understand the FBM business model in detail. FBM is a suitable selling option for those with a robust logistical infrastructure in place or those who don’t expect to maintain a higher sales velocity and monthly volume.
However, it might not be the best choice for sellers who are entering the e-commerce market without any prior experience and can’t handle it entirely on their own. For such entrants, FBA is certainly a better option.
Use our FBA calculator to determine whether FBA with a certain product is a feasible business model for you. Our calculator can quickly compute and tell you the profit per unit, profit margin percentage, and ROI for any ASIN within seconds. You can try this FBA profit calculator on your Chrome browser for free!
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