Amazon FBA: How it Works and How To Start Selling Fulfillment by Amazon grows more popular year over year. Keep reading to learn about Amazon FBA and how to get started.
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The Fulfillment by Amazon (FBA) business model continues to grow in popularity, and for good reason. Fundamentally, it's the same as a traditional eCommerce business. But, instead of your having to fulfill orders one by one, Amazon stores your products for you and even picks, packs, and ships them out to customers.
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This makes it a lot easier for you to build your business without having to worry about the logistics of warehouses, packaging materials, couriers, and so on. With private labeling, you also have the opportunity to build your own brand and website, thereby increasing the value of your business.
Raring to go? Here's our basic guide for starting an Amazon FBA business.
What is Fulfillment by Amazon?
Put simply, Fulfillment by Amazon (or FBA) is a service that offers storage, packaging, and shipping assistance or services to product sellers on Amazon. Through FBA, sellers on the Amazon marketplace can focus more on marketing and connecting with customers, giving them additional flexibility and freeing up time they can use to run other aspects of their businesses.
Sellers can ship FBA products directly to an Amazon fulfillment center. Then, items are stored in warehouses until they get sold to customers. This way, sellers don't have to spend time or money operating and maintaining their storage facilities. Inventory management is no longer a concern.
Because of this, Amazon's FBA program is a popular dropshipping service for both beginners and more experienced sellers alike. As soon as an order gets placed for a stored product, Amazon employees prepare, package, and ship the products to their final destinations.
The Amazon fulfillment business model allows you to leverage Amazon's robust distribution network and customer base. As noted, Amazon will warehouse your products, fulfill orders and even provide customer service so you don't have to be hands-on with every aspect of the business.
What this means for entrepreneurs is that you can act like a big corporation without the headache of actually being one. You can focus on finding product opportunities while Amazon handles the rest on your behalf.
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In a typical eCommerce business, you have to figure out the logistics of sending products to your customers in a timely manner. However, with FBA, Amazon Prime members get most orders shipped to their door within two to five days.
Another common challenge with an eCommerce store is that inventorying and additional product listing can increase the complexity of your business. With FBA, all you need to do is ship the products to an Amazon warehouse, and the company will take over from there. You can easily increase your product selection and inventory without significantly adding to your workload.
Create an Amazon seller account
First things first: In order to get your FBA business up and running, you're going to need to create an Amazon seller account. You could start by going to Amazon Seller Central, or go to Amazon's website, scroll down to the footer and look for the heading marked "Make Money with Us." Then, click on the link that reads "Sell on Products Amazon."
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At this point, you can either sign up as an "Individual" or a "Professional." When you sign up as an "Individual," you will not be charged a monthly subscription fee, but you will be charged $0.99 per unit sold. If you're looking to build a business over the long haul, then you'll want to sign up as a "Professional." The plan costs $39.99 per month plus selling fees.
Other than that, the signup process is relatively straightforward. Follow the onscreen instructions and complete the setup.
As for additional Amazon FBA fees, the fulfillment fee may vary depending on the weight and dimensions of your product. Plus, Amazon FBA sellers are charged a storage fee monthly based on the total space your inventory storage occupies in an Amazon Fulfillment center. This does not include a long-term storage fee due to excess inventory.
For the shipping cost, it depends on your shipping plan - if you choose to be an Amazon FBA seller, or choose to act as a third-party seller handling order fulfillment on your own. If you choose not to use Amazon's warehouse, your prime customers could still receive the benefits of prime through Seller Fulfilled Prime. Businesses could also use Amazon FBM, or Merchant Fulfilled Network, where the seller can list products on Amazon Marketplace, but manage all other dealings independently, all while still utilizing the Amazon platform.
To help you pick the best option, potential sellers can use the Amazon Revenue Calculator, which will give you real-time cost comparisons and estimates.
Uncover product opportunities and establish your private label
There are a number of different ways to leverage the FBA model, but the most popular way is private labeling. The idea is to establish a brand or label, apply it to your product, and sell it on Amazon.
First, you will need to do your Amazon product research. This is the most important step for a variety of reasons. If you enter an unpopular product category and sell a product for more than your competition is selling products for, you could lose money on that product. If you take the time to find a popular product category, do competitive analysis, study product reviews and identify a product that you can improve upon or sell at a better price, you'll have found the sweet spot.
Another popular way to sell products through Amazon is with retail arbitrage - buying a brand-name product and flipping it on Amazon for profit. This is a much easier way of making money on Amazon, at least in the short term.
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With private labeling, you need capital. Ordering private label products may cost you several thousand dollars, but if you're looking to build an asset that can later be sold, then this is the direction you want to go in.
Another key piece of the puzzle is your supplier. You can't make money if you don't have products in stock, so you need to ensure that the time delay between the placement and delivery of the order is as short as it can possibly be.
Tips for growing and scaling your FBA business
- Pursue your passion. If you enjoy doing it, you will stick with it for longer. Find a product category that interests and excites you.
- Increase your product offerings. You will need to do proper research for every new product offering you create. Having more products can reduce the risk of your business becoming dependent on just one product.
- Improve your Best Sellers Rank. BSR is an important metric for both your customers and your sales. This is also a key factor when the time comes to sell your business. Buyers will want to see steady growth in your BSR rank over time.
- Build your brand website. As you continue to expand your private label product offerings, you'll want to build a professional, dedicated site for your business. This gives you another way to market your products, and can also make your business attractive to potential buyers.
- Become an Amazon Associate. Increase your revenues by becoming an affiliate with Amazon. Refer customers to your products from your own site, and start earning commissions.
How much do FBA business owners earn? What is the earning potential of an FBA business?
Spencer Haws from Niche Pursuits reports he was able to make nearly $40,000 within 30 days of starting his FBA business. Chris Guthrie from UpFuel made almost $3,000 within 30 days. James Amazio, founder of Feedbackz, went from zero to $50,000 per month in just eight months.
These results aren't necessarily typical, but they do show that it is possible to build a five-, six- or even seven-figure business by leveraging the FBA model.
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Pros and cons of Fulfillment by Amazon
There are several advantages to using the Fulfillment by Amazon program:
- For starters, you can save a lot of time and money by using the storage and shipping services offered through FBA. With that extra time and money, you can focus on online businessoptimization: increasing your profit margins, rolling out social media and SEO campaigns, updating product descriptions, expanding with new product ideasonline business or enhancing your product packaging.
- Additionally, professional sellers can fully utilize the high-speed, efficient Amazon shipping system.Shipping products through FBA will likely be faster and more reliable than any other shipping operation you could whip up in a comparable timeframe.
- Furthermore, FBA shipping lets you provide your customers with free shipping, maximizing your own products' attractiveness. With the low cost of FBA, you can improve your Amazon popularity and ranking, enabling your high-quality products to reach higher sales ranks and more customers than ever before.
On the downside, however:
- Fulfillment by Amazon isn't free, meaning you'll need to cut into your potential profits to take full advantage of it. The Amazon charges aren't ludicrous. Still, they're worth keeping in mind for new sellers. You can figure out exactly how many fees you'll incur using one of the various FBA calculators on the internet.
- Furthermore, you'll have to pay high long-term storage fees, as Amazon does not typically like keeping supplies on hand for months. Be prepared to pay extra for items that sit for quite a while.
- On top of that, the Fulfillment by Amazon program administers sales tax and has particular product prep requirements before any of your products can enter an Amazon warehouse. Therefore, you must ensure your products are packaged and labeled correctly before shipping them to Amazon.
How you can get started with Fulfillment by Amazon
Although starting an FBA business will require up-front capital, the effort will be nowhere near as intensive as it would be with a traditional eCommerce business. Getting your business off the ground is the easy part. Finding ways to grow your FBA business is the more difficult part. Take advantage of the resources available to you, and systematize your processes as you go.