Amazon is the most dominant eCommerce site in existence and one of the biggest retailers in history. One key part of its success is its partnerships with third-party resellers, especially small companies or individuals. 

That feature makes it especially attractive to LEGO investors looking for an easy way to conduct business through Amazon Prime, its flagship delivery and rewards program. Amazon LEGO sets will sell more easily than on many other platforms simply due to the popularity of Amazon.

Vendors have two options for order fulfillment services on Amazon Prime. One is Fulfillment By Amazon (FBA); the other is Fulfillment By Merchant (FBM). Both allow vendors to use the Prime portal to sell their wares but come with vastly different conditions and logistics.

LEGO investors are naturally concerned with the bottom line – how much they’ll get in return for their investment. In that regard, which method will earn a third-party vendor more money?

Comparing FBA and FBM

With FBA, Amazon Prime effectively handles all customer fulfillment duties, top to bottom, simplifying the process of selling Amazon LEGO sets. Your LEGO inventory is stored in Amazon warehouses or fulfillment centers. 

Customers buy your items on the Amazon Prime website. Amazon workers pick the product from their warehouses, pack it up and ship it on their trucks. Amazon also handles all customer support and returns. It’s a complete system.

With FBM, the vendor handles customer fulfillment themselves. The merchant stores their inventory. The product is sold on Amazon Prime, but the merchant receives the order. 

The vendor is responsible for all packing and shipment through the carrier of their choice. They’re also responsible for customer service. In essence, all Amazon Prime does is display what you’re selling.

The other big difference between the two methods is the merchant’s status in the Amazon Prime program.

If you go the FBA route, your business is automatically accepted into Prime. But if you choose FBM, you have to go through Amazon’s Seller-Fulfilled Prime (SFP) program (for which there’s a waitlist, so you can’t get in immediately).

After a trial period in SFP, you’ll be admitted into Prime. You’ll then have to keep high standards of delivery fulfillment, particularly in terms of turnaround time. Too many miscues in getting your product shipped can result in penalties or expulsion.

These two very different models have various advantages and disadvantages. But which is more profitable for LEGO investors? 

FBA vs. FBM: Earnings Breakdowns

Somewhat surprisingly, merchants who use FBM stand to make more from sales. A recent analysis showed that 33% of FBM sellers earned at least $25,000 in revenue every month, compared to 26% of FBA sellers who reached that threshold.

However, in terms of profit margin, FBA sellers come out ahead. A total of 37% of FBA merchants had profit margins above 20%, versus 32% of FBM vendors. 

The difference in profit margin may be related to merchants’ operating expenses. With so much handled by Amazon in an FBA agreement, a vendor already saves a lot of money on ancillary costs like shipping and storage space.

One significant difference between the two is how long a vendor takes to set up their store and start selling. In this regard, FBM again has a surprising advantage. 

About 51% of FBM sellers got their Amazon store launched in less than six weeks – 34% of FBA sellers could say the same. Furthermore, 28% of FBM sellers began turning a profit within three months, while only 20% of FBA sellers did.

Both methods work well for toys and games businesses like LEGO. Toys & Games is the second biggest product category for FBA companies, trailing only Home & Kitchen. With FDM, Toys & Games are third, behind Home & Kitchen and Health. 

Cost Factors that Affect Profitability

Revenue, of course, is only one side of the profitability coin. The other is how much it costs to run a business. Operating expenses could play a big part in deciding between FBA and FBM. Here are some of the most significant cost considerations:

Shipping After Amazon LEGO Sales

Amazon’s pricing structure is based on the size and weight of the items merchants sell – the bigger and heavier the item is, the more shipping costs.

For LEGO owners, FBA may have the edge in this area. LEGO sets can be moderately heavy, but individual components and smaller sets that collectors look for are often less than a pound – and the FMA program is especially conducive to selling lightweight products.

It all comes down to the cost to fulfill and ship the product. With FMA, you’re paying a certain fulfillment cost, plus shipping to and from Amazon warehouses, along with product costs and Amazon listing fees that are the same no matter which method you use. 

With light products, the fulfillment cost is a big difference: it’s much less with FBA than with FDM.

If you have a big inventory of smaller LEGO items, FBA may be the more profitable choice. To make sure, use Amazon’s handy FBA revenue calculator to find out how much you can earn.

Turnover

Turnover rate can be an important factor in making your decision because of Amazon’s storage fees. If your LEGO sets sit a long time in an Amazon facility without selling, Amazon will charge you higher fees. If products stay in the warehouse for 365 days or more, the storage is considered “long-term,” and the fees go up.

So if your LEGO turnover rate is swift and high-volume, FBA may be preferable. If it’s slow and light, consider FBM.

Fees and Logistics

FBA sellers are charged a fee to ship their products. This process only makes sense since all of the logistics are handled by Amazon. The trade-off is that the vendor has more time to develop their business.

FBM sellers don’t have those fees, but they absorb all of the costs they have to spend on packing and shipping, along with storage, labor, and packaging costs. They also have to devote time to those areas, with less time to build a compelling storefront.

Consider which cost structure is better for your LEGO business: the cost to ship everything yourself versus the price of letting Amazon handle all of it.

Stay up-to-date with Wolf Of Bricks for more information on how to build your Amazon Prime LEGO business.