FBA vs MFN: Which is Better For My Business?
Deciding whether to utilize Fulfillment By Amazon (FBA) or ship products yourself via Fulfillment by Merchant (FBM), is a question that most sellers wrestle with. FBA fees have progressively risen and new storage restrictions during Q4 have led many businesses to reconsider their options on how to fulfill orders to their Amazon customers.
Both models present opportunities and risk and the detail below is a guide on how to help identify which model is right for you (if you’re unfamiliar with the concepts of FBA and FBM, this read a helpful introduction).
Things to understand when considering Fulfilled by Merchant (FBM aka MFN):
Know your shipping costs – FBA offers have consistent shipping fees. If you are shipping FBM, your costs may vary based on delivery location. Your negotiated carrier rates may not be as competitive as Amazon’s for the same delivery promise.
Avoiding storage fees & Amazon prep costs – shipping your goods from your warehouse will eliminate additional prep and labelling fees that Amazon would normally charge. You also avoid Amazon storage fees which increase 4x during Q4.
Ideal for unorthodox sized items - If your products are oddly shaped, have large dimensions, or weigh a lot – shipping yourself may be most cost efficient.
Control over product expiration & quality - If your products require additional attention to the packaging and preparation prior to shipment, FBM gives you control. For perishable items, ensuring that the freshest inventory is delivered is another consideration to make.
Autonomy over inventory – shipping out of your warehouse may be a solution to address in-stock monitoring, preventing inventory being tied up at Amazon, and prevent out-of-stock scenarios.
Customer experience – by packing & shipping the goods yourself, you can ensure a consistent experience for your shoppers. Be sure to understand Amazon policies regarding customer information and any inclusion of inserts or communication.
Customer return policies – know that even when you ship products yourselves, you still need to abide by Amazon’s return policies and you need to manage & authorize these returns yourself.
Velocity - If your sales volume is high, a high volume of sales, FBM may put additional stress on your warehouse.
Impact to Prime eligibility – FBM offers are not Prime offers. Customers may not purchase your goods if you don’t offer free shipping or the delivery promise that Prime goods offer. (Note that if you can meet the performance expectations, Seller Fulfilled Prime is a program that allows you to marry MFN with a Prime offer).
Things to consider when choosing Fulfilled by Amazon (FBA):
FBA services will scale with volume - if you have a high sales velocity FBA may be the ideal option as it can handle the storage, packaging, and shipping of your products at scale. This will free up your warehouse to address customer orders from other channels.
Leveraging Amazon’s scale to reduce shipping costs – Amazon provides you with a flat fulfillment cost based on your product dimensions. Regardless of distance or location, you cost is uniform.
Fees increase annually – Amazon has been increasing fulfillment costs, storage fees, and labelling fees each year. If you are unable to increase price to absorb these costs, it would erode your product profitability. If cost is a major concern for you, FBM may be the best option as it can save you money on storage and shipping fees. However, you will need to factor in the cost of packaging materials and shipping, as well as the time and labor required to fulfill orders yourself.
Product dimensions & weights are crucial – your FBA costs are derived from the size tier of your product. If you sell heavy or oversized products, FBM may be too expensive. If you sell smaller products, Amazon has competitive rates and additional programs like Small & Light to help reduce costs further.
Consistent customer experience – through FBA you are leveraging Amazon’s fulfillment services as well as its customer service team. FBA allows you to delegate customer service responsibilities to Amazon (though you commit to Amazon’s customer service policies.)
Customer trust with Amazon Prime – Amazon Prime is trusted by 168 million people. FBA facilities a Prime offer that provides a consistent experience and free shipping, leading to improved conversion and sales growth.
The best fulfillment model for your business on Amazon will depend on several factors. Thoroughly research your fee structure, as it is essential to make data-led decisions, but don’t forget to incorporate how your fulfillment model can impact your customer experience.
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