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
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.
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. Yo
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