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The fulfillment method you choose is one of the key indicators of business success.
Moreover, conclusions that are not always obvious and logical at first glance will lead you to greater sales. There are many variables in this matter that are important to calculate before launch. We will try to analyze in detail and with examples how FBA and FBM differ and which model will be most effective specifically in your case.
Basic Theory
The global difference of fulfillment is in the object performing the action. That is, who is engaged in logistics, storage organization, packaging, customer service.
In the case of FBA, this is taken on by the marketplace (Amazon), according to the FBM model - fulfillment by merchant, that is, by the business owner. Simply put, you do it yourself, without resorting to the services of the marketplace.
However, you can choose an alternative model - use numerous private Fulfillment services that will offer you a full package of services, provide warehouses and assistance cheaper than Amazon.
If you look at the statistics, the FBA model is the undisputed leader among the sellers of the platform.
But, as we said earlier, everything is not so clear-cut. The FBM model can also be very profitable for you (with a competent and timely approach).
Advantages and Disadvantages of FBA
The first and foremost advantage is to obtain the maximum level of trust and loyalty from customers. As a consequence: faster marketing promotion due to positive feedback and repeat sales. Next, we will consider in more detail other pros and cons of FBA.
Other benefits of FBA include:
– Participation in the Amazon Prime program, which provides buyers with free 2-day shipping. Your products will be marked accordingly.
There are currently over 100 million Prime members in the US alone, which means huge sales opportunities for you.
– Fast order processing in the Amazon service center. It is unlikely that you will be able to organize such fast processing of the incoming flow, especially at the start of the business. And, of course, if we are not talking about a hobby with a turnover of 1-2 orders per day, but about a full-fledged business with hundreds of incoming messages.
– Return of customers due to quality service. Buyers receive on page seo service round-the-clock and timely support. What is not obvious is the fact that missed order deadlines, damaged packaging and other troubles with delivery will not affect your rating. According to the FBA model, Amazon itself takes all this negativity upon itself.
– Hours of saved time that you can spend on improving your business, vacation, and not on routine tasks or communicating with customers and finding out the nuances of their order. This also includes saved nerve cells, because even if your logistics work like clockwork, no one is immune from force majeure.
– Scaling without additional costs: firstly, there are no storage volume limits in Amazon warehouses, secondly, you can sell goods not only in the USA, but also in more than 100 countries thanks to FBA Pan-EU.
The downside is the dynamic pricing policy, which you cannot influence. Amazon can raise the cost of service at any time. And initially, these are not the smallest expenses.
Advantages and Disadvantages of FBM
The main advantage of FBM is full control of the process, you influence the cost of delivery yourself, have the opportunity to optimize expenses and are not burdened with regular payments.
The FBM model shows itself well for selling large-sized goods.
For example, if you decide to supply SUP boards to the site, then under the FBA model you will pay about $ 83 per unit for service. And this does not include how much you will spend on delivering such goods to an American warehouse.
What to choose and in what period of time?
Indicator FBA FBM
Process control Participation in listing and marketing Full immersion at all stages
Costs for premises and personnel None Depends on the decisions you make
Sale of oversized cargo Not profitable Profitable
Organization of fast turnover of goods Simple and fast It is complicated and expensive
Amazon Prime Membership For free Paid
Regular payments for warehouse balances For goods stored for more than a year None
Seller rating and negative reviews It doesn't matter if it's a logistical error. Strong addiction
The FBM model almost always performs poorly at the start of a business, because Amazon is more interested in promoting the FBA business, earning more from it.
In addition, many sellers observe a decrease in sales when switching to "by merchant". However, the pros and cons of FBM are very conditional and subject to adjustment. So, when a business already has a good pool of regular customers, it can be profitable.
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