When it comes to e-commerce, there’s no denying that Amazon is the leader in much of the world. In the United States, Amazon already dominates e-commerce, with over 40% of the market share. Considering how easy it is to shop and save on Amazon, it’s not surprising so many people turn to Amazon for their online shopping needs.
Amazon isn’t just a winning solution for shoppers. In fact, if you want to start an online business with a low start-up cost, Amazon is a platform also worth considering.
With Amazon’s Fulfillment By Amazon (FBA) service, you can start an online business without having to worry about complicated logistics or hiring employees. Plus, you can benefit from selling products on the same platform you probably do most of your online shopping.
Starting an Amazon FBA business isn’t a project you should take on lightly. However, if you’re looking for a new side gig that also has full-time potential, selling on Amazon is worth trying.
What Is Amazon FBA?
Amazon FBA is one of the most popular options businesses and independent sellers use to sell their products on Amazon.
Like dropshipping, Amazon FBA largely removes the need for you to store inventory and process orders. With Amazon FBA, you ship inventory to Amazon warehouses instead of storing it yourself. When you make a sale, Amazon handles shipping and fulfillment, taking that logistical step off your plate. In exchange, you pay Amazon storage and fulfillment fees.
The genius of Amazon FBA is that it leverages Amazon’s expertise and infrastructure for order fulfillment. This lets you focus on sourcing products and optimizing your listings rather than worrying about endless customer service problems.
Amazon FBA is incredibly popular and profitable because of this business model. More than 50% of goods sold on Amazon come from third-party sellers. Additionally, in 2018, more than 50,000 small and medium-sized businesses exceeded $500,000 in sales by using Amazon, according to the company. Clearly, Amazon is a lucrative marketplace if you learn how to make the most out of FBA.
Advantages & Disadvantages of Starting an Amazon FBA Business
Advantages
If you’re on the fence about starting an Amazon FBA business versus other e-commerce ventures, consider some of the advantages of sticking with Amazon:
- Existing Market. Amazon is already one of the largest e-commerce marketplaces in the world. Although selling on Amazon is competitive, Amazon FBA lets you reach an existing customer base rather than starting your own store from scratch.
- Simple Logistics. Amazon FBA’s competitive advantage over running your own operation is that you leverage Amazon’s logistical expertise. Once you learn how to package and ship your inventory to Amazon, selling on FBA becomes incredibly simple from a fulfillment standpoint. Plus, you can pay additional fees to have Amazon handle packaging on your behalf if you don’t want to complicate things.
- Amazon Prime. Amazon FBA products are automatically eligible for Amazon Prime, so customers get free and fast shipping. This encourages customers to purchase your products over listings that aren’t Prime-eligible, creating an easy competitive advantage for your business.
- Multichannel Fulfillment. You can sell Amazon FBA inventory on third-party platforms like Shopify and other e-commerce platforms. This multichannel fulfillment option makes it easier to expand your online presence.
- International Customers. If you sell on Amazon.com, you store inventory in U.S. Amazon warehouses. However, international customers can still order plenty of products from Amazon.com, granting you instant access to an international audience. Furthermore, you can also try Pan-European FBA if you’re selling in Europe. Amazon still handles international shipping and logistics, letting you sell globally.
Disadvantages
Despite simplifying logistics and being one of the largest e-commerce marketplaces on Earth, there are several disadvantages to selling on Amazon:
- Fees and Upfront Cost. Amazon FBA simplifies logistics, but this comes at a cost. Between seller account fees, storage, and shipping, your profit margin takes a hit for the sake of convenience. Plus, you have to invest in inventory upfront, which is different from dropshipping or using websites like Etsy, where you typically manufacture products as you make sales.
- Competition. Sales from third-party Amazon sellers continue to grow as more sellers join the platform. Amazon has a wide customer base, but this is still one of the most competitive channels for selling goods online.
- Slow Inventory Costs. Amazon charges monthly storage fees based on how much space your inventory takes up. Additionally, you pay a long-term storage fee if units don’t sell within 365 days. This means slow-selling inventory is a consistent, growing pain for your bottom line. If you’re willing to fulfill orders yourself when starting out, storing inventory in your garage or house is more affordable.
- Learning Curve. Learning how to run a successful e-commerce business takes time. Successful Amazon selling won’t come quickly, and you might have to try selling several products before you find one that sells. When you consider the upfront inventory cost for testing products, starting an Amazon FBA business isn’t a casual side hustle.
How to Start an Amazon FBA Business
If you want to create your own Amazon FBA store, the process is fairly straightforward:
Step 1: Create an Amazon Seller Profile
You need to create an Amazon seller profile to sell anything on Amazon. You can choose between two plans depending on how serious you are about selling:
- Individual: Pay $0.99 to Amazon every time you make a sale.
- Professional: Pay $39.99 per month regardless of sales volume.
Amazon also charges a referral fee for each sale regardless of your plan. If you’re trying Amazon FBA for the first time, starting with an individual plan is an affordable way to test the platform.
When signing up, you also provide the following information:
- A business email address or Amazon customer account
- Your credit card and bank account information for where you want to deposit revenue
- Government ID for identity verification
- Tax information
- Your phone number
Step 2: Find Products to Sell
Amazon FBA is a fulfilment model, but there’s a surprising amount of flexibility in terms of what you can sell.
Typically, Amazon FBA store owners use three strategies to find products to sell:
- Product Reselling. This is a popular way to open your Amazon FBA store. With product reselling, you purchase inventory from in-store or online retailers and then resell it on Amazon at a markup. This form of retail arbitrage typically relies on wholesale shopping or buying products on clearance to help widen your profit margin. Alternatively, you can buy cheap goods from overseas wholesale websites like AliExpress.
- Private Label. With private labeling, you sell products from existing manufacturers under your own brand. For example, you could purchase shirts from a wholesale manufacturer but add your own logo, branding, and packaging to create your own brand. This typically involves contacting manufacturers and negotiating on prices and agreeing to sell their product under your own brand.
- Sell Your Own Product. If you create your own product, there’s no reason why you can’t use Amazon FBA for fulfillment. This is obviously more difficult than reselling someone else’s product, but if you’re already starting a business that sells physical products, you should consider using FBA as a sales channel.
Once you identify products you want to sell on Amazon, you have to purchase the inventory to send to Amazon’s warehouses. This is different from starting a dropshipping store where you only pay for inventory after you make a sale.
Ultimately, this means you need enough startup capital to purchase some inventory upfront. However, as a first-time Amazon FBA seller, you don’t need to spend thousands of dollars on products; a small batch of inventory should be enough to test whether your products sell well on Amazon.
You should also consult Amazon FBA’s restricted product list to ensure you can actually sell your inventory through the platform. This list is quite extensive, but you can search for restrictions by product category to understand selling regulations for your niche.
Additionally, there are FBA product restrictions you should read. For example, knock-off and illegally replicated products aren’t eligible. Similarly, some categories require a professional seller account or approval to sell. Product categories also allow different product condition levels — for example, beauty and clothing products must be new, but you can sell used electronics and books.
Step 3: Create Your Listings
You should create Amazon product listings once you receive your inventory. While it might be tempting to create listings ahead of time, it’s a good idea to inspect your inventory before listing to ensure there aren’t defects and that you have an accurate inventory count.
To create an FBA listing, you upload products individually or in bulk depending on how many unique products you’re selling. As a new FBA seller, start with individual uploads to learn the process.
If the product you’re selling already exists on Amazon, you can match your inventory to an existing product listing. Matching to an existing listing is easy. You can find your product in Amazon’s catalogue or use product identifiers like UPC codes. Once you find your product, you enter your price, product condition, quantity, and shipping options.
You only have to create new listings if the product you’re selling doesn’t exist on Amazon. Creating a new product listing takes more time. You still enter the product identifier and offer details the way you would for preexisting listings. However, you must also write your own product description, create a listing title, and upload product images.
Learning how to write effective product descriptions takes time. Selling products on any platform online is competitive, and Amazon isn’t an exception. Ultimately, writing strong product descriptions that explain the benefits of your product is critical for convincing customers to buy. You should also upload high-quality product photos that show your product from different angles and photos of your product in use.
One reason many FBA sellers stick with retail arbitrage to sell on Amazon is because creating the listings is easier — the product descriptions and images are already on the platform. Plus, if a product already exists on Amazon, that’s generally proof of existing demand for that product. The downside of this strategy is that you have to compete with other sellers. However, if you can cheaply source your products, you can compete on pricing with other sellers to drive sales.
Step 4: Prepare Products and Ship
Once received, Amazon stores your inventory in its warehouses and handles shipping to customers. However, you have to follow specific shipping protocols so Amazon can safely store and ship your orders.
Amazon has comprehensive packing guidelines and shipping and routing requirements. Packaging requirements vary by category, and some categories require additional packaging precautions, such as glass items or products with sharp components. You can also opt for the FBA Prep Service where Amazon packages and prepares your inventory for a fee.
Once you package your inventory, you’re ready to ship to Amazon. You create a shipping plan that includes the products you’re sending, the quantity, your shipping method, and whether you’re using FBA Prep for packaging.
At this stage, you might feel overwhelmed about starting your own Amazon FBA business because of all the steps. However, it’s important to remember that like any online business, practice makes perfect. Over time, you become more familiar with selling requirements, packaging rules, and what products have the potential to sell well on Amazon.
Plus, if you’re worried about handling the logistics, you can outsource that responsibility. Freight-forwarding companies like Flexport deliver inventory from overseas manufacturers to Amazon warehouses, removing the need for you to receive and package products. Granted, freight forwarding narrows your profit margin, but it’s a service you can use to turn a profitable Amazon FBA business into a more passive stream of income.
Tips for Starting an Amazon FBA Business
As mentioned, more than 50,000 small and medium-sized businesses earn more than a half-million dollars by selling on Amazon. Plus, there are even more smaller sellers who use Amazon FBA to make extra cash on the side.
However, Amazon is extremely competitive. If you want your Amazon FBA business to succeed, you need to have a game plan to find winning products.
1. Source Quality Products
You might think successful FBA selling requires finding the cheapest overseas products to maximize your profit margin. Selling cheaply-made goods can certainly generate profit early on. However, if you want your store to have longevity, you need to focus on selling high-quality products.
Amazon reviews are your best friend as an Amazon seller. Reviews help rank your product higher on Amazon’s marketplace. Plus, positive reviews inspire trust in potential buyers. If you sell knock-offs and cheap merchandise, your reviews are bound to take a hit.
Finding quality products ultimately means you need to do product research. Jungle Scout is one of the most popular Amazon product research tools and has been a longtime favorite for FBA sellers.
With Jungle Scout, you can:
- Learn what’s selling on Amazon with the opportunity finder tool
- Track specific product prices and sales trends
- Easily review product data like reviews and customer ratings, best seller rank, historical sales, and an overall opportunity score
- Use Jungle Scout’s FBA Profit Calculator to factor in Amazon fees to your product choices
- Research Amazon keywords and optimize your listings for greater visibility
Overall, Jungle Scout is the complete package for anyone looking to sell on Amazon FBA. Furthermore, it’s a valuable resource for beginners because of the wealth of information in its resource library.
Jungle Scout costs $19 per month for a basic plan, which has enough functionality to start researching products. If you find a winning product by using Jungle Scout, the monthly price is absolutely worth it.
2. Conduct a Trial Run
Wholesale websites become more cost effective if you buy greater quantities. Therefore, spending thousands on your first inventory order to secure a more competitive price might seem wise.
For novice sellers, this is a recipe for disaster. First, you should always order a sample of a product you’re going to sell to test shipping times and product quality. Wholesale websites like AliExpress and AliBaba have incredible selection, but they’re also rife with knock-offs and cheaply manufactured products that won’t perform well on Amazon.
Additionally, the last thing you want is to store hundreds of pieces of inventory in your house — or, even worse, in an Amazon warehouse — without generating sales. Amazon charges storage fees, so unsold inventory is a FBA owner’s worst nightmare. Plus, you also pay product removal fees if you ask Amazon to return or dispose of your inventory.
Start out slow with your first Amazon FBA business and scale with your profits. Making money on Amazon is a marathon, not a race, so pace your inventory purchasing accordingly.
3. Don’t Chase Trends
Another common FBA mistake for new sellers is to focus on selling trending products. This might sound good on paper because you know there’s demand. However, in reality, chasing trends is riskier than selling products that are in steady demand.
When a new trend starts, experienced FBA sellers move quickly, and soon Amazon has a plethora of listings for that product. Big-box retailers also tend to get in on the action. A prime example of this was the fidget spinner, which saw tremendous sales for a few months before quickly falling off, leaving businesses and online sellers holding thousands of pieces of inventory.
The likelihood that you can move fast enough to list on Amazon before dozens or hundreds of other sellers is slim. Plus, trending products usually have a short lifespan. There’s a level of high-risk, high-reward with selling trends through Amazon FBA. Ultimately, you’re better off sticking with the basics as a beginner.
4. Guard Against Counterfeits and Pirated Products
According to Amazon’s anti-counterfeiting policy, sellers and suppliers bear the responsibility of sourcing, selling, and fulfilling only authentic products. In other words, you can’t sell:
- Counterfeit or pirated products
- Products that have been illegally replicated, reproduced, or manufactured
- Products that infringe on intellectual property rights
If you violate this policy, Amazon can immediately terminate your seller profile. Additionally, Amazon can destroy your inventory without reimbursement and withhold existing payments to you.
It’s easy to avoid selling counterfeit products because these products typically mimic existing, higher-profile brands. For example, although you might find a number of knock-off Apple AirPods on AliExpress, you shouldn’t sell them on Amazon and pretend they’re an official Apple product.
Researching patents is tricker, especially because many overseas manufacturers blatantly disregard U.S. patents altogether. To avoid patent infringement, you should:
- Check whether multiple sellers are already selling that product or if there’s just a single listing. A single listing can indicate that a patent is preventing other sellers from creating their own listings. You should also read listing descriptions because they sometimes mention patents.
- Contact the manufacturer and ask for additional legal information.
- Search for your product on the United States Patent and Trademark Office and Google Patent.
Navigating patents can be difficult when buying products overseas. However, this step is critical for protecting your Amazon seller profile, so the effort is worth it.
5. Optimize Your Listings
As a beginner Amazon seller, you might despair if you don’t generate sales in the first few weeks. However, getting better rankings on Amazon takes time and practice.
Before you give up on a product, consider optimizing several key parts of your listing:
- Product Title. Amazon gives you 200 characters for a product title. Make sure you include phrases buyers might search for and certain benefits or use-cases for your product in the title. This helps buyers immediately understand your product and improves your chance to rank higher on Amazon search results.
- Listing Keywords. Incorporate the keywords you want your listing to rank for in your product description. Don’t artificially stuff your listing with keywords, but make an effort to naturally include relevant keywords.
- Optimize Images. Amazon listings show seven images. An easy way to optimize your listing is to use all seven image slots and to include a variety of photos that show your product and how it’s used in real life. The more information you can provide for potential buyers, the better. Just remember that there are specific photo upload requirements.
- Encourage Reviews. Selling quality products and writing honest product descriptions are the best ways to get positive reviews. However, you can also send a message through Amazon’s platform to purchasers to request reviews. This is good practice, and the more positive Amazon reviews you get, the better your listing ranks.
If you spend time optimizing your listing and still can’t generate sales after months of effort, your niche might be too competitive or too narrow. However, you should always give your products the best chance of success before pulling the plug and getting rid of inventory.
Final Word
It’s never been easier to start an online business thanks to the power of technology, and Amazon FBA is the perfect example. After all, few business models let you access millions of customers and take care of logistics and customer service for you.
Just remember to start out slow and to scale with your profits. Selling on Amazon isn’t easy money, and the worst thing you can do as a new seller is to hop on a trend and spend too much money upfront in inventory.
As long as you have patience and are willing to put in the work to learn Amazon’s rules, there’s no reason why you can’t turn Amazon FBA into a lucrative side hustle.
