Fulfillment by Amazon (FBA) vs Fulfillment by Merchant(FBM): 2020 Guide
If you’re an Amazon seller, one of your most crucial decisions will be whether or not you ship using Fulfillment by Amazon (FBA), Merchant Fulfilled Network (MFN, or sometimes FBM, as in “fulfillment by merchant”), or both.
Amazon sellers have strong opinions about each method, and each has its own strengths and weaknesses.
The best way to decide between FBA or MFN is to gauge the size and scope of your operation and understand how your product mix affects the FBA fees you’ll incur. Let’s explore this further.
FBA vs MFN: What’s the difference?
Sellers who use FBA pay fees to store their products in Amazon’s fulfillment centers as well as for Amazon’s world-class fulfillment services.
When an order is placed for a seller’s FBA product, Amazon receives the information, picks the stock from the shelves, packs it, and ships it.
Amazon also provides the customer service for all FBA products. These services are covered by Amazon’s FBA fulfillment fees, which are based on the size and weight of items sold. Amazon also imposes short- and long-term storage fees, so the longer an item stays in FBA inventory, the more fees a seller will incur.
MFN simply refers to sellers shipping their own products directly from their own homes, businesses, or warehouses after receiving orders through Amazon.com.
This means that locating the stock, packing the orders, arranging the shipping, and providing all customer service is the direct responsibility of the seller.
There’s also Seller Fulfilled Prime (SFP), a relatively new fulfillment option that awards MFN sellers with excellent metrics. Those who qualify for Amazon SFP enjoy the benefits of FBA without having to send shipments to Fulfillment Centers.
Amazon SFP sellers also seem to get the same royal treatment as FBA sellers from Amazon’s Buy Box algorithm. That means stellar sellers with their own fulfillment systems in place can win the Buy Box just as often as FBA sellers—pending their seller metrics remain high across the board—without having to incur FBA fees.
Advantages of using FBA vs MFN
There are many advantages to using FBA, especially for sellers with high margins who can absorb Amazon’s ever-evolving FBA fees.
One example of Amazon’s constantly changing FBA fee structure
One major FBA perk is that you become eligible to offer Prime shipping to your customers. On top of being able to tap into Amazon Prime customers, you’ll also increase your odds of winning the Buy Box because “fulfillment method” has heavy weight in Amazon’s algorithm, with preference given to FBA listings.
As an FBA seller, you can offer all of the shipping options that Amazon does, no matter the size of your business. You also gain access to Amazon’s remarkably efficient shipping and distribution network, along with access to Amazon’s discounted shipping rates.
Faster shipping especially pleases Amazon Prime customers, who are accustomed to taking advantage of free Prime 2-day shipping.
Another FBA advantage is that many Amazon customers know what they want and are willing to pay for it. According to Amazon, almost half of their customer base refuses to buy from sellers who do not use FBA. This makes sense, considering that not just shipping, but also customer service, are so important to those who subscribe to Prime.
Using FBA vs MFN is a way that even the smallest sellers can set themselves apart from the competition. You’ll be listed higher in Amazon search and be more likely to have your listings chosen by customers.
Amazon further boosts FBA businesses by offering customers the option to sort their search results based on which sellers use FBA.
Cons of using FBA
As any FBA seller will tell you, the major disadvantage to FBA is the cost. Because Amazon holds all the cards, the company can tack on as many fees for its service as it deems appropriate.
As long as FBA remains a cheaper fulfillment option than MFN for a large portion of sellers, Amazon can continue increasing FBA fees.
Amazon charges a monthly fee for each cubic foot of warehouse space used.
Amazon also charges long-term inventory storage fees for sluggish products. These fees are an effort to discourage sellers from shipping stagnant inventory to FBA Fulfillment Centers that take up precious inventory space.
Amazon’s long-term storage fees are imposed twice a year, in February and August
That makes FBA especially costly for long-tail items that may sit around for a while before they are purchased.
One way to combat this cost is to use Amazon’s Inventory Health Report, which shows you how long inventory stays on the shelves and if you’re restocking too frequently—or not often enough.
As mentioned earlier, FBA also charges fulfillment fees for picking, packing, shipping and handling, customer service, and product returns. These fees are size- and weight-based. It’s crucial to use the FBA Revenue Calculator to calculate how hard these fees will hit your business.
Amazon also recommends that sellers ship to multiple FBA Fulfillment Centers, which can eat into sellers’ profitability. To avoid this, sellers must pay an additional per-unit fee for what Amazon calls “Inventory Placement Service,” which allows a seller to ship to less than the recommended number of Fulfillment Centers.
Perhaps most importantly, sellers must abide by Amazon’s shipping standards for each product type shipped. Before sending shipments to FBA fulfillment centers, make sure you know these well!
Pros and cons to fulfilling via Amazon MFN
One clear advantage for MFN sellers is that they can ensure their packaging is perfect for their products. This leads to fewer damaged products being reported by customers, and, as a result, fewer returns.
MFN sellers can also create custom packaging to differentiate their Amazon store from competitors. To take this even further, MFN sellers can create custom receipts and even include hand-written thank-you notes to customers.
Of course, having to handle the packaging and shipping is a clear disadvantage to using MFN. Worse yet, MFN sellers have to deal with customer service issues and returns. These are time-consuming and, at times, difficult tasks, and the fees paid to FBA is often worth it.
The other main disadvantage to MFN is that buyers aren’t always as happy to use it. How much this impacts your business isn’t always clear, but Prime users spend more than non-Prime shoppers on average. And, they also tend to purchase Prime products over non-Prime ones; that’s what they’re paying for, after all.
Using MFN may also decrease your chances of winning the Buy Box versus FBA competitors.
Some sellers test each fulfillment method with limited inventory using both MFN and FBA listings so they can see which works better for them. Sometimes, MFN and FBA fulfillment have different advantages for the same seller, depending on the products being sold.
For example, if there is a particular packaging issue for or a target buyer who isn’t picky about shipping speed, MFN may be a better option. And, for heavy or bulky items, sellers may also prefer fulfilling via MFN so they don’t have to incur extra shipping fees.
On the other hand, FBA would work better for high-volume Amazon sellers who can’t afford to spend time (or money hiring staff) to handle packing and shipping an excess of orders.
The typical seller that would benefit from FBA vs MFN
Amazon sellers poised to make the most of MFN are those who already have storage and shipping systems in place. If you’ve got a warehouse (or several), staff, and a logistics network you trust, consider using MFN and reaping higher profit margins.
Better yet, if you have exceptional seller metrics, apply for Amazon Seller Fulfilled Prime and enjoy the benefits of FBA without paying FBA fees.
If you have an operational eCommerce website or a brick and mortar store, you’re also in a much better position to successfully fulfill orders. If you can handle it, you’ll save yourself a fortune in storage and fulfillment fees.
On the flip side, if your business can’t quickly and effectively fill orders, FBA is probably the better option. Small-time sellers can benefit from FBA since many buyers actively look for stores with products that feature Prime shipping.
Larger sellers can also benefit from FBA by strategically fulfilling orders with MFN and then using FBA on listings where it makes more sense. And any seller that lists products with high sales velocity can benefit from FBA, as they’ll avoid getting hit with long-term storage fees.
Seller experiences: Praise and complaints about FBA and MFN
The primary complaint that sellers have about FBA is that Amazon’s workers don’t always package their products properly, at least to their standards. This seems to be due to a combination of factors, including that sellers don’t always signal to Amazon FBA what their products are and how Amazon needs to ship them.
For example, some sellers have complained about Amazon FBA shipping items like food coloring envelopes and then arriving damaged, having leaked in transit.
Other sellers argue that the way to avoid this is either to label the product “one unit, do not open” and refrain from labeling it “ready to ship,” or to use MFN channels.
Naturally, Amazon sellers that have a poor FBA experience also feel that the cost of the service is too high. Even some businesses that use FBA successfully find the price high.
It bears repeating that sellers should use Amazon’s Inventory Health Report to better manage the cost of the service.
The chief complaint sellers have about MFN is that they lose business to FBA sellers.
Unfortunately, Amazon is not likely to change this in a way that will benefit third-party sellers. As Amazon expands its own shipping network, it will probably increase prices paid by individuals and businesses, not lessen them. Amazon also isn’t likely to stop its promotion of businesses that use FBA.
A lesser complaint that sellers have about MFN is that the work of shipping and customer service is time-consuming and difficult.
Returns are another area of contention for sellers in both camps. FBA accepts returns, regardless of whether the seller agrees with the buyer’s reasoning. Conversely, MFN sellers often will not accept returns—even when perhaps they should.
This situation further makes FBA a more attractive option for buyers rather than sellers, at least on its face. However, it also means that FBA sellers enjoy a more reliable reputation overall.
For most businesses, who stand by their products in any case, this only benefits the group. So, since the issue of returns rarely comes into play, the improved reputation could make the use of FBA worthwhile.
Fungible items and FBA
For FBA sellers, fungible items are those which are identical and can replace each other. For example, brand new iPhones, in the package, with the same exact features, including color, are fungible.
To fulfill Prime orders on time, Amazon may take a fungible item from the FBA inventory of another seller at a distribution center in close proximity to the buyer.
Amazon, of course, then replaces the item. However, sellers only receive payment for items that they sell; because Amazon replaces their fungible goods, Amazon does not consider those items “sold”.
So, there’s no FBA advantage for selling fungible goods, at least not when Amazon uses and then replaces them.
FBA vs MFN: The bottom line
FBA sellers can offer all of Amazon’s shipping options, including Prime, and access Amazon’s stellar shipping and distribution networks worldwide.
That means FBA sellers are better able to set themselves apart from their competition and win the Buy Box. FBA sellers do, however, have to bear extra cost; Amazon charges a monthly fee for warehouse space used.
Small businesses and those without the ability to ship and provide customer service benefit most from FBA. High-volume sellers also benefit greatly from FBA. But, FBA sellers do not gain any advantage based on Amazon’s policies concerning fungible goods.
MFN sellers have the advantage of packaging and shipping their products exactly the way they want. They can also add unique, personal elements to their packaging, including hand-written thank you notes. But, that also means they also have to pick, pack, ship, and handle customer service.
An added disadvantage to MFN is that many buyers aren’t as eager to patronize MFN businesses. Sellers who already have a shipping system and warehouses in place are best able to make the most of MFN.
The primary complaint sellers voice about FBA is packaging failures and resulting returns. A solution could be more careful labeling and instructions for Amazon about products. And, sellers can use MFN for select products that they’re more concerned about, while using FBA for less accident-prone items.
The chief complaint sellers voice concerning MFN is their loss of business to FBA sellers.
Unfortunately, there is no direct remedy for this. But, MFN sellers should try to be generous in return policies to improve their ability to compete with FBA businesses.
Lastly, the highest-rated MFN sellers can become eligible for Amazon Seller Fulfilled Prime, a third fulfillment option that gives top MFN sellers the same Prime eligibility and other benefits that FBA sellers enjoy.
We hope this helps you weigh your Amazon fulfillment options with more clarity!
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