Amazon aims to be the most customer-centric company on Earth. This means delivering goods to customers around the globe with industry-defining speed and ease. For many traditional brick-and-mortar and ecommerce sellers, the rise of Amazon means intense competition. For third-party logistics (3PL) providers, however, Amazon’s success translates to new opportunities. Many 3PLs have been able to capitalize on Amazon’s ecommerce domination by providing FBA prep or FBM services. What does this mean?

What are FBA and FBM?

Fulfillment by Amazon (FBA) means that products from an Amazon storefront are shipped by Amazon from one of their warehouses. FBA prep services can include receiving, inspection, labeling, assembly, storage, replenishment, and more. A 3PL providing FBA prep services can then send the product to Amazon to be picked, packed, and shipped to the end consumer. Fulfillment by Merchant (FBM) means that the seller is responsible for managing the Amazon store, as well as handling all aspects of storage and order fulfillment. Many merchants employ a 3PL to assist with this process.

What’s the Difference Between FBA and FBM?

If you are interested in providing FBA prep or FBM services or have a client who is trying to choose between the two, there are a couple of important considerations that should be considered when choosing a strategy.

First, the costs and fees associated with each differ. FBM sellers only pay the costs and fees charged to sell through Amazon. Pro Amazon sellers may pay a reasonable monthly subscription fee. The professional selling plan gives the seller access to inventory tools, feeds, and reports, not available to individual sellers. Individual sellers don’t pay a subscription fee but are charged about a dollar per unit sold. Return on investment may vary depending on the volume sold, which brings us to our second consideration: sales strategy. FBM may be well-suited to businesses with small quantities of products, small businesses, and companies with limited inventory supplies.

Costs and fees for FBA are more complex. In addition to the seller fees, there are fees for order fulfillment, storage, removal, returns processing, overages, and unplanned service. These fees can vary based on number of sales channels, product category, and length of storage time. However, small to medium-sized companies that move large volume of product, have many kinds of products, or have customers over a wide geographic range, may find that the fees associated with FBA selling can be worth it in terms of better customer service and fast and efficient fulfillment.

Benefits of FBA

FBA products automatically sell as Prime since Amazon has full control over their shipping and fulfillment process. This means that FBA products receive Amazon’s famous two-day or next-day shipping treatment and the customer satisfaction that comes with it. Furthermore, this means that FBA sellers gain the advantage of Amazon Prime’s brand recognition and customer base.

Benefits of FBM

In signing up for FBA benefits, sellers also give up control over the fulfillment process. FBM customers, however, retain complete control over consumer relationships, quality, and service. They also have greater control over specialty kitting and assembly, as well as the shipping and handling of oversized, special care, or fragile products.

What does FBA and FBM mean for 3PLs?

The benefits of each of these options can serve as selling points for whichever route you choose. Particularly for servicing FBM customers, offering special care for specialty items, plus high-quality shipping and fulfillment may serve to help them avoid hefty FBA fees and retain more control over their business. Remaining in close contact and providing white glove customer service can give them many of the same benefits of FBA without having to comply with Amazon’s rules and allow them a greater return on investment. A warehouse management system (WMS) such as 3PL Warehouse Manager can help provide transparency to these customers automatically in terms of order fulfillment and stock status.

Servicing customers with FBA prep means providing value-added services to brands who typically ship large volumes of product. You can help them avoid some storage fees by serving as an in-between space for their product. In addition, you can provide them with greater personal attention and attention to detail when it comes to receiving and inspection of their product. You can also provide kitting and assembly to their specifications, ensuring that the product is ready for the consumer by the time it gets to the Amazon warehouse.

To learn more about how ecommerce and omnichannel are providing new fulfillment opportunities for 3PLs, check out our annual State of the Industry report.

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