6 Reasons Investors Will Be Buying Amazon 'FBA' Businesses in 2016 Why focus on customer acquisition, a website and manufacturing when you don't have to?
By Thomas Smale •
Opinions expressed by Entrepreneur contributors are their own.
Fulfillment By Amazon -- or FBA -- is fast becoming a buzzword in the online business space. You don't have to search long and hard to find FBA success stories online. It's a business model whose time has come, and its popularity will almost certainly continue to rise throughout 2016.
Related: Fulfillment by Amazon Poses a Great Option for Those Looking to Break Into Ecommerce
What is Fulfillment by Amazon? According to the company's website, FBA customers store their products in Amazon's fulfillment centers, which then pick, pack, ship and provide customer service for these products, as well as help their home companies scale and reach more customers.
In short, FBA gives business owners the chance to focus on product and growth instead of the ongoing grind that "operations" so often entails. Although there is legwork involved in setting up FBA, and some ongoing maintenance, the work involved is relatively simple and straightforward -- especially compared to what's required for so many alternatives.
Need some good reasons why investors are interested in buying FBA businesses? Here are six.
1. Scalability
FBA businesses may very well be among the most scalable of any enterprise. You don't need a large team to run it and, even as you grow, your primary expense is the manufacturing or procuring of inventory to sell.
Additionally, you don't have to limit yourself to a single product category. You can expand your offerings as you see fit, and hire staff to oversee additional products if things become unmanageable.
Bottom line: You can keep costs low while you continue to search for additional product and profit opportunities. As a business owner, you can stay focused on what matters most.
2. Availability
Business investors are motivated by a variety of different factors, including passion, prestige, pride, security and profit.
Amazon FBA businesses can provide investors with an opportunity like never before to get into a business they're genuinely excited about, in an industry or niche that they already know and like.
At their core, Amazon FBA businesses are all essentially the same. Getting started means finding a popular product category, creating a relationship with a manufacturer that can produce a product of your choosing, inexpensively, and listing it on the world's most recognizable ecommerce platform -- Amazon -- for sale.
Although setup is far less complicated than with many other business models, investors have the option of walking into a turnkey business that's already up and running, in a category that complements their passions and interests. Since many business owners are focused exclusively on a single product, there's no shortage of businesses to invest in.
3. Simplicity of operations
FBA businesses are easy to run and maintain. Consider:
- You don't need to focus on customer acquisition. Amazon has done the hard work of building the world's largest customer base. You don't need to cold-call or have a sales team work around the clock to convert leads.
- You don't need a website. You don't need to know how to code a website, set up an email list or understand the ins and outs of SEO. This frees up costs associated with programmers, domains, hosting, virtual assistants, SEO teams and other online subscription services.
- You don't need to manufacture your own products. In most cases, it's better to build a relationship with third-party manufacturers, to seize the product opportunities you see in front of you. If you know how to sniff out deals in your own locality, you can also turn around and sell products for more on Amazon. Arbitrage opportunities abound.
- Amazon handles shipping and customer service. You won't require a team of customer-support representatives constantly fielding calls to ensure that your customers stay happy.
Related: 6 Signs You Should Open Your Own Online Store
4. Profitability
As already stated, FBA businesses by their nature offer cost savings. You don't require a website or an extensive customer support team, and you don't have to handle the picking, packing and shipping of products, which is oftentimes a major bottleneck in ecommerce.
If you can keep costs low, you can also increase your profitability. Most FBA businesses sell products in the $10-to-$60 range, the "sweet spot" where the most money can be made. As such, you will need to sell a large volume of products to generate revenue consistently, but this also ensures scalability as you grow.
Additionally, many ecommerce business owners have found that listing their products on Amazon has increased their overall sales. The company offers a lot of exposure.
5. Access to Amazon Prime users
Amazon Prime members have opted to pay for free, two-day shipping on their orders. When you set up an FBA business, you automatically qualify for Amazon Prime shipping and gain access to Prime members, who have clearly shown interest in meeting their product needs online.
Many studies have shown that customers prefer free shipping over product discounts, so this has a major influence on their buying decision.
If your competitors aren't Prime sellers, and you are, whom do you think buyers are going to go with? Right! It will be you.
It costs you nothing to be a Prime seller, so there's no reason not to take advantage of this unique prospect.
6. Fulfillment across multiple channels
Multi-channel selling isn't just an ideal anymore; it is fast becoming the standard by which an ecommerce business is judged.
Although getting your product seen on Amazon should be your highest priority, selling through other marketplaces could boost sales and expose your product to new buying audiences. The good news is that multi-channel orders can also be fulfilled through FBA.
Multi-channel selling has never been easier, which means business owners can focus on the growth of their enterprise instead of having to come up with new solutions to get their products seen in as many different online retailers as possible.
Final thoughts
Whether you're looking to diversify your business and investment portfolio, or you're looking for a passion project that will also generate consistent profit, FBA businesses are worth your consideration.
As with any business, there are some risks involved. Your manufacturer may not be able to deliver goods on time. Amazon may pull the plug on your product at its discretion. Clearly, building on rented land sometimes comes with a price tag.
But the simplicity of the business model makes it easy to start over or to adjust your strategies when you need to. If you are looking to buy a business, and you have yet to decide on any one model, definitely take a look at what FBA businesses have to offer.
Related: 8 Ways to Skyrocket Real User Reviews for Your Ecommerce Products
