Ultimate Guide to a Profitable Amazon FBA Business
Most people consider online shopping a necessity, and not only a convenience, which makes an Amazon FBA business an exciting and potentially lucrative venture.
Amazon deals with e-commerce, digital streaming, and even artificial intelligence, making it one of the Big Four tech giants, including Apple, Microsoft, and Google. Amazon has made it to a lot of lists, including the world’s most valuable companies.
Regardless of whether you have bought an item, you probably know that Amazon owns the most extensive online marketplace. The retail platform primarily targets consumers from the United States, the United Kingdom, and Europe, but the company can ship some of the products globally.
The e-commerce industry has seen unprecedented growth in the past two decades, which saw the rise of other platforms like Alibaba, eBay, Shopify, and Etsy. However, Amazon remains a cut above the rest in terms of reach and brand popularity.
Here are some impressive statistics about Amazon’s marketplace:
- Over 280 billion dollars in net sales in 2019
- Nearly 12 billion dollars as net income in 2019
- Over 150 million members worldwide
- Over 208 million unique monthly visitors
Other businesses could only dream of generating such numbers, and I could still go on about the platform’s remarkable figures. With the right resources, you could also achieve success with Amazon’s e-commerce business.
In this guide, I will discuss what you need to know about this popular business venture. This article will include steps to start an Amazon FBA business, possible challenges you may have to face, and marketing methods to boost your retail sales.
What Is Amazon FBA?
You already know that Amazon is the largest online retailer, with thousands of internal and external products. Some of its products and services are Alexa, Kindle, and Amazon Studios.
The company also has over 40 subsidiaries, including Audible, Goodreads, Junglee, Twitch, and Whole Foods Market. Though it first started selling exclusive and partnered products, Amazon eventually allowed entrepreneurs and small businesses to sell their merchandise through their website.
Fulfillment by Amazon (FBA) is a solution that lets individuals and small businesses to sell their products through the amazon website. This means entrepreneurs reach a broad audience due to the generated traffic on the established platform.
The term fulfillment means amazon will handle storage, packaging, and shipping services for your merchandise. Your products also become eligible for Amazon’s promotions, like Free Super Saver Shipping and Amazon Prime.
How Does Amazon FBA Work?
With Fulfillment by Amazon, you perform the whole retail process on amazon’s platform. You promote your products on the website. Customers will buy these products from Amazon, and the fulfillment center will take care of the packaging and shipping aspects.
In the traditional e-commerce model, you set up your retail store on a self-hosted website or e-commerce platform like Shopify. Unless you manufacture the products on your own, you usually purchase them from a supplier or distributor in bulk.
You would then store the items in a secure location and ship them directly to your consumers through logistics providers like FedEx or UPS or outsource it to 3PL companies like Shipbob. This process is generally more costly; however, you have full control of the fulfillment process. FBA is similar to the dropshipping model. The primary difference lies with the logistics provider.
With FBA, your manufacturer ships the products to Amazon fulfillment center(s), and Amazon takes care of the whole fulfillment process. With dropshipping, the supplier and logistics provider are the same.
Benefits of Using Amazon FBA
Here are Amazon FBA’s benefits for small business owners:
You have more time to focus on your business.
The whole retail business process takes a lot of time, effort, and brainpower. But with FBA, Amazon will do most of the heavy lifting and reduce your logistical nightmares. Instead, you can concentrate on building your business or improving your product quality.
You have a more extensive customer base.
When it comes to customer reach, Amazon has undoubtedly one of the best numbers. There are 150 million Amazon Prime members worldwide, 65 percent of which reside in the United States. If you plan to target this location, you can do the math on the potential number of customers who will visit your shop.The platform has guaranteed traffic who are in buying mode, so any other marketing methods you employ will help boost your number. You can then direct your strategies to target visitors who convert to actual buyers.
You can quickly scale your business.
Even though all your products are in Amazon’s fulfillment centers, the program does not require you to have a minimum number. In the same way, you can store your merchandise in those warehouses with no storage limit.
You get discounted shipping rates.
Because Amazon’s business is so extensive, its contracts with central shipping carriers give them discounts on shipping costs. The platform passes on those discounts to the sellers through reduced shipping prices when they send the inventory to Amazon.
You no longer have to fret over customer service.
One of the forgotten aspects of a business is customer service. With Fulfillment by Amazon, you have access to its full customer service network worldwide. This detail means the platform’s representatives will take care of handling all customer inquiries 24/7 through phone or chat, at no additional cost.
You already have a concrete returns policy.
One of the primary challenges in the retail or the dropshipping business is handling product returns as it usually puts additional strain on a business’s finances. With Fulfillment by Amazon, you already have access to the platform’s Online Returns Center, which gives detailed steps and information for customers who plan to return a product.
You can sell your Amazon FBA products on other channels.
The FBA program has a Multi-Channel Fulfillment service, allowing you to reach more people by selling your products on other channels. These platforms include your online store, other third-party websites like BigCommerce, and even a brick-and-mortar retailer.
How To Make Money With Amazon FBA
With over 2 million merchants on Amazon, you have probably heard of several success stories that sparked you in researching this business model. The e-commerce industry can be a very lucrative career if you put enough planning, time, and effort into this venture.
Whether you prefer other e-commerce models or think of giving this one a shot, here are some real people who tried this business and succeeded.
- Spencer Haws started earning over 40,000 dollars in sales six months after he joined the Amazon FBA program. His tips include utilizing relevant keywords in the product listings and having a separate website to generate traffic to his Amazon page.
- James Fend’s sales jumped from 500 dollars during the first three months to 50,000 dollars in the eighth month. With only a few products on his roster, his strategies included giving away items in exchange for reviews and optimizing the listing through better keywords and photos.
- Couple Ari and Chelsea Cohen started their e-commerce journey through multi-level marketing before switching to Amazon. Within 30 days of their first sale, they made 10,000 dollars in gross revenue.
As with any business, not all entrepreneurs had the same, happy ending. However, one thing is common among them: time. It will usually take weeks or months before your Amazon FBA business takes off the ground and makes five-digit sales.
However, all these stories say that Amazon FBA has excellent potential in the e-commerce industry, and nobody else that Kevin David is a living proof of how you can build amazing business(es) around Amazon FBA model, in a very short time. Kevin's Amazon Ninja Masterclass course is the best Amazon FBA course there is in the market. You can check it out right here, it's a proven system to start and grown you Amazon FBA business!
Most sellers find success using Amazon FBA because their products have a high-profit margin. Make sure to factor in the costs of using Amazon’s services like the sales fee, FBA fee, shipping, and labor.
If you can compute all your expenses and reasonably mark up your product's price, you will be well on your way to profit.
How To Sell On Amazon FBA
If you plan to sell your products on Amazon’s platform through FBA, the first thing you must do is register a seller account. This profile is different from a customer’s, but the steps are straightforward and easy to follow.
On Amazon’s homepage, scroll down to the bottom of the page and click on the link that says ‘Sell on Amazon.’ Upon clicking the sign-up button, you would need to enter an e-mail address and password.
You should be able to fill out the necessary fields to complete your Amazon seller account. I will go over the next steps later on, but here is the outline of the process.
Register as an Amazon seller.
Prepare items to send to Amazon’s warehouses.
Assign inventory to FBA.
Create a shipment to Amazon’s fulfillment centers.
Send and track your shipment.
What To Sell On Amazon FBA
With the arrival of third-party merchants on Amazon, you can now find almost any product on the platform, ranging from books, digital music, electronics, and software to apparel, jewelry, beauty products, and furniture. So, choosing the right product to select is a crucial task.
You can sell almost anything online nowadays, including arbitrage, wholesale products, used books, and private-label goods. Arbitrage products refer to low-priced items from traditional retail stores or other online platforms.
Wholesale merchandise refers to branded but discounted products for reselling. You can obtain used books from garage sales, bookstores, or other places.
Private-label goods are products of your own, wherein you had control over the manufacturing process.
Here are some tips to increase your profit margin.
Choose a product that piques your interest.
An excellent business comes from a combination of passion and profit. You do not have to love the product but having a vested interest will encourage you to promote it to drive further sales.
Choose a product that is small and lightweight.
With Amazon FBA, customers usually get free shipping. However, Amazon charges the seller fulfillment and storage fees depending on the product’s dimensions and weight. This detail means you pay more for more substantial and bulkier items.
Choose a product that is available all-year-round.
Seasonal items like Christmas decorations, Halloween costumes, and personal flotation devices sell out quickly during peak periods. However, it will be a challenge to encourage shoppers to purchase them off-season.
Choose a fast-moving product.
Since you house your merchandise in fulfillment centers, they incur fees the longer they remain unsold. Manage your online inventory to minimize unnecessary charges and avoid storing an excessive number of items in those warehouses.
Choose a product that is simple to manufacture.
Whether you choose to create the products yourself or outsource to a manufacturer, you must keep the raw materials’ costs to a minimum. The procurement of complex substances may pose a potential disruption in the manufacturing process, disrupting your operation.
Avoid a product that may have legal implications.
Anything that customers need to ingest or apply to their bodies should undergo a rigorous testing process to ensure safety. These products usually come with medical claims, so you want to steer clear from those items unless you have a legal background.Otherwise, you will waste all your efforts on the next steps. These applications will provide you with tons of data and their interpretations.
What Is an Amazon FBA Business?
If you have ever obtained an item from Amazon, it is highly likely that you bought that product from a third-party seller called Amazon FBA. Unless you purchased Amazon’s branded products, you have done business with another merchant.
Fulfillment by Amazon enables individuals, small businesses, and even large companies to post their merchandise on the platform while Amazon handles inventory and shipping.
There is almost no difference from the customers’ perspective, whether they purchase directly from Amazon or another merchant through FBA. Aside from a note on the listing indicating where the item came from, the customer gets the same delivery options and follows the same returns policy.
How To Start an Amazon FBA Business
Before you proceed to the next section, I would like to commend you for getting this far. Some people aspire to run a business, but they immediately feel intimidated about the process they need to undertake. I am not going to say the whole process is as easy as A-B-C, as that is a blatant lie. However, starting your Amazon FBA business is not as challenging as you might think.
This guide offers a step-by-step process to create your business. If you are all set, here are the steps you have to follow:
Choose which products to sell.
Keep your inventory in stock.
Market and advertise your products.
Throughout this guide, I will give you specific and actionable advice to make these steps happen. Whether you are a novice in the e-commerce business or plan to shift your business model to Amazon, you reached the right place.
You should not forget the mental and emotional preparations. I have not heard of successful business people who said starting their companies was like walking in the park.
If you work hard or smart enough and are determined to reach your goal, you are off to a good start. Let us explore these three steps in detail.
1. Choose which products to sell.
Finding a product
Get your creative juices running and think of a unique product that people will buy. With tons of merchandise floating around in the market, it is challenging to come up with a genuinely original idea.
However, your product does not have to be groundbreaking or revolutionary. You can improve the features of an existing one to set it apart from other merchandise.
For example, people use phone stands to hold their devices upright when they are working, watching TV, or any other activity. What if you create one that can also securely hold a glass or bottle? It is not the most original idea, but you should ask yourself if people will potentially buy the product.
If you do not have a concrete answer, ask other people for their opinions and check if there are already competitors. You can use any of our marketing methods for the research phase below to help you decide the product’s viability.
Manufacturing the product
Once you have determined the item you will sell, it is time to think about manufacturing it. For this step, you can pick from two options: creating it from scratch or outsourcing it.This stage depends on the type of product, your technical skills, and available funding. The second route is generally cheaper because manufacturers already have the equipment and materials for production. Unless you plan to create something like artisan soaps, you might be better off sticking to the second option.
2. Keep your inventory in stock.
Once your products are available, you will now have to send your items to Amazon for inventory. This whole section involves you interacting with Amazon for the fulfillment process.
Register as an Amazon seller.
Creating an online account in the marketplace should not be a problem for most retailers. Amazon offers two types of plans on the FBA program: individual and professional. The first one has no monthly subscription fees, but its limitations include the number of items you plan to see per month.I recommend the individual account if you are only testing the waters with target sales of less than 40 items. However, if you truly desire to build an empire out of the platform, the professional one is for you.
Prepare items to send to Amazon’s warehouses.
Amazon has strict and detailed rules when it comes to packaging items for its fulfillment centers. Different types of products require special preparation. For example, bottles with liquids require a double seal, while adult products involve using an opaque bag. If you choose to skimp on proper packaging, a fee will apply per unit.
Assign inventory to FBA.
You will perform this step on your Amazon seller account. Ensure that your product listing contains complete and accurate information to avoid delays. The common mistakes include incomplete package dimensions or incorrect Amazon Standard Identification Numbers.
Create a shipment to Amazon’s fulfillment centers.
On your Amazon seller account, begin the shipment creation workflow. This section also includes creating the proper labeling for your products.The system strategically distributes your merchandise among different fulfillment centers to maximize delivery speed to your customers. In case you request to have all items shipped to one location, a fee may apply.
Send and track your shipment.
Once you send out the adequately packaged and labeled products, you can track your shipment on your account’s Shipment Summary page. It may take up to six days from the received date before your products appear on your inventory. When they do, you can now sell them on Amazon.
3. Market and advertise your products.
By this point, you have displayed your products, awaiting customers to purchase it for your sale. Once they do, Amazon’s extensive logistics will take care of the packaging and shipping.
However, your role does not stop there. Since the platform takes care of those processes, your goal is to drive traffic to your page to increase your product sales. You have numerous options to promote your products online, and I will go over some of them in the last segment of this article.
Marketing will undoubtedly take a chunk from your expected profit margin. However, you do not want to throw away all your hard work by unnecessary splurging. Here is something I wrote for 9 killer marketing strategies to launch your next online business, you can check it our right here.
Or for the most effective marketing systems, you can check my new updated step by step Digital Mastery Business Blueprint. If you want to grow and scale your business right of the get go, this blueprint is a must have.
Besides marketing tools, you should also invest in analytics software to track data and monitor results. Otherwise, you may unknowingly put an end to a lucrative advertising method.
The Challenges With Amazon FBA
By this point, you already know the benefits of signing up for Amazon FBA and the process to do so. However, no business model is perfect, and the same principle applies here.
You must be aware of possible challenges you may encounter to develop actionable steps to overcome them. I have seen many aspiring entrepreneurs fail because they did not take these potential obstacles into account.
If you have gone this far, I would like you to note these concerns before diving into the business and I did write more about The #1 Amazon FBA Seller Mistake and what you need to do to succeed in this article.
Here are a few of the usual obstacles Amazon FBA players encounter and the best way to overcome them.
There is high competition.
Amazon has tons of visitors going through its pages daily, but it also means numerous merchants are selling their products on the platform. If you look at the numbers, there are over 2 million sellers worldwide. Competition is not only healthy but also stiff.
Hence, you must put in a lot of time and effort in the first step choosing the right product and niche. Otherwise, you will lose your product in a sea of similar items.
The fees may stack up.
You probably think you get to utilize all Amazon’s benefits at a minimal cost. The truth is, there are several fees involved to take advantage of this program. And for a small start-up business, the charges may be too much.
- Inventory storage – With FBA, you do not have to secure a warehouse to house all your items. However, Amazon charges a storage fee for all your products housed in the fulfillment center based on a calendar month.
- Fulfillment – This fee includes picking and packing your products, shipping them, and customer support and item returns. Amazon charges this by the unit.
- Removal order – If you want the fulfillment center to return or dispose of your products, you will pay a corresponding fee per requested item.
- Long-term storage – If your products stay in the fulfillment center longer, this fee applies in addition to the monthly storage fee. Amazon charges this by size or unit.
- Unplanned services – Proper labeling ensures a seamless flow of the FBA process. However, if you miss putting a barcode on an item, fulfillment representatives will have to do it for a cost. Amazon charges this by the unit.
- Returns processing – The platform offers free return shipping for selected categories like apparel, watches, jewelry, and luggage. This policy builds the customers’ trust in the brand and encourages them to keep purchasing. However, if a customer returns one of your products under this category, you will have to shoulder the corresponding returns fulfillment fee.
Though some of these expenses are unavoidable (like the inventory storage fee), you can reduce incurring extra costs by taking detailed stock of your inventory. Active management of your products in the fulfillment centers will help you avoid long-term storage fees.
You can utilize the programs’ reports for Inventory Age and Inventory Health to monitor your products’ duration in those warehouses. In the same way, meticulously following the process of packing and labeling products will help prevent additional service charges.
The focus is on Amazon’s brand.
One of the FBA’s advantages is how small businesses can capitalize on Amazon’s established brand to generate higher sales. On the flip side, however, all your fulfillment orders come in boxes with the Amazon logo. Likewise, the whole customer experience revolves around its brand, not yours.This detail poses a challenge for those who would like to establish their name. If branding ranks high in your list of priorities, it might be better to stick to the traditional e-commerce model.
There is no flexibility or personalization.
Small businesses cultivate relationships with their customers through customized packaging and handwritten notes or other customized tokens. Unfortunately, this process is not possible for FBA.Amazon expressly forbids marketing materials on inventory items, such as pamphlets or other labels. If you insist on customizing your product packaging, it might be better to utilize a third-party logistics provider.
Best Marketing Methods and Tools To Increase Sales and Customer Lifetime Value
I already established that Amazon has a broader audience reach than any other website, especially at the start of your business. But, that fact does not mean you stop your marketing efforts and rely on guaranteed traffic.
When it comes to business, you have to remember always to be marketing. No matter which phase of the production process you are on, there should always be a form of advertising involved.
In this section, I will discuss some strategies you can employ to improve your product sales and increase customer lifetime value. Even if you do not apply all of them, I recommend experimenting with two to three to find out which works for your Amazon FBA business.
If you want to find out what customers want or need, surveys are an excellent tool. Assuming that you already have a targeted niche in mind, you should create a reader-friendly list of questions.Popular media platforms like Facebook allow you to create surveys, but you can use third-party tools like Survey Monkey, Typeform, and Survey Planet to obtain feedback. Once you have launched the quiz in social media or e-mail campaigns, track the results, and review the data using the same tools. The corresponding results will inform you if you need to make any adjustments to your intended product or niche.
Unfortunately, in the world of e-commerce, and especially in Amazon, you are not the only one in the game. It is not unthinkable that you will see competitors in the industry, no matter how specific your niche may appear.
The best way to scope out the competition is to get your hands on their product. This process will help you compare the merchandise and enable you to find potential flaws or opportunities on your own.You can also take note of the competitor’s product presentation, packaging, and additional marketing. The information you find will be crucial in setting your product a cut above the rest.
In this method, you check out the competition by going through the entire journey of their potential customer. The process usually starts by seeing a competitor’s advertising or clicking on a shared link. Then, you follow the rabbit hole and see where it leads you. Any information you obtain during this activity will help you improve your customer’s journey.
E-mail List Building
This one is not the most innovative marketing technique, but it is one of the most effective. If you only promote your products through Amazon, I recommend utilizing additional platforms, which I discuss and guide you through step by step in my new updated course Digital Mastery Business Blueprint. If you want to grow and scale your business, this blueprint is a must have.
As an FBA seller, you have no direct contact with buyers or potential ones. Instead, Amazon owns all their contact information. That fact is why creating that e-mail list outside of the giant marketplace is crucial to continue marketing to your customers.Automated e-mail tools you can use are AWeber, ConvertKit, ActiveCampaign, GetResponse, MailChimp and Drip. Aside from onboarding or welcome e-mails, send messages to your customers regularly. This process helps to keep you relevant and may even open opportunities for cold customers.
Giveaways or Contests
If you need ideas on building an e-mail list, one of the best ways to get visitors to sign up is holding a giveaway or contest. Though you will have to give your product at no cost, you obtain a means to regularly communicate with your customers and even convert them into actual buyers.You can even encourage those leads to share their links for a chance to win the contest. Tools you can use for this marketing strategy are ViralSweep, Wishpond, Kickofflabs, and KingSumo. Once you have the giveaway set up on your landing page, use influencers or social media advertisements to direct traffic to your landing page.
Marketing aims to get the word out about your product and generate more sales, and promotions do that precisely. The higher the discount, the more it will reduce your profit margin. However, the markdown percentage is usually directly proportional to the number of sales.You can use Jungle Scout to set up a deal site campaign and Splitly to track your keyword ranking progress. Even with the lower profit margin, rapid sales through these deals can help your merchandise rank higher and earn more reviews.
Create a Brand Website
Creating a website of your own, or better yet a high-converting funnel, which will help you build a customer base outside Amazon and generate more sales and build your customer list.
Pay-per-click Advertising Outside Amazon
Even if you do not have a brand website, you can still market your products outside Amazon. Social media platforms that accept PPC advertising include Facebook, Reddit, Instagram, Outbrain, and Google AdWords.I know it is tempting to spend a lot of money on advertising, but I recommend trying one or two options first. If you start small and track your sales and expenses, you can scale your marketing efforts with a positive return on your investment.
Influencers on social media platforms like Instagram and YouTube have thousands of active followers to convert to potential customers. If their fixed rates are too high, ask if they will consider a free item or affiliate commission.
Aside from these people, bloggers also provide reviews on their websites. You can efficiently utilize a search engine to find these platforms and request them to review your item. Roughly 84 percent of shoppers trust online reviews as much as a recommendation, highlighting the fact that these product reviews drive customers.
I hope this guide helped you understand what you need to start a successful Amazon FBA business. Like with any venture, it may take a lot of time and effort before your brand fully kicks off the ground. However, your blood, sweat, and tears will pay off as long as you do not give up halfway.