Hey, it’s Tim from AMZ Fusion. Today, we’re diving into the world of Fulfillment by Merchant (FBM) on Amazon—a topic we don’t often cover since we’re primarily an FBA user. Despite our preference for Fulfillment by Amazon (FBA), it’s essential to understand both sides of the coin, especially when circumstances require you to pivot to FBM, like in cases of Hazmat restrictions or unexpected shipping blocks from Amazon. FBA vs FBM is a consideration you need to understand before choosing.
What Drives Us to FBM Occasionally?
At times, some of our products can’t be shipped into FBA due to specific restrictions, such as Hazmat reviews or other Amazon impositions. This leaves us with two choices: either donate these products or switch to FBM. For us, switching to FBM isn’t regular, but when it does happen, it opens a different set of dynamics in handling sales and logistics.
The Financial Anatomy of FBM Sales
Handling FBM sales brings a new set of financial implications, particularly around shipping costs and labor. Shipping fees and the labor involved in packing and sending out each item can significantly impact the profitability of each sale. For instance, in our FBM operations, although the profit margins on the surface might seem high before deducting shipping costs, they can be quite modest once all expenses are factored in.
Here’s a breakdown of how we manage FBM financials using our software, Fusion Financials, which focuses on filtering and analyzing FBM orders specifically. This tool helps us distinguish between estimated profits (before shipping costs are subtracted) and actual profits, providing a clearer picture of financial performance.
The Real Costs of FBM
When you dive into FBM, several costs need consideration:
- Labor: Whether you’re packing orders yourself or paying someone to do it, there’s a time cost involved.
- Shipping Materials: Using new boxes and packing materials is non-negotiable for us because Amazon customers expect high-quality packaging. This adds to the overall cost per order.
- Shipping Fees: The actual cost of shipping can vary dramatically based on the product’s weight and the shipping distance. Managing these costs efficiently is crucial to maintaining profitability.
Potential Benefits and Pitfalls of FBM
FBM can shine in scenarios where you can save on bulk shipping costs. For example, if a customer orders multiple items, the shipping cost per item drops, potentially increasing your profit margins. However, this isn’t something you can always count on, and it’s risky to base your business model on such uncertainties.
A good strategy is to understand the detailed costs associated with shipping to different regions and adjust your pricing strategy accordingly. Tools like Pirate Ship can simulate shipping costs to various destinations, helping you make more informed decisions about pricing and shipping options.
Final Thoughts: FBA vs FBM?
While FBM offers control over the shipping process and can be a fallback when FBA isn’t feasible, it comes with its own set of challenges and additional costs. For businesses not prepared to handle these intricacies, it can quickly erode profits and complicate operations.
For those interested in exploring or optimizing FBA and FBM strategies, check out our resources at AMZ Fusion.com and our software solutions at JustAddFusion.com. Whether you’re leaning towards FBA or considering FBM, understanding the full scope of your fulfillment options will empower you to make strategic decisions that align with your business goals.
