Today Amazon is one of the most powerful companies in the world. It is the 4th largest company in terms of market capitalisation and the 10th largest in terms of number of employees, with almost 600,000 employees spread around the globe. The group recently overtook the American retail giant Walmart.
Present in more than 180 countries, Amazon has become a must for e-tailers. With millions of users every day, the multinational company offers a real opportunity for small retailers who could not achieve this figure in a lifetime. Amazon's FBM system offers more freedom to e-tailers, but of course brings more difficulties. Indeed, Amazon's FBM (Fulfilled by Merchant) system is a fulfillment method where the seller assumes full responsibility for storing the goods and shipping the orders.
However, other alternatives are available to bypass this online retail giant. Indeed, many companies offer similar services to Amazon, often at a lower cost and with more personalized follow-up. DocShipper, an international logistics specialist, offers a very complete service. In fact, unlike its competitors, this company uses a very reliable network of suppliers, a very sophisticated tracking system, a door-to-door delivery service and even a third-party logistics system such as Amazon.
Amazon FBA / FBM what is the difference?
Launched in 2006, Amazon provides a third-party logistics system to help e-tailers sell their products more easily. In fact, Amazon offers two different services, a more complete service, Amazon FBA, which offers you to use their warehouse network, their delivery service... Finally, you don't have to manage much by yourself. Or you can choose the other service proposed by Amazon, this one is less complete but also has its advantages. Amazon FBM doesn't take care of the shipping part, so you have to take care of this part yourself, by managing your stocks, so you can't use the vast network of warehouses offered in the FBA service. Before giving you more details, to choose which service to use you should know that the execution of your business becomes a key point in the choice of the Amazon service. Indeed, if you do not run your shipping service with Amazon FBM, you will lose all the advantages.
As you know, with its vast network of warehouses available in more than 180 countries, Amazon has become a professional in delivery, thanks to very advanced technology (as in the image above), some products can be delivered the same day.
An indicator shows that more than 55% of e-retailers use Amazon's FBA service, which is more complete in managing products and delivery, so many people choose this service. However, we will see later that this service also has its drawbacks. About 35% of them use a mix of both. And only 10% of the e-merchants use the FBM service, which is much more difficult to manage.
Amazon FBA: The must-have for e-commerce beginners
With Amazon FBA, you pay to be safe. By paying for Amazon's comprehensive service, all you have to do is organize the supply of your products. Sourcing your products is your only task. You have to send enough products to Amazon's warehouses to meet demand. If you send too many or too few products, you will lose profitability. This is one of the most important issues with this service, you need to calculate the number of products to order. With the FBA service, there is no need to receive your products at home and have to manage your inventory, you can ship your products directly from the supplier to the Amazon warehouse.
Once this is done, you lose all control over your inventory, you become a "tenant" of Amazon if we can use these terms. In effect, Amazon takes care of everything but will be the first to send you the invoice for the inventory cost. This means that if your products don't sell, the bill will certainly be high. As previously mentioned, you will have to identify the demand in your market in order to optimize your costs.
DocShipper info : If you are worried about having a surplus of products or a shortage of products, the sourcing expert DocShipper can help you. We have a network of reliable suppliers and our experts know how many parts you need to get the most out of your business.
If you are interested in our services, do not hesitate to contact us. You will get an answer within 24 hours!
Benefits of Amazon FBA
As mentioned above, with Amazon FBA you only have to manage the supply of your products to Amazon's warehouses, no need to receive them at home.
Returns and customer support are also handled by Amazon FBA. This can be a major benefit if you don't currently have these skills, especially when launching a new product. Product returns are processed through Amazon's website, and customer contacts are handled by their customer support team.
Solid customer base
With over 6 million visitors per day, Amazon is the 4th most visited platform in the world. That's 6 million potential consumers, and that's a solid consumer base.
Premium brand image
Many Amazon buyers are unaware that third-party vendors have put their items for sale on Amazon.
Customers trust Amazon and know that they can buy anything they desire on the site. They put in what they're searching for, purchase the item, and it arrives in an Amazon package together with other items they've purchased on Amazon within days.
They did not have to trust another website or disclose their credit card information or personal information to another store because their whole encounter was with Amazon. This allows you to take use of Amazon's algorithms and experience.
Disadvantages of Amazon FBA
One of the main disadvantages of Amazon FBA, is that you become platform dependent, being sold on one platform, you better not make any mistakes.
DocShipper Alert : Being dependent on a single platform, DocShipper advises you to pay close attention to the rules set up by Amazon. The moment one of the rules is broken, you can lose your business with all your inventory. Don't hesitate to contact our sourcing team, which is specialized in this field and can provide you some good tips to respect the rules.
Make sure you keep an eye on your inventory (even though Amazon manages it in real time), if you run out of stock, you could lose your business.
High costs
It is important to know that when using Amazon's FBA services, you will be paying quite high fees. Having access to more than 6 million visitors per day, the multinational company allows itself to post very high prices.
You should know that when you reach 40 products sold per month, you will be subject to a fee of $40 per month since the Amazon algorithm considers you as a seasoned seller.
FBA sellers must pay the following costs:
- Fulfillment costs, that includes the sending of your products, based on their size and weight.
- Storage costs, which are based on the volume of your items and cover the expense of holding unsold products in stock.
Note that most of the year, storage rates are $0.75 per cubic foot, but from October to December, they rise to $2.40 per cubic foot. If your product isn't linked to Christmas sales, this might be a huge cost rise with no gain in ROI (Return On Investment).
You will quickly understand that the luxury of Amazon's FBA is reflected in the payment.
DocShipper info : If you would like to know more about Amazon's fees, we have prepared a detailed article on this subject regarding Amazon's fees. You can also contact our sourcing department, to find experts in this field.
Amazon FBM: For experienced sellers
If you choose the Amazon FBM service, it means that you have the knowledge in packaging and shipping or even the whole arsenal to start your business quickly. You will be able to sell your products more quickly on the site.
Another great advantage is that you become the owner of your after-sales customer service. Indeed, the Amazon FBM service is only used to sell your products on an online platform. It's like owning your own website as an independent. However, with the reach of this multinational company, you don't need years to reach a certain number of customers.
You become responsible for all the shipping part, Amazon will send you a notification that one of your products has been sold and then it's up to you.
That means; stock management, packaging creation, product packaging, product labeling and then shipping.
Docshipper Tip : If you don't feel like you can handle all that logistics part, while paying lower fees on Amazon and choosing the FBM service, you can go to a third party service provider.
DocShipper offers this service, please contact our sourcing department, to get the help you need.
Lower costs, higher margins
By managing the entire shipping process, you can significantly reduce your costs. And lower costs mean higher profits. However, if you exceed 40 products sold per month, as mentioned earlier in the text, you will be subject to Amazon's subscription fee of about $40 per month plus the percentage taken by Amazon for each sale made on the platform.
The FBM service does not mean 0 costs but less costs, since you manage the shipping of your products yourself.
Inventory Management
Unlike the FBA service which obliges you to pay for your inventory immediately, the FBM service allows you to be the manager of your inventory and thus choose when you want to order or not your products. This is a huge advantage for your cash management.
Furthermore, if you use the FBM service, in most cases you already have your own packaging, labeling and shipping facilities (whether through a third party service or not).
The other advantage of stock management is that you are no longer independent of the platform, so you can differentiate yourself from other e-tailers. As a reminder, almost 60% of independent sellers use the FBA service. With your own stock management you can improve your after-sales experience and become almost independent from the multinational company, but for this you will have to work rigorously on the shipping service.
Disadvantages of Amazon FBM
The FBM service does not only offer advantages. Indeed, several points can become difficulties if you are not experienced enough in the field of shipping and service.
Loss of Amazon Premium
As a user of the FBM service, you lose the premium benefits of Amazon. You lose one of the most impressive services implemented by the multinational, the 2-day delivery. You have to create your own delivery channels.
DocShipper info : DocShipper can help you to find delivery channels. If you would like to find out more about our sourcing and shipping services, you can contact our experts, who will be happy to help you. Alternatively, feel free to visit our website, where all our services are explained in detail.
Additional costs
By using your own shipping services, you are subject to paying for additional services. Indeed, if your packaging is not sufficient, you expose yourself to the costs of product returns but also to their management which can be quite complex to manage.
Why choose Amazon FBM for your business
How to make your choice. For some people, choosing the Amazon service can be a breeze as they will look at the costs involved for each service. However, if you don't have the full packaging and shipping process down pat, this choice can become more complex.
Docshipper Tip : To find out which service is right for you, we recommend that you contact our experts, who are very knowledgeable on this subject. They will be able to help you choose which service to use depending on your situation.
To make your choice, you will have to calculate all the fees presented above for each service and especially for the FBM service, which is more complicated to determine.
Amazon Premium should also be included in your selection criteria. Indeed, this almost unique offer in the world is a great advantage. But keep in mind that with the FBM service, you can create a different customer experience from Amazon's and set yourself apart from the competition and increase your profits.
In the end, as with the creation of any business, it is very important to produce a very thorough market research. Try to estimate the number of sales at different times of the year.
DocShipper Alert : Be aware that during the Christmas holiday's, Amazon increases its prices so if your products don't match the demand during this period, favor the FBM experience and conversely if your products sell more during the holiday season, favor the FBA service. To have more informations on this subject, don't hesitate to contact our sourcing team, which is specialized in this field.
Additional options
To help you understand the market, you can rely on technology. Indeed, the collection and use of consumer data (cookies) offers you a significant competitive advantage. This will give you a major advantage since it will allow you to be one step ahead of your competitors and thus anticipate changes in consumer behavior.
Best brand experience
If you think the FBM service is right for you then look into your shipping service as soon as possible, here are some tips about setting up this service.
For more freedom with your costs
Depending on your choices, it is important to control your costs. Plan for all shipping and packaging costs. Whether you use an external service or not, calculating this step is one of the most important points before you embark on the Amazon adventure.
DocShipper Advice : DocShipper have identified several ways to reduce your packaging costs, take a look on our detailed article.
For more information, you can also contact our sourcing experts, who will be able to provide you with detailed quotes.
Soak up the competition
Understanding your consumers means understanding your market. With the help of the market research done beforehand, you have an idea of the quantity of products sold at different times of the year. Understanding your customers will help you manage your inventory, so don't hesitate to put yourself in the shoes of a consumer to determine your future sales.
Shipping and delivering your product to customers is only one stage in the total product development process. Design for storage and shipment should be incorporated into your product design in the same way that design for manufacturing is. The packaging is driven by your design.
If your goods are fragile, you'll have to invest more to make sure it arrives intact. Size and shape also affect the size of the box you'll need or whether you'll be able to ship it in a far less expensive padded envelope. Even if you don't employ FBA, shelf space costs money, therefore the space your product takes up on that shelf should be a design requirement.
Choosing your partners
Doing a competitive study is very important to define your needs. Knowing if your competitors outsource shipping and packaging services can guide you in creating your business model.
While this part of the research may not be obvious, it is critical. Then you can control your business with an iron fist. You will get information about the software used by your competitors, which sometimes can be more optimized than yours.
DocShipper info : DocShipper offers its services for optimized inventory management. If you identify competitive advantages among your competitors that you cannot manage due to lack of knowledge or other reasons, DocShipper will do it for you. Check out our article on managing inventory.
Stand out with a fulfillment system
Don't forget to plan how you will manage your inventory and package size. This step is essential to plan the size of your warehouse.
Be in harmony with your product, if it is fragile then plan a packaging that will hold the shock throughout the transport, depending on the destination of your products, the transport can be more eventful than for other destinations.
Opportunities to business growth
Merchant execution does not necessarily mean execution by yourself. By following our tips, you can develop a good business strategy. Be sure to keep up with Amazon's evolving buying and shipping expectations.
By using Amazon's FBM service, you have great opportunities to grow. Indeed, by managing your customer service, your packaging and your shipping you can create added value, whether it is through third party partners or not you can very quickly evolve and gain customers. Remember that with 6 million visitors per day, Amazon is the 4th largest platform in the world and offers great prospects for growth. Choosing trusted partners can help you achieve your goals.
DocShipper info : With a large network of partners, DocShipper can help you to find trusted providers. In fact, we can help you find your suppliers, your packaging and even manage your shipping system. Please contact our experts, for more information.
FAQ | Articles title
How can I promote my business on Amazon?
Advertisements, incentive promotions, and discounts may help you market and grow your business on Amazon. On Amazon, there are three sorts of advertisements: 1- sponsored products: these are advertisements aimed at increasing product exposure in search results and on product detail pages. 2- Sponsored brands: aimed at promoting a company's brand and product line. 3- Amazon Stores: Amazon Sellers may use this free tool to update and construct several pages. This tool does not require any website knowledge.
What is the cost of subscription for an Amazon Seller?
There are two subscription options available on Amazon: an individual plan and a professional plan. In comparison to a professional plan, the fees for an individual plan are cheaper. In an individual plan, you pay $0.99 per item sold; however, in a professional plan, you pay $39.99 each month regardless of how many goods you sell. In addition to subscription costs, there is a referral fee each sale that is calculated as a percentage of the total price and varies by product type.
In logistics, what is 3PL?
The administration of the supply chain and order processing is known as third-party logistics (3PL). A 3PL is a firm that outsources parts of its distribution, storage, and fulfillment services to another company (typically in the E-Commerce industry) (like DocShipper).
What is the definition of multichannel?
For product marketing, multichannel or omnichannel refers to the phenomena of employing many communication channels such as email marketing, websites, and Google advertisements.
DocShipper info: Do you like our article today? For your business interest, you may like the following useful articles :
DocShipper Advise : We help you with the entire sourcing process so don't hesitate to contact us if you have any questions!
- Having trouble finding the appropriate product? Enjoy our sourcing services, we directly find the right suppliers for you!
- You don't trust your supplier? Ask our experts to do quality control to guarantee the condition of your goods!
- Do you need help with the logistics? Our international freight department supports you with door to door services!
- You don't want to handle distribution? Our 3PL department will handle the storage, order fulfillment, and last-mile delivery!
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