Demystifying Amazon’s FBA and FBM: A Guide for Novice Data Analysts
Amazon’s Share of the US Ecommerce Market is 45%, and almost 1 in 3 Americans have a Prime Membership and they shop extravagantly on the website. Thus, there is no denying that to stay competitive in e-commerce landscape, analyzing Amazon datasets is key for any retailer! Along those lines, let’s look at Supply Chain Side of Amazon Analytics and delve into the concepts FBA and FBM.
We will be discussing these terms, their impact on business topline (Volume and $ Sales) and bottom line (P&L), their pros and cons, and which one should you choose for your business needs, But first, let’s focus on clarifying certain rudimentary questions about these terms and at the end, I will give a super simple comparison chart to elucidate the differences in detail. Let’s begin!
What does “FBA” and “FBM” stand for?
FBA is Fulfilled by Amazon and FBM means Fulfilled by Merchant
What do you mean by “Fulfilled”?
Fulfilled or Fulfillment in a commercial sense means to deliver an order to the end consumer. The sub-tasks within fulfillment are storing the order (or products) in warehouses, packaging, and transporting them to the consumer and even managing returns.
What do you mean by “Merchants” in this context?
These are basically Amazon sellers. Persons or businesses who sell their products and goods through Amazon's website are known as Merchants.
Note: Merchant and Sellers will be used interchangeably in our article.
Which business “teams” should we associate with FBA and FBM?
The Supply Chain Team and the Key Account Managers are very important stakeholders amongst all. They decide which one (FBA or FBM) will make our P&L sheet green and in parallel benefit customer experiences.
Now that we have familiarized ourselves with FBA and FBM concepts, let’s understand each term better.
1. FBA — Fulfilled by Amazon
Here the Merchant (or the seller or the seller’s supplier) sends their products directly to Amazon’s warehouses. Amazon then stores the inventory and ships it directly to the customer. They also manage customer support.
Example: If a Detergent manufacturer D&G sends its stock to an Amazon warehouse asking them to deliver the orders (received on the Amazon website) directly to consumers, then that would be called an FBA model. The job of the merchant (here D&G) is done once it delivers products in the Amazon warehouse.
2. FBM — Fulfilled by Merchant
Here the Seller buys inventory, warehouses it, sells the product, packages it, and ships it.
Example: If a Shampoo manufacturer is storing all stock of Shampoo bottles in its own warehouse, manages inventory, packages the products, and then ships the products to end consumers while also taking care of customer support, returns and refunds then this is a clear example of FBM Model.
FBM route isn’t as popular. As you can see from the statistics below, more than 90% of the fulfilled orders are via the FBA model.
What are the key differences between FBA and FBM sellers?
Basis the statistics, we must have arrived at a guess of which one might be more convenient and profitable to most businesses. Highlighting a detailed comparison between both these delivery models will surely help answer a lot of questions about their intricacies, their pros, and cons and which one to opt basis the goods sold & business goals.
Deciding FBA or FBM is easy, but performing an in-depth analytics study to gauge its effectiveness is very important and tough. Only when we start performing a few small-scale non-digital A/B tests experimenting with these 2 models and gathering a decent amount of “relevant” and “useful” data, can we make a fully informed decision on which one is the more suitable for our business.
Ciao!
