Amazon FBA Business: Lots of Work but Still Worth It
Many people dream of touching their own product for the first time, tracking the first orders in Seller Central, and receiving the first reviews on the product page, which is why they start their own Amazon FBA business.
In this article, we’ll look at what options are available for launching an Amazon FBA business step-by-step.
First Things First. What Is an Amazon FBA Business?
Fulfillment by Amazon, or FBA, is the e-commerce giant’s in-house fulfillment service. When marketplace sellers book the service, Amazon charges them a fee to handle their inventory storage, order assembly, shipping, returns management, and customer service.
The fact that Amazon is an absolute beast in the online retail and logistics market is well-known. COVID-19 and the following pandemic have only increased the use of Amazon’s marketplaces, which now have over 300 million active consumer accounts worldwide.
Is Amazon FBA a Good Business Model?
Let’s take a look at the numbers to answer this question: 73% of all Amazon sellers use Amazon FBA as their business model of choice. So yes, Amazon FBA is very popular and therefore also good business. At least the lion’s share of all Amazon sellers see it that way. But what about the other 27%? They use a different model for the simple reason that there are seller-related activities that don’t necessarily have to take place in the Fulfillment by Amazon program.
Still, at least two other shipping options should be considered when deciding whether or not to go FBA:
Fulfillment by Merchant (FBM)
You can either store and ship things yourself or outsource fulfillment to a third-party (that isn’t Amazon) via the Fulfilled by Merchant model. In either case, the seller is responsible for ensuring that Amazon’s service levels for shipping and orders are met. For FBM orders, the seller must also provide customer care and return processing.
Prime by Seller
Prime through Seller program is the combination of Amazon FBA and FBM business model. That’s because here the retailer uses its own fulfillment structures but still gets the coveted Prime logo. This fulfillment is usually not ideal for novices because it must first prove it can meet Amazon’s rigorous criteria through an extensive examination.
What Are the Advantages of an Amazon FBA Business?
A major benefit is the fact that the costs stay lower than with other third-party alternatives. This is because setting up your own logistics is costly. Space must be arranged for a warehouse in order to stock items and packaging materials. Expenses on manpower for shipping work should also be counted.
All of these disadvantages are reduced with an Amazon FBA business. The seller simply sends their goods to one of the online giant’s logistics centers (or instructs the manufacturer to do so) and then has time to take care of other things like sourcing or expanding the business. This remains true even as orders increase, more products are added to the assortment, the need for warehouse space grows, and so on.
However, there is another crucial reason why many Amazon sellers sign up for an FBA business: the battle for the Buy Box, the small yellow box at the top right of the product detail page. It is through this button that 90% of customers make purchases. If several sellers have the same product, only the one who is in the Buy Box at the time of purchase will win.
Accordingly, the space in the yellow button is coveted. To get it, merchants must meet some criteria, such as fast shipping and excellent seller performance. Many of the metrics Amazon measures for this purpose are automatically met by using FBA. Therefore, only sellers that use Fulfillment by Amazon have a real chance of getting into the Buy Box.
Amazon FBA Business vs. Private Label
While mainly sellers of retail goods compete for the Buy Box, Private Label sellers usually do not have this problem, because Private Labels get their own EAN and therefore also their own ASIN. So, they usually win the button automatically, as they are the only seller of this product. Most of the advantages of the FBA program, such as the low investment and the simple organization, of course, still remain.
But also on the fulfillment level, Private Label sellers benefit from an FBA business on Amazon. With this type of product, it is particularly important to appear high up in the search results for a specific keyword.
However, other factors play a role on Amazon, including seller performance and shipping speed. Because Amazon knows FBA sellers do well in this area, the chances of an Amazon business FBA ranking well for its products improve – though not as significantly as winning the Buy Box.
How to Start an Amazon FBA Business
Starting an Amazon FBA business is an exciting journey. We divide it into several steps:
1. Research Your Niche and Product.
Amazon sells billions of dollars worth of goods each year, but it doesn’t mean you can sell anything and expect to succeed. The most successful sellers spend many hours researching the things that will bring them the most money. Amazon FBA business is definitely worth researching.
2. Register as an Amazon Seller.
You must first create an Amazon seller account before you can begin selling. When you do this, you’ll have the option of creating one of two sorts of accounts:
There are no monthly subscription fees with this account, but you must pay $0.99 to Amazon every time you make a sale. Furthermore, the capabilities available with this account type are fairly limited.
You’ll pay $39.99 per month for this account, but the $0.99 cost for each sale will be eliminated.
3. Choose a Supplier.
You’ll need to discover a company that can supply you with the product once you’ve decided what you want to sell.
4. Choose a Method of Delivery.
The method you use to ship your products to your clients is referred to as order fulfillment.
5. Promote Your Product.
When it comes to Amazon FBA business, you’ll need a strategy to drive traffic to your listings once they’re live on the site. Running advertisements is one of the finest ways for new sellers to do this.
Now let’s consider what you as an Amazon FBA seller have to pay for Amazon FBA Business.
Amazon FBA Business Fees
Amazon charges a fulfillment fee and a monthly inventory storage fee when you use FBA. In turn, the fulfillment charge is used to pay the costs of picking, packaging, shipping, and customer support. The cost of storing things in Amazon’s fulfillment centers is covered by the monthly inventory storage fee.
Please note that these expenses are in addition to any referral fees (Amazon’s percentage on marketplace purchases).
Another question that you can ask yourself:
“How to Start an Amazon FBA Business With Little Money?”
You can create an Amazon account for free. It costs you nothing to open an individual seller account on Amazon. All you have to do is provide Amazon with a few details and you’re set to go.
You can list your goods for free on Amazon. Amazon.com’s product database has about 166 million items. As a result, there’s a considerable chance that whatever you want to sell has already been listed. If it is, all you have to do now is add your name to the list of sellers who have already agreed to sell the item. Finally, when the product sells, ship it.
If you just want to gather experience and see how the process works, why not look for a free item to sell, something you don’t need anymore?
So far so good. Let’s fast forward a little into the future: Your business is running, you have a little capital to invest and now you’re looking for ways to expand. What can you do?
Consider buying an existing Amazon FBA business.
You can purchase an Amazon seller account in the same way that you would a real shop. Both customers and sellers earn from Amazon’s FBA business. We understand that every company is different. However, there are a few things to think about while purchasing an Amazon account.
It’s as simple as updating your seller central account with the most up-to-date information to purchase an Amazon account. However, there are a few things you should know before transferring ownership.
The first step in purchasing an Amazon seller account is to review the account’s history. Keeping track of accounting records is a difficult endeavor.
One of the most important aspects of Amazon FBA business is its suppliers. They have a significant impact on the success of your company.
Learn everything there is to know about the contracts, including the conditions, lead times, and unforeseen charges. Speak with the manufacturer to get an idea of how it will be to deal with them.
Finally, analyze advertising metrics. To stay visible and competitive in the marketplace, you’ll need to use Amazon-sponsored ads. So get as much advertising data as you can. Amazon only has advertising data for the previous 90 days, so learn everything you can. Examine the monthly and bi-monthly reports to learn more about the PPC stats. This will assist you in comprehending CPC rates, ACoS, and other critical metrics that you’ll need to maintain a competitive edge.
Keep in mind that there is a reason why people sell their Amazon business (mostly because it’s not going so well). Once you are looking for a business to buy, try to locate the weak links (shipping issues, trend items, sourcing troubles, too much competition) and see if you can find ways to eliminate or improve them.
What is the Right Form of Business in the USA for You?
It’s crucial to figure out which entity is appropriate for your Amazon FBA business. After all, this is the basis upon which your e-commerce business will be created. Selling your products on Amazon FBA is a fantastic method to increase your financial wealth quickly, but it comes with significant dangers in terms of product responsibility and taxes. Obviously, each entity has both pros and cons, so let’s dive deeper into which Amazon FBA business type is good for you.
The most cost-effective approach for Amazon FBA sellers is to start as a sole proprietorship to keep costs low. Also, you’ll only need to file one tax return, which will include a separate page for company activity. Easy, right? Indeed, it is the cheapest and easiest way to start with, but let’s take a look at the disadvantages:
- Sole proprietorship doesn’t include a corporation’s potential business deductions.
- In the event of a lawsuit, personal assets may be at stake.
LLC (Limited Liability Company)
Aside from sole proprietorships, LLCs are perhaps the most frequent entity structure for Amazon sellers. This form can be recommended for Amazon FBA business, because an LLC operates as a separate legal entity from your personal assets, ensuring that they are protected in the event of a lawsuit.
For LLCs, there is a variety of taxing alternatives. LLCs are taxed differently in different states, and they might have their own tax rates.
So far so good. The only disadvantage that we can see here is that it is more expensive to start and run this business form.
An S Corporation, also known as a Subchapter Corporation, is a business entity that allows for pass-through taxation. It protects your assets and allows you to take greater deductions than if you were a sole proprietor.
Taxes are passed through to individual owners in the form of a K-1 under pass-through taxation. With an S Corp, you can avoid double taxation issues. In the United States, S Corps also have more legal precedent.
However, this Amazon FBA business form is less flexible than an LLC for investors.
Make the right choices! Amazon FBA business can be very profitable, but take into account all the aspects mentioned above.
If you’re starting a business with a partner, you should form an LLC or S Corp so that your personal assets aren’t put at risk. Once you have a better idea of how you want to grow and build your firm, you can decide whether to form an entity or work as a sole proprietorship.
You are up to making so many decisions, but we hope that this article will help in your endeavors!
In the article, we dived deeper into that. You can start an Amazon FBA business for free, but the FBA program has its price..
No is the quick response. To sell things online, even on Amazon, you do not need a business license. This is due to the fact that most products offered on Amazon are not regulated by the federal government. The majority of products offered on the internet are consumer goods that do not require government clearance.
Of course, it is up to you, but you can definitely do without it. One of the alternatives is to ask an expert for a piece of advice.
Yes! Why do you think so many e-commerce sellers opt for this type of business? Not convinced? You can always check out how high the Amazon FBA business “salary” is here.
There are three factors that can help you assess whether or not you can sell your business:
1. The type of business
2. The company’s age
3. Earnings before interest, taxes, depreciation, and amortization (EBITDA)/Seller discretionary earnings (SDE) (annual net profit)
When it comes to judging saleability, each of these characteristics is equally essential.