The Amazon marketplace can grow your small business because it is a complete marketplace where different sellers sell different products. They compete across several factors to earn their sales, with some earning up to $10M in revenue. Even with the high competition in Amazon, selling from Amazon is not hard, and there is a huge potential market as long as you have a good product.
Selling your products on Amazon will help maximize your reach and revenue in the e-Commerce industry. Read along to understand how FBA works, how to source a product, strategies you can use, and most importantly, how to get your revenue as high as possible.
How Amazon FBA works
One way you can become a seller is through Amazon's Fulfillment by Amazon (FBA) program, and this is how the fulfillment centers work. It would be best if you started by sending your products straight to Amazon warehouses. Once Amazon gets your orders, they sort and add them to the inventory. Every time you get an order, Amazon ships your products to the customers with the 2-day Amazon prime shipping and manages all customer support, returns, and damages. After two weeks, Amazon calculates your total sales, deducts seller fees, and deposits your profits to your bank account.
Amazon came up with the Amazon Fulfillment by Amazon (FBA) program to cope with sellers' rising demands. The service allows sellers to use Amazon's distribution network and customer base to actualize their dreams and goals. Amazon FBA frees the sellers from all the processes that are related to inventory, such as shipping orders and packing making it easy for anyone to start. Amazon FBA is cost-effective compared to other order fulfillment centers, but all these services they offer come at a cost.
This is the right article for you if you fall into any of these categories:
- You have never tried selling on Amazon and are thinking of starting
- You have tried to start selling previously on Amazon, but your business failed
- You have successfully sold in the past but have now been stuck and are looking for tips to improve your business
- You want to boost your revenue to $10M using FBA Amazon
How Much Do you Need to Start An Amazon FBA Business?
The cost of starting your Amazon FBA business will depend on a lot of different factors, but you can source products from as low as $500 and start your Amazon business. It is advisable to start with an individual account then upgrade to a pro account when your sales start to grow. You will need to purchase things like UPCs, which cost around $10 and paying the first month of your charges to open your Amazon seller account ($40).
Other costs you may incur may be outsourcing things like product photography and logo design, but through things, a seller can do on their own without spending any money. Therefore, the mileage may vary. The other cost will be buying the stock and shipping your products to Amazon, where you can start as large or as small as you want. However, to minimize risks and losses, it is advisable to start small if your potential stock doesn't move as expected.
What to Sell on Amazon
Before you can set up your Amazon account, you need to decide what to sell first by picking the right item. After all, the products you will decide to sell will impact how you will set up your store, conduct your business in general and achieve your revenue mark. To decide on what to sell, there are a few things you can check on, and they include:
A. The Market
Finding and operating a niche market can give you advantages when selling on Amazon. There is a space with already a customer base with third-party sellers interested in purchasing your product with such a market. You will have a better chance at success as an FBA seller than operating in a competitive market against big-time sellers while standing out and meeting the demands of your customers.
B. The Demand
Among the first questions to ask yourself as FBA Amazon sellers should be, do customers want this product? While operating in a niche market is excellent, you should ensure that the product you are interested in selling has a demand and try to avoid selling products saturated in the market and that all the big companies are selling.
The key metric you can use in determining demand from FBA Amazon is sales. Still, you can evaluate the demand by performing a Google search for the products you are interested in selling, checking the Amazon product listings, or using a search volume tool such as SEMrush to see how many people search for the product in any particular month.
For pricing, strive to find a balance to avoid purchasing products that are too expensive to give you affair return investment. Although some people thrive by purchasing expensive products to sell at higher prices, it can be challenging to use this strategy successfully in Amazon FBA.
To calculate potential profits, you need to assess all potentials costs for each product opportunity in Amazon. Examples of some costs include:
i. Landed Costs
These are the collective costs for the production and transportation of your products to Amazon warehouses, and they include:
- Shipping fees
- Inventory storage fees
- Inspection or preparation fees
ii. Amazon FBA fees
- The referral fee which is Amazon's commission for every item sold on the platform
- The storage fees where FBA sellers pay for either long-term storage fees or pay a monthly storage fee per cubic foot of inventory.
- The selling Plan Fee of $39.99 is for professional FBA sellers but for individual sellers who sell less than 40 units monthly, and there's a $0.99 charge per sales transaction but no monthly storage charge.
- Fulfillment fees that cover the shipping and packaging of Amazon's products which varies depending on the dimensions and weight of your product
Profit is what you make after all the revenue costs have been deducted. Amazon products should sell between $20 to $50 to allow healthy profit margins because products selling above $50 are not worth it. After all, most amazon customers don't like spending on products on unfamiliar products for high amounts.
iv. Additionals FBA fees to Consider
- Labeling where Amazon applies barcode labels on a per-item fee
- Prep Service where Amazon preps your inventory for storage on a per-item fee
- Repackaging where Amazon FBA repackages your returned items to be resold
- Long-term inventory storage fees that are incurred when products are stored in an Amazon warehouse longer than 365 days
- Unplanned services in case your inventory arrives at the warehouse without proper preparation or labeling
- Returns processing incurred when a product returns
- Removal order for if you ask Amazon to return or dispose of your inventory in their Amazon fulfillment center
- Oversize items because they have special handling fees per shipment
Competition is usually directly related to the demand and the market. The right way is to determine how many similar products are in the Amazon market and opportunities for new amazon FBA sellers. To determine the competition level in Amazon, you should check the number of quality ratings and reviews and the number of products.
As a new Amazon seller, one of your highest costs will be shipping costs, and therefore when choosing your product, you should think about the potential shipping fees. In your product research process, try to choose products with potential affordable shipping costs and those quickly packaged.
Some other product research practices that can help you as a potential new Amazon FBA seller include:
- Pick products depending on the data and not your liking because data can validate how products on Amazon are performing.
- Take your time in the process to analyze to get a successful business
- Use the necessary tools that can mine Amazon data to find the ideal product in terms of low competition, profitability, and high demand
How to Sell on Amazon
Apart from the product, it would be best if you had a seller account and a way to get your product to the customer, and there are different models whether you have a product to sell or not. Below are some Amazon business models you can use, and they include:
i. Private Label
This is where you create, modify or customize your product or brand to sell online, typically with your logo design, including Amazon.
This business model will support sellers buying in bulk or wholesale directly from the brand or distributors to sell on Amazon.
iii. Reselling/ Arbitrage
This model is where third-party sellers will purchase discounted products online or from retailers and go ahead to sell on Amazon.
Dropshipping model is where the sellers buy from a manufacturer directly who will, in turn, fulfill the order and ship directly to the customer.
A model where sellers create their products and sell them on Amazon.
How to Source Products
Once you have decided on what product you are going to sell, it's time to find a supplier, sound intimidating, and challenge newbies. Technology has made the process more accessible than ever, and finding suppliers of any items is a simple process. There are three steps to source and find the appropriate products to sell on Amazon:
1. Do your research and compare relevant suppliers
With thousands of manufacturers worldwide, it can be challenging for FBA sellers to find the best suppliers for their FBA Amazon store. Potential suppliers can be found from platforms like Alibaba.com or Jungle Scout’s Supplier Database to find the product's relevant suppliers. However, you can also use sourcing agents to help you connect to the best suppliers and at the best price and quality. You can find some reputable sourcing agents online but always do your due diligence.
2. Contact suppliers for a quote
Try to find at least five suppliers and compare them in terms of price, quality, communication, and experience. Start by having an email list and send an initial email to the potential suppliers to get a quote. To make it easier, you can send to multiple suppliers at once through Alibaba using the broad request for quotation (RFQ). Following is to vet your potential Amazon FBA suppliers based on the responses and narrow to the best three suppliers.
3. Evaluate and modify the potential Amazon FBA product samples
Once you narrow your supplier list to the three best, order your samples which can cost up to $100, and the shipments will come by air. Once you receive your samples, check how the suppliers' have satisfied all the product features you requested, and the items working as it's supposed to and choose one supplier. If you want a branded packaging for your Amazon FBA store, tell the supplier the exact dimensions before making your bulk product order.
4. Order and ship your Amazon products
Once you have decided on your supplier and worked out your order details, get your items to the Amazon FBA warehouses and start making your sales. You should ensure you price your items accordingly, determine the pricing terms or methods and pay your invoice and make sure you inspect your items before they get to Amazon FBA warehouses. Then decide on the shipping methods and wait for around six weeks maximum for your item to be manufactured.
How to List a Product on Amazon
1. Research relevant keywords to include in your Amazon FBA listing
Using the right research keywords for your listing will help your product appear among the best products in front of ready-to-purchase customers on Amazon. You can get this data by searching in Amazon for the top competitors and entering their ASIN codes in the Keyword Scout to see all the keywords the products are using and add them to your Amazon listing.
2. Draft your Amazon FBA listing’s title
Include the most relevant keywords for your item, meaning the most used terms by Amazon customers. Ensure your Amazon FBA listing title is flowing and is easy to read. Make sure to use the high-volume keywords for which your competitors in high ranks are using.
3. Draft your listing using bullet points
The bullet points are to inform your FBA customer of your product's key features and main uses and do this by clearly explaining your item's seller points. Ensure your tone reflects on the Amazon item you are selling.
4. Draft your description
The description should include details and keywords that didn't fit your Amazon listing in the bullet section.
5. Purchase the UPC barcode for your product
Amazon requires all FBA sellers to have a universal product code or a UPC barcode, usually on the seller's packaging, to create their seller central list.
6. Get quality images for your Amazon FBA listing
Ensure you use informative and high-quality pictures when marketing your Amazon products to take yourself, or use a professional photographer to present your items better to your potential customers.
7. Create your listing in Seller Central
Having prepared the elements of your Amazon listing, create a listing in Seller Central. To create the listing, add your item in the appropriate product categories, add the UPC under the product ID, and your product title and brand name. As you continue filling, more sections will pop up and allow you to add different variations such as sizes and colors. Once you are done, click save, and your listing will appear in Seller Central under the "Manage Inventory" section.
How to Launch a Product on Amazon
Getting sales from when your product listing goes is among the first steps to success, so ensure when using FBA, you implement the best launch strategy as this helps your Best Seller Rank (BSR)
Three factors affect your ranking in Amazon FBA, and they include:
i. Sales History, which is how many sales a seller gets over some time
ii. The Sales Velocity, which is the rate at which the product sells. You can get your Amazon FBA product to sell quickly using the Pay per click method (PPC) or by promoting your Amazon product using a deal ecommerce site and offering a discount.
iii. Conversion rate, which is how many customers convert into sales after clicking your Amazon listing. You can boost your Amazon conversion rate by having a lower item price than your competitors. Get as many reviews as possible and ensure your Amazon FBA listing has been optimized with the right keywords.
Strategies to Reach Your Amazon FBA Business to a Revenue of $10M
Increasing your revenue more often than not matches your FBA growing effort and increases your order numbers, shipments, customer service calls, and SKUs. Below we have listed some strategies to use to reach $10M in revenue.
1. Advertising optimization
Optimize your campaigns to guarantee you get the highest performing ads. Ensure you run your search term reports on the keywords you used to see how each keyword performs and remove the poor ones.
2. Inventory management
For FBA Amazon, keeping the right balance of inventory is vital, not too much or too little. For your Amazon FBA items, store around 3 to 6 months' worth of inventory in Amazon's warehouses to easily monitor your needs and minimize storage fees. Alternatively you could check out a automated replenishment system.
3. Listing management
This business strategy involves regularly checking your product listings both on Amazon and on Seller Central. Review often all your items' details and ensure they are as they should be, and check your reviews to see ways you could improve your product.
4. Always have Products in Stock
Using FBA and having your product run out of stock, especially the hot selling items, is painful, especially if it could be avoided. The supply chain issues cause some companies not to achieve their high revenue because customers had to click off because an item was out of stock. Running out of stock makes the FBA seller look unreliable to customers.
5. Monitor your Supply Chain keenly
Monitoring your inventory and supply chain keenly helps sellers avoid the issue of going out of stock. As a seller, you need to set a system to discover a problem in the first 24 hours, even if you don't get alerted by your partners directly. Also, to minimize any risks in your supply chain, remove any risks like inefficiency, external dependencies, or handoffs.
Benefits of Using Amazon Fulfillment Centers
One of the ways to grow your business and get your products known by a lot of people in the Amazon FBA Program since the platform has, over the years, gathered an army of loyal customers. This can therefore mean you get increased sales because of the already established market. Below are some of the significant advantages of the Amazon FBA program
1. Discounted Shipping Rates
Generally, Amazon has reasonable discount rates for both buyers and sellers but mostly when it comes to shipping costs. The discounts result from the contracts between Amazon and the major shipping carriers, giving Amazon sellers steep shipping discounts. The discounts reach the sellers in the form of reduced shipping prices when the company sends your inventory to Amazon.
Additionally, customers usually benefit from free shipping because a lot of orders usually attract discounted shipping prices. Also, Amazon Prime Members usually get free two days shipping on all the FBA products, which is a big incentive that results in higher sales.
2. Effective and Effortless shipping and Logistics
Managing your fulfillment can be quite challenging and can take up a lot of time, and high sales mean that you will have to spend plenty of time packing and shipping. Amazon FBA comes in handy as it allows Amazon FBA sellers to outsource the whole process and take advantage of the experience and expertise.
3. Amazon FBA offers unlimited Storage Space
As an FBA seller, you don't have to worry about how much storage you need for your products or how much you will pay for a warehouse of a particular size. This is because the program offers unlimited inventory storage with no minimums, and you can send even one product. Additionally, Amazon sellers who achieve a high inventory performance score are qualified to get unlimited storage.
4. Inventory Management of FBA Amazon returns
Handling customer returns is among the most challenging process for any business because of a lot of unsatisfactory emotions from the customers. The pressure ranges from dealing with angry customers to handling administrative aspects and inspects returns. Amazon comes in to take care of all that for you and, on top, return shipping labels, manage customer inquiries and reverse logistics. However, they charge a returns processing fee, but the amount of work makes it worth it.
5. Customer Service Management
FBA amazon offers Amazon sellers 24/7 customer support to inquire through emails, phone calls, or chat. On top of that, Amazon has an excellent reputation for its customer service, and this eases the customer's mind taking a huge burden from you.
6. You can get order fulfillment by amazon from other channels
Amazon has a Multi-Channel Fulfillment (MCF) service that allows the seller to sell products on other channels while still getting their orders fulfilled with the Amazon Fulfillment Center. To automate the Multi-Channel Fulfillment process for other sites for free, you can use the FBA shipping app, which automatically sends your orders to Amazon's fulfillment centers. Additionally, the FBA program can pull tracking information and updates from Amazon, sending the relevant data to your customers from other platforms.
7. Quick Delivery
With plenty of Amazon fulfillment centers globally, their deliveries are reliable and take a couple of days. After an order is placed, Amazon figures the closest fulfillment center to the customer and ships their order from there.
Disadvantages of using Amazon Fulfillment Centers
1. Long-Term storage fees
Fees such as fulfillment fees, storage fees, and long-term storage fees can pile up, especially with slow-moving products.
2. Precise Product Guidelines
Amazon usually has specific conditions for certain items, such as poly bagging and bubble wrapping, to ensure that items arrive at Amazon's fulfillment centers in the best condition. FBA sellers can also choose to have Amazon fulfillment centers prepare for a per-item fee.
Frequently Asked Questions
1. Do you choose which Amazon FBA Warehouse to send your products to?
No, once you create a shipping plan, Amazon company decides which Amazon warehouse your products will be got. They offer you an address to send your products yourself or your freight forwarder to send them to the Amazon FBA warehouses.
2. Is selling on Fulfillment By Amazon FBA worth it?
Amazon has one of the most advanced fulfillment networks globally, and Amazon has been making more headlines for its renowned fulfillment network over the marketplace itself. Using FBA is worth it for some sellers, but before you determine if it will be a profitable solution for your business, you need to calculate how much you're likely to spend. You may want to start by trying some of your products to see if it works for your business.