Selling on Amazon offers immense opportunities, but one of the most crucial decisions sellers face is choosing between Fulfillment by Amazon (FBA) and Fulfilled by Merchant (FBM). But before you dive in, there’s a key decision that can shape your success:
How will you fulfill your orders?
This choice can impact your profit margins, customer satisfaction, and overall business scalability. Should you let Amazon handle everything with FBA for that coveted Prime badge or take full control with FBM to maximize profits and brand experience? While some sellers swear by one method, others strike a balance with a hybrid approach.
In this guide, we’ll break down the pros, cons, and costs of both fulfillment models, helping you determine the best fit for your business.
Let’s get started!
Understanding Amazon FBA & FBM
What is FBA? (Fulfillment by Amazon)
Fulfillment by Amazon (FBA) is a service where Amazon stores, packs, and ships your products for you. You send your inventory to Amazon’s fulfillment centers, and they handle everything—from storage and order fulfillment to customer service and returns.
Hence, this means your products can qualify for Prime shipping, leading to faster delivery and potentially higher sales. While FBA simplifies logistics, it also comes with storage and fulfillment fees, which you must consider when pricing your products.
Pros:
- Prime eligibility increases conversions: Access to millions of Prime members, boosting trust, visibility, and sales with fast, free shipping.
- Amazon handles customer service and returns: Amazon manages inquiries and refunds, reducing your workload and ensuring a seamless buyer experience.
- Fast and reliable shipping: Orders are shipped quickly from Amazon’s fulfillment centers, enhancing delivery speed and customer satisfaction.
- Scalability for high-volume sellers: Ideal for growing businesses, as Amazon manages logistics, allowing you to focus on sales and expansion.
Cons:
- Higher fees for storage and fulfillment: Costs may eat into margins, especially for low-priced or slow-moving products stored long-term.
- Less control over inventory and packaging: Amazon determines packaging and branding, limiting customization and unique unboxing experiences.
- Long-term storage fees for slow-moving products: Hefty storage fees may increase financial strain if your inventory doesn’t sell quickly.
What is FBM? (Fulfilled by Merchant)
Fulfilled by Merchant (FBM) means you store, pack, and ship products directly to customers instead of using Amazon’s warehouses. You manage your own inventory, packaging, shipping, and customer service. Additionally, this gives you full control over your business operations and costs, it also requires efficient logistics and timely order fulfillment to stay competitive.
Unlike FBA, FBM does not automatically qualify for Prime shipping, which can impact sales and Buy Box competitiveness.
Pros:
- Full control over inventory, branding, and shipping – Customize packaging and maintain control over stock levels.
- No Amazon storage fees – Avoid long-term storage and fulfillment fees charged by Amazon.
- Lower return rates due to direct management – Handle customer interactions personally, reducing unnecessary returns.
Cons:
- No automatic Prime eligibility – Without Seller Fulfilled Prime, your products may not appeal to Prime members.
- Customer service and logistics responsibilities fall on you – You must handle order fulfillment, shipping, and returns.
- Potentially longer delivery times – Slower shipping can reduce your chances of winning the Buy Box
Key Factors to Consider When Choosing Between FBA & FBM
Product Type & Suitability
FBA is best for: Small, lightweight, and fast-moving products that benefit from Prime shipping, such as electronics, beauty products, and consumer goods.
FBM is ideal for: Heavy, oversized, customized, or slow-moving products with lower turnover, such as furniture, handmade goods, or specialty automotive parts.
Cost Comparison
FBA Fees Explained: While FBA offers convenience and scalability, it comes with various fees that sellers must factor into their pricing strategy. The main costs include:
a. Fulfillment Fees: Charged per unit based on size and weight, covering picking, packing, and shipping.
b. Storage Fees: Monthly charges for storing inventory in Amazon’s fulfillment centers, with higher rates for Q4.
c. FBA aged inventory surcharge (previously known as long-term storage fees): Additional costs for items stored over 365 days to encourage faster inventory turnover.
d. Return Processing Fees: Applied when Amazon handles customer returns for certain product categories.
Understanding Amazon’s Return Processing Fees (Effective June 1, 2024)
Starting June 1, 2024, Amazon applies a Return Processing Fee to products (excluding apparel and shoes) with high return rates. This fee covers return handling costs and encourages sellers to optimize their listings to reduce unnecessary returns.
How Does the Fee Work?
- Applies only if your product’s return rate exceeds the category-specific threshold.
- The return rate is calculated based on the percentage of units returned within three months of shipment.
- Fees apply only to returned units that exceed the category’s return rate threshold.
- Products with fewer than 25 shipped units per month are exempt.
- FBA New Selection sellers get 20 waived return fees per ASIN (if returned within 180 days).
Example Calculation
Let’s say you ship 1,000 units in June. If 120 units are returned by August and the return rate threshold for your category is 10% (100 units), only the 20 excess returns would be subject to the return processing fee.
Sample Return Rate Thresholds (By Category)
| Category | Return Rate Threshold |
| Beauty, Health & Personal Care | 5.5% |
| Home & Kitchen | 8.1% |
| Consumer Electronics | 11.2% |
| Pet Products | 10.2% |
| Toys & Games | 4.7% |
Tip: Reduce return rates by providing accurate product descriptions, high-quality images, and clear sizing details to avoid unnecessary fees. To know more, head here.
Using Amazon’s FBA Revenue Calculator can help sellers estimate costs and optimize profitability.
FBM Costs Explained (With Examples): When fulfilling orders yourself, you handle storage, shipping, and customer service yourself. Here’s a breakdown of key FBM costs with real-world examples:
1. Warehouse or Storage Space
You need space to store inventory, whether it’s a rented warehouse, a self-storage unit, or part of your home.
Example:
You sell branded coffee mugs and store 2,000 units in a small rented warehouse, costing $500 per month in rent.
If you store them in your garage, you save on rent but may face space limitations as your business grows.
2. Packaging and Shipping Costs
With FBM, you buy boxes, bubble wrap, labels, and shipping materials while covering carrier fees (USPS, UPS, FedEx, etc.).
Example:
You sell weighted blankets at $60 each.
A large shipping box and bubble wrap cost $2 per order.
Shipping via UPS Ground costs $12 per blanket, depending on the destination.
Total per-order shipping cost is $14.
If you negotiate bulk shipping discounts with a carrier, you might lower shipping costs per unit.
3. Customer Service and Return Handling
As an FBM seller, you handle customer inquiries, complaints, and returns. This includes hiring support staff or spending time managing it yourself.
Example:
A buyer returns a phone case because it didn’t fit their device.
You pay $5 in return shipping and need to inspect and restock the item, adding time and labor costs.
If return rates are high, return costs can quickly add up, affecting profitability.
How to Optimize FBM Costs:
- Use cost-effective storage solutions, such as renting warehouse space only during peak seasons.
- Negotiate bulk shipping rates with carriers.
- Streamline returns by providing clear product descriptions and images to reduce return requests.
Key Takeaway: While FBM gives you control over costs, careful cost management is essential for maximizing profit.
Pro Tip: Use Amazon’s Revenue Calculator to compare costs.
Inventory Management & Storage
FBA: Your inventory is stored in Amazon’s fulfillment centers, but you must comply with storage limits, long-term fees, and restocking policies to avoid extra costs.
FBM: You manage your own inventory, requiring efficient warehousing, organization, and shipping logistics to prevent stockouts or delays.
Customer Service & Returns
FBA: Amazon handles customer inquiries and returns, but their lenient return policy may lead to higher return rates and potential losses.
FBM: You control customer interactions, return policies, and refund decisions, allowing for better fraud prevention and cost control.
Sales Volume & Buy Box Competitiveness
FBA: Products using FBA often win the Buy Box more frequently, thanks to fast Prime shipping and Amazon’s fulfillment guarantee.
FBM: To compete for the Buy Box, you must offer competitive pricing, fast shipping, and excellent customer ratings to maintain visibility and conversion rates.
Cost & Profitability Analysis
- Fulfillment costs play a crucial role in overall profitability, influencing pricing, competitiveness, and long-term scalability.
- FBA offers deeply discounted shipping rates—up to 70% lower than other premium US fulfillment services—but includes storage, fulfillment, and return processing fees that can add up.
- FBM gives full control over packaging, shipping, and storage costs, potentially increasing profit margins, but lacks automatic Prime eligibility, which may impact sales and visibility.
Hybrid Approach: Can You Use Both FBA & FBM?
Absolutely! Many sellers strategically use both FBA and FBM to optimize costs, fulfillment speed, and product availability. A hybrid approach allows flexibility, reduces risks, and ensures better inventory management.
When to Use FBA vs. FBM:
FBA: Best for fast-moving, small-to-medium-sized products that benefit from Prime shipping and Amazon’s logistics.
FBM: Ideal for bulky, heavy, or niche products where self-fulfillment is more cost-effective.
Amazon’s Multi-Channel Fulfillment (MCF)
With MCF, you can use your FBA inventory to fulfill orders from other sales channels like Shopify, eBay, or TikTok Shop.
This allows you to leverage Amazon’s logistics while selling beyond Amazon, streamlining operations, and reducing warehousing costs.
Seller Fulfilled Prime (SFP)
SFP lets FBM sellers offer Prime shipping without using FBA, but it comes with strict delivery performance requirements.
Sellers must meet Amazon’s fast shipping standards, handle their own storage, and use Amazon-approved carriers.
Buy with Prime
This program extends Amazon’s Prime benefits to an independent website, increasing its trust and hopefully conversions.
Customers enjoy fast, Prime-backed shipping and returns, while sellers retain brand control and customer data.
Using a hybrid strategy can help you balance costs, fulfillment speed, and sales potential while maintaining maximum flexibility across multiple platforms.
Which Fulfillment Model Is Right for You? (Decision-Making Guide)
Choosing the right fulfillment method depends on your product type, business model, and operational capabilities. Here’s how to decide:
Choose FBA if:
- You sell small, fast-moving products where Amazon’s logistics can maximize efficiency.
- You want Amazon to handle storage, shipping, and customer service, freeing up your time.
- You aim for Prime eligibility, which can increase conversions and boost Buy Box chances.
- You prefer a hands-off fulfillment approach to scale your business faster.
- Best for: Private label sellers, resellers, and brands focused on volume sales.
Choose FBM if:
- You sell large, heavy, fragile, or custom products, where FBA fees may be too high.
- You want direct control over packaging, branding, and shipping speed.
- You have an established fulfillment infrastructure or use third-party logistics (3PL).
- You sell seasonal or slow-moving products, where long-term FBA storage fees would add up.
- Best for: Handmade or custom products, oversized items, and brands with strong logistics.
Consider a Hybrid Approach if:
- You sell a mix of small, fast-moving products and large, bulky items, optimizing fulfillment costs.
- You want to diversify your fulfillment strategy to avoid over-reliance on Amazon’s FBA rules.
- You need a backup fulfillment option in case of stockouts, peak season delays, or FBA restrictions.
- You want to use Amazon’s Multi-Channel Fulfillment (MCF) to fulfill orders from other platforms like Shopify, Walmart, and eBay while maintaining inventory flexibility.
- Best for: Sellers looking for cost-effective, scalable fulfillment without limiting their sales channels.
Final Thoughts:
- FBA is great for scaling quickly and maximizing Prime benefits.
- FBM is best if you prioritize control over fulfillment and costs.
- A hybrid strategy offers the best of both worlds, balancing cost, speed, and flexibility.
Opportunity Cost: What Is Your Time Worth?
Choosing between FBA and FBM isn’t just about fulfillment fees, it’s also about the value of your time. To estimate the hidden cost of FBM, consider the time spent on fulfillment.
For instance, if you value your time at $50 per hour and it takes 15 minutes to process and ship each order, the opportunity cost is $12.50 per sale.
While FBM may provide greater control over fulfillment, the time investment adds up, potentially limiting your ability to scale operations or focus on higher-value tasks like marketing and product development.
Find the Right Fulfillment Strategy with CedCommerce
Both FBA and FBM offer unique advantages, and the right choice depends on your business needs. FBA simplifies logistics and provides Prime eligibility, while FBM gives you greater control over inventory, shipping, and customer service. Many sellers succeed with a hybrid approach, leveraging both methods to optimize costs, efficiency, and flexibility.
But managing fulfillment across different channels can be complex. That’s where CedCommerce comes in. Our expert solutions help you streamline inventory, automate order management, and seamlessly integrate FBA, FBM, and Multi-Channel Fulfillment (MCF). Whether you’re looking to maximize Prime benefits, reduce fulfillment costs, or scale your business, CedCommerce provides the tools and support you need.
Make fulfillment work for you; partner with CedCommerce today and simplify selling on Amazon.