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, or FBA, is the e-commerce giant’s in-house fulfillment service.
To start as an Amazon FBA seller, you will first have to register on Amazon, ship the items you want to sell to one of Amazon’s logistic centers and list them in Seller Central. From that point onwards, Amazon will take care of all tasks related to logistics within the warehouses, as well as the packaging and shipment of goods. Amazon also handles customer service and returns if any problems with the shipments should arise. At the end of the billing period, Amazon transfers the generated profit generated, all fees subtracted, to the merchant’s deposited business account.
The fact that Amazon is the most dominating player in the online retail and logistics market is well-known. COVID-19 and the 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?
That depends on many factors. Most of all on what you want to sell on Amazon.
Amazon FBA is available to all marketplace merchants (with a few exceptions). However, it should be considered that the storage fees depend on the required storage space and period. Especially for large items, leveraging Fulfillment by Amazon can affect the margin to an extent that makes the whole operation unprofitable. That’s why you should think twice before planning to sell unnecessarily bulky products due to the high FBA costs they incur. In general, we recommend that you conduct thorough product research to get a clear picture of the market situation first – maybe even one or the other trend prediction.
Let’s take a look at the numbers to answer the question if Amazon FBA is a good business model: 73% of all Amazon sellers use Amazon FBA as their business model of choice. So yes, Amazon FBA is very popular. At least the lion’s share of all Amazon sellers see it that way. But what about the other 27%? They may be using a different fulfillment 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 to leverage FBA or not:
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 “Fulfillment by Merchant” (FBM) 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 sellers must also provide their own customer service and return processing.
At the same time, items sold via FBM do not have a Prime logo – a purchase magnet for many Amazon customers. However, a missing Prime logo can also mean that it is not necessary for these products.
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 Product.
If you are starting from scratch, meaning that you are completely open in regard to product ideas, it might be worth your while taking a closer look at the bestseller lists. The online giant automatically ranks offered products based on sales figures. Such rankings are available for every category.
On Amazon’s homepage, simply click on the “Bestsellers” field. On the left you will find a list of all categories. Clicking on the relevant category will take you to the corresponding bestseller rank. As an example, under the category “Drugstore & Personal Care,” hair trimmers by the company Braun were very popular in March 2020. Closely followed by toilet paper, by the way. This may look weird at first, is however hardly surprising given that in March 2020 the pandemic started in Europe. These two articles are good examples for two predictable trends that one or the other seller made a healthy profit with.
Here you can see another advantage right away: because based on the bestseller rank, you can already guess the sales potential during the product search. Special tools can simplify the research immensely but are not necessary. Often, manual research can be very profitable as well and will give you a better feel for the market than sellers that use tools right away.
Due to the fact that you want to sell your products via FBA, it makes sense to consider the Amazon FBA fees when researching products, because as the weight and size increases, so do the fees. With every price increase in FBA fees, this becomes even more relevant, because large and heavy products are affected more than small and light ones. Products up to a maximum of one kilogram are recommended. So keep an eye on FBA regulations already when you are just researching products.
2. Research Your Niche.
If you are looking for the right niche, don’t forget one important thing: One product does not define a niche.
If you rely on a single product, you minimize your chances of scaling revenue because you cannot offer your customers enough alternatives. Once potential customers have found your Amazon store and don’t find the exact thing they are looking for, it is not uncommon for them to browse further through your listing in search of it. If they were to find only one product or a hodgepodge of everything that has nothing to do with their interests, they will drop out fast.
As opposed to creating a broad listing to attract as many buyers as possible, defining a specific target group is more promising when operating a niche. Your target group does not have to have a wide reach for your product to be attractive enough for them. The emotional connection your custom-tailored product variety will establish with your target group is more likely to bring you success.
Inspiration for research can come from simply looking around your house — are you really into cooking or gardening? Are you good at building stuff and can offer your customers something which makes their life more comfortable? Tap into that experience and see where it takes you.
4. Research Your Market.
Market research is the be-all and end-all for Amazon marketplace traders.
The quality of a data-oriented and structured approach are fundamental. With the help of market research, you can find out whether the market is ready for your Amazon FBA business or not.
Before this backdrop, take a closer look at competition, sales figures, prices and macroeconomic trends, among other things. Take a look at products and categories within a market, evaluate them according to, for example, sales volume, turnover, customer ratings, product breadth and depth and other market-relevant factors, and make decisions for future strategy based on these results.
The most important functions of a market analysis are:
- Mapping the target market of a product
- Identification of possibly relevant products
- Portfolio analysis – reviewing market volume and growth
- Prevention of bad investments
- Expansion of market knowledge and avoidance of wrong decisions
- Discovery of comparable products and thereby minimization of the risk of entering the market unprepared
- Competition analysis – Assessing competitors’ reactions to one’s own market entry to enable forward planning
5. 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 between an individual or professional plan. You will definitely need a professional plan if you want to leverage Amazon FBA services. But what is the difference between the two options?
The creation of the individual account is free of charge. However, you will have to pay a commission of $0.99 per item + percentage sales fees for each sale you make on Amazon. This fee model is designed for sellers who plan to sell less than 40 items per month.
For the professional plan you pay $39.99 per month plus additional selling fees. In the professional plan, you have many more design and functional options at your disposal, such as a better overview of sales figures, adjustment of shipping costs, list uploads, detailed sales statistics and much more. The plan is already worth your while if you sell more than 40 products per month. This is the minimum target you should set for yourself.
We recommend that you start your Amazon FBA business with an individual plan before you actively begin selling and thus become self-employed. Once your products are listed and ready to ship, you can upgrade to the professional plan
5. Choose a Supplier.
It must already be clear during the purchasing stage that profit depends on price and purchasing regulations. Online retailers in particular are constantly competing with prices when it comes to sales.
This means that it is not entirely uncommon for online retailers to look around the Chinese market to find the right supplier for their goods. The main arguments for importing from China are usually the favorable net unit price as well as the large selection of products and manufacturers. The enormous flexibility towards individual production is also a big plus.
On the other hand, there are also clear disadvantages with suppliers from the Far East. Depending on the product groups and freight options, a significantly higher quantity must be purchased in China than in the US or EU. For large and/or heavy products, it is often only worthwhile to transport them by sea. There, however, the handling costs at the port alone drive Chinese producers only to accept orders of over $5,000 in the corresponding product segment.
The pandemic and various inner-political difficulties have also left their mark on Chinese manufacturers. In 2021, many factories had to shut down temporarily due to power outages, creating major supply chain issues. Many manufacturers have also started selling themselves, instead of just acting as middlemen, a trend that will most likely continue.
In any case, it makes a lot of sense that you familiarize yourself intimately with the rules and costs that arise in the framework of international shipping. Also be sure to keep an eye on the news to see if any problems could arise that affect your supply chain.
6. Consider Dropshipping.
Dropshipping is currently a hot topic. Training course experts are popping up everywhere with the offer of “Shopify Dropshipping”, promising “a lot of profit with little work.” For this reason, we also want to briefly highlight this topic here.
Dropshipping means that the seller who sells a product to a customer does not send it to the customer directly. Instead, the seller sends an order to the manufacturer, who then ships it directly to the customer. The advantage for the sellers: They do not have to store the goods at an inventory and pre-finance them. In return, the manufacturer receives a service charge for sending individual orders. The disadvantage of the system: the seller never have the goods in their hands, meaning they can neither check the quality of the product, nor know exactly what the manufacturer has shipped.
A serious Amazon FBA seller should only dropship with suppliers who are absolutely reliable and who coordinate the processes in advance. Dropshipping is often operated as an addition to the product range. In this case, the seller takes his/her core assortment and the products that are sold frequently into the permanent inventory. The rest is then offered through dropshipping with little risk.
7. Choose a Method of Delivery.
Whether you choose to dropship or store goods temporarily on your premises, you need to clarify who will ultimately ship the items to Amazon. There are numerous services that not only deliver your goods to Amazon, but actually deliver them to Amazon for you, ready to ship. Decide for yourself where you want to save your money or time.
8. 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. Amazon offers several advertising services to enable advertisers to promote their own products and brands.
These are a numerous advertising opportunities available to you as an online seller on Amazon:
Sponsored products are the most popular ads among online sellers on Amazon. Sponsored Products are keyword and ASIN-based ads that improve the visibility of individual products in search results and on product detail pages.
Sponsored Brands are suitable for increasing brand awareness and appear in the search results and on the product pages of the marketplace. The advertiser has the opportunity to advertise his/her brand at the top of the results with three products and the brand logo using Sponsored Brands. Customers can be redirected to a landing page or to the store.
Sponsored Display Ads
The difference between Sponsored Display Ads and Sponsored Products and Brands lies in the way the ads are displayed. Sponsored Products and Brands are keyword-based and only appear on Amazon. Sponsored Display Ads use user-based data and interests and can also be displayed outside of Amazon. This means that sponsored display ads have a wider range, reach the customer where they are and can also be used for retargeting on Amazon.
Amazon FBA Business Fees
There is no denying that setting up your own logistics scheme is very costly. Fulfillment by Amazon covers many areas that would otherwise be the responsibility of online sellers.
As we mentioned earlier, an Amazon FBA seller pays a monthly fee for the professional plan. In addition, 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. To list all fees here would go beyond the scope of this article. You can find more detailed information about the FBA fees in our blog post: FBA Fees on Amazon: Be Smart. Reduce Your Amazon FBA Costs!
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.
Your Amazon FBA Business Is Growing – Now What?
Now your Amazon FBA business is online and everything is running like a well-oiled machine. How can you grow your business? This is where automation tools come in. As an Amazon seller, you have various FBA tools for different tasks. Whether it is setting up PPC campaigns, Amazon SEO or refunding FBA errors – there is a solution for everything.
In this blog post you will find numerous recommendations for many areas of Amazon FBA business: 13 Tools for Amazon FBA that You Need. What we would like to recommend to you is the SellerLogic Lost & Found Tool.
If you don’t want to give your money to Amazon senselessly, you should definitely make use of Lost & Found. In Amazon’s logistics centers, countless items are taken off the shelves, packed and shipped every day. With so much movement, mistakes can happen – products can break, returns never arrive or FBA fees are calculated incorrectly.
Often, FBA merchants don’t even know about this because they are responsible for the troubleshooting themselves. The Lost & Found tool scans all FBA reports and reports irregularities immediately. Should there ever be any problems with a refund, our Customer Success Team will help you communicate with Amazon free of charge.
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!
Image credits in order of appearance: ©Golden Sikorka – stock.adobe.com / ©apinan – stock.adobe.com / ©TeraVector – stock.adobe.com / ©MicroOne – stock.adobe.com
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.