Did you know that Amazon became the no. 1 platform to search for products, surpassing Google?
This is something that was bound to happen any time soon.
Amazon is the biggest marketplace for any eCommerce business owner, allowing every single business owner (from the smallest vendor to an 8 figure business) to take their products to the houses and hands of any customer around the world.
Growisto states that there are over 6.4 million sellers on Amazon today.
Whether you’re starting or growing your eCommerce business, selling products on Amazon should be on your to do list.
In this article, we’ll tell you all about the best Amazon business model for you, so you can choose the right fit for your business.
Amazon Business Models
Amazon currently offers business owners a few different business models.
The goal is to provide Amazon customers with the best products and the best prices, while also helping eCommerce owners increase their revenue.
We won’t go through all of them. We’ll focus on the three that will certainly interest you the most.
FBA – Fulfillment by Amazon
In summary, with Amazon FBA all your products are taken care of and shipped to the customer by Amazon itself.
They’re safely stored in Amazon warehouses, shipping is taken care of by Amazon as well, and you’re solely the one who keeps making sure there’s an inventory.
This is the best Amazon business model for eCommerce business owners who want to work with Amazon but wish to avoid all the headaches of processing the orders and shipping them half-way across the globe (for example).
Amazon FBA is also great because, since it’s Amazon who’s taking over the whole logistics and selling, they’re also in charge of customer service, including exchanges and refunds.
There’s no worrying about doubling the costs of shipping with refunds, and losing money over this, because that will be Amazon’s problem.
FBM – Fulfillment by Merchant
Contrary to the FBA business model, with FBM you’re entirely in charge of everything.
You’ll be responsible for receiving orders, packing and shipping them, and providing customer service whenever necessary.
You are completely responsible for everything that happens as soon as a customer pays for a product and places an order.
SFP – Seller Fulfilled Prime
Amazon SFP is a business model that works similarly to FBM.
You’re still in charge of the logistics, customer service, and whatnot.
However, it includes a significant benefit that FBM doesn’t: your products can be listed with a Prime badge.
If you’re familiar with Amazon purchases (and we believe you are), some products benefit customers that have a Prime subscription. These have better listings and, thus, a higher purchase rate.
This Amazon business model is great because it brings some of the FBA best benefits without the hassle and cost of FBA fees.
It does come with a catch, though…
Being a part of Amazon SFP is extremely hard and sellers must comply with at least 8 requirements in a short 30 day time period.
What’s the best Amazon Business Model for you?
The answer to this question will always depend on the answer you’ll give to these two questions:
- How much money are you willing to pay/lose to guarantee your business is hassle-free?
- How much money are you willing to invest to keep a hold to the whole process?
It’s all a matter of investing time or money.
We strongly believe Amazon FBA or FBM are the best and easiest Amazon business models to work with.
Taking those into account, we’ll try to help you decide by listing a few pros and cons of both.
Amazon FBA: pros and cons
Amazon FBA is the best possible solution when you don’t have the capacity to fulfill multiple orders yourself.
It’s also great when you don’t have storage or logistics capacity and you mainly want to work on getting the product to the customers.
You’re better off being in charge of marketing the product, guaranteeing it’s the best one for your customers, and keep selling without worrying too much.
If this describes the kind of business you want to own (or that you own already), there are multiple pros to using Amazon FBA as business model:
- Not having to worry about customer service, which will save you quite a bit of money (you won’t have to hire a team);
- You’re guaranteed to be an Amazon Prime product;
- Because your product is in an Amazon storage facility, products are faster to ship and to arrive to your customers, meaning more orders coming in;
- In addition to the latter, you get better visibility on Amazon, the largest online marketplace in the world.
These are four of the main pros and they’re gigantic already.
However, there is a downside to an Amazon FBA:
- Higher fees, which mean lower profits;
- No control over packaging or customer service.
Customer service and unboxing are two highly rated experiences for return customers.
A bad unboxing experience can mean the customer will not make a repeat purchase and this, of course, lowers your revenue in the long run.
Amazon FBM: pros and cons
Amazon FBM is the last Amazon business model we’ll dive into.
This business model makes perfect sense when, contrary to FBA, you’re comfortable with storage and have a proper team to handle customer service and logistics.
If this is you, then we’d recommend an Amazon FBM business model because:
- You’ll have greater margins, since you won’t be paying the high fees of Amazon;
- You’re in complete control of packaging and, consequently, of the unboxing experience;
- It’s much easier to track inventory because you’re in full charge of it.
What are the cons of Amazon FBM then?
- There’s a lot more responsibility and accountability in your shoulders;
- There are higher costs with your own in-house team;
- You’ll be competing with Amazon FBA sellers.
Conclusion
A business model is an important step to any business owner.
There will always be a list of pros and cons to whichever Amazon business model you choose.
You’ll always have to choose one thing over the other.
What you need to think about are the two questions we’ve mentioned before:
- How much money are you willing to pay/lose to guarantee your business is hassle-free?
- How much money are you willing to invest to keep a hold to the whole process?
It all comes down to how you want to manage your business and scale it afterwards.
Are you already scaling your business to multiple figures a year?
Schedule a free call with an AEPIC Partners advisor to assess your business and find out if this is a good time to sell.
