We feel the best way to understand Amazon and it’s opportunities is by looking directly at the data. When we dive deep, it’s easy to see why Amazon is a huge opportunity for any business. In 2018 alone, Amazon generated around $258 billion in US retail ecommerce sales, a 30 percent jump from the prior year (2017).
When you understand Amazon’s size in the market, the online shopping power captures just over 49 percent of the online retail market and 5 percent of the whole (online and offline) US retail market. Wow! The Amazon marketplace alone accounts for $175 billion, and 50% of the total sales on Amazon’s US marketplace come from third-party sellers. What’s amazing about Amazon, they continue to keep growing, year after year performing better than their previous marks.
So, what does all of this mean for you?
In short, it means you have the opportunity to stake claim in the $87.5 billion marketplace that also houses more than 6 million third-party sellers. Yes, 6 million others, that’s a tough one to swallow. However, this is not a reflection of your actual competition, it’s far less than that. This is a count of active sellers, which means they have a product listing. Yet, when you dive deeper, you’ll realize that less than 600K have at least one review a month on their listing. Yes, that looks a lot better.
How much do these active sellers (with at least one listing review a month) make? A quarter (or 140,000) of them have a revenue of more than $100,000 a year, and 20,000 have a revenue bigger than $1 million a year. According to FeedVisor, 12% of all active sellers have an annual business revenue between $250,000 and $500,000, 9% between $500,000 and $1 million, and 8% between 1 and $2 million.
However, the big question, how big are your profit margins? Sales are great but how much revenue are you making after all expenses? Close to 75 percent of Amazon sellers are using Amazon FBA, which is why we knew we needed an Amazon FBA Guide. Out of all the sellers using Amazon FBA, they average a profit margin between 20-30 percent. For the top 20 percent of the best FBA sellers, they average a profit margin that ranges from 30-50 percent.
You already know how massive Amazon is, it’s a huge marketplace, the biggest in the world. If you’re willing to learn the Amazon FBA business model, you can leverage the Amazon marketplace.
The Amazon FBA Process Explained
Amazon FBA refers to Amazon Fulfilled-by-Amazon. From the perspective of an Amazon FBA third-party seller, this e-commerce business model is as follows;
- You send your products to an Amazon warehouse via a fulfillment center
- Your products are account for and stored by Amazon staff.
- When an order comes in, Amazon gets it ready and ships it.
- The entire process is automated and taken care of by Amazon
- You handle shipping the product to them, keeping it in stock and all the marketing.
Now, we know what you’re thinking, “that sounds too good to be true.” Well, you’re right, in a sense. There is a catch. If you want to use Amazon FBA, you need to create a product that sells. Yes, this is the hardest thing about Amazon FBA.
That’s a tough one to swallow, but before we get to that, we need to think this Amazon FBA thing through. We need to sit down and analyze
- Why should we sell on Amazon FBA?
- The Pros Of Amazon FBA
- The Cons Of Amazon FBA
What are the good and bad sides of building an Amazon FBA business? Yes, you read that right – a business. Amazon FBA is not a side hustle, it’s a business. If you want to make some real money anyway.
Amazon FBA Pros
- SCALE – Having the opportunity too grow and scale is important for your business, Scalability is one of Amazon’s biggest strengths. There’s virtually no limit to how much you can grow your business on Amazon and how much money you can make. The marketplace is huge and the opportunity is there if you have a great product. Leverage that to your own benefit.
- AMAZON PARTNER – Amazon FBA is convenient, anyone can learn how to do this, it’s not complicated. You hear people selling Amazon FBA courses all the time. Why? It’s simple in theory. Amazon handles the market, packing, storing, shipping, they also have customer support. Due to this, you get to focus on sourcing and developing products, as well as growing your business. You should also know that you can integrate Amazon FBA with your ecommence store, Shopify is also a popular option. By doing so, you get to leverage prime delivery options available to prime members.
- EASY TO START – You don’t need much to launch your Amazon FBA business, just a US bank account, valid ID/passport and a few bucks. Since it’s easy to start, that also means more competition, which is one of the main reasons why selling on Amazon is a lot harder versus a few years ago. This is why you want to follow this guide, so you know everything you need to do to get the best possible start on FBA.
- MARKETPLACE – Amazon’s marketplace size is enough to get anyone excited about selling. The market is huge, which means a lot of opportunities for your business. Amazon has millions of shoppers every day, where else can you access that many people in one place? Nowhere.
Amazon FBA Cons
- AMAZON’S SHOW – While we hope you’re massively successful on Amazon, it’s still Amazon’s show. Amazon is the wave and you’re along side for the ride. In short, Amazon owns everything. If they decide to shut you down, there’s nothing you can do about it. That’s a tough pill to swallow for a lot of Amazon FBA sellers. This is also why we recommend diversity, using multichannel marketing strategies from the start.
- SUPPORT IS TERRIBLE – You would think that a huge company such as Amazon has great support but that’s not the case. The support is terrible. Take a second and go read this: Fulfillment by Amazon subreddit. If you have problems with your account, you’re going to a 3rd party for support, we wish you all the best cause you’ll need it.
- FIERCE COMPETITION – Amazon FBA is a cut throat business. Period. If you break any of Amazon’s TOS you’re going to get instantly banned. If you do get banned, it’s going to be pulling teeth trying to get your account restored. Many sellers play by the rules and they’re still at risk. Sellers are dirty (no offense) but it’s true. People will leave a bunch of 1 star reviews on your products, it’s a dirty business. Not for the faint of heart.
- MONEY, MONEY, MONEY – While it doesn’t take much to start an Amazon FBA business, scaling one successfully can take up a lot of resources: AKA “money.” FBA sellers get their check from Amazon every 14 days and only after Amazon takes their cut for storage, fulfillment and other fees. Those fees are not joke, but you’re not limited to your options. Check out how our Amazon fulfillment services can help you save.
Amazon FBA Or Dropshipping?
The success or failure of your Amazon FBA business or dropshipping business is going to hang on your commitment and thrive to succeed. Both of these business models have their own strengths and weaknesses and choosing the right model will be based on your own circumstances and preferences. Taking that into account, we think that it’s only fair that we showcase the main advantages and disadvantages of the Amazon FBA model compared to the Dropshipping model so that you can make an informed decision.
The three main advantages of Amazon FBA over Dropshipping are:
- Marketing Is Easier
- Product Research/Recon Is Easier
- Higher Scaling Potential
On the marketing side of things, Amazon is just easier. Marketing on Amazon amounts to the money you spend on your PPC campaign; there’s nothing more to it really, just optimize your listing (or pay someone $50 to do it for you), optimize your PPC ACoS (advertising cost of sale), and you’re done. With Dropshipping you need to understand Facebook ads, Instagram marketing, Google ads/SEO/natural traffic, you have to write content for your site, create funnels… you get the point. The learning curve is much steeper.
(2) Product Research
Amazon FBA product research demands less time, effort and money versus finding the right dropshipping product. With Amazon, you’re going to have all the data you need to choose a great product. The money required for Amazon product research boils down to the costs of your monthly/annual product research tool subscription plan.
On the other hand, dropshipping is very different. The product research process is more complicated and stochastic, and you’ll have to master several different product research methods and tools and ultimately spend time testing different products before you strike gold. With tools like Jungle Scout or Helium10, you can pretty much know what to expect from your product even before you launch it on Amazon.
(3) Scaling Potential
The third advantage of Amazon FBA over dropshipping is the larger scaling potential. Growing a Shopify store to 5-6-7 figures using dropshipping is not impossible . However, when you add up all the expenses you’re going to have, that number shrinks a lot. If you have a great profit margin, dropshipping model can work.
With Amazon FBA, the scaling potential is almost limitless. The ROI is greater and if you keep reinvesting, you stand the opportunity to make a lot of money. The big downfall to Amazon, Amazon FBA is your only channel, all of your eggs are in one basket. With dropshipping, you’re going to be using a wide range of channels to grow your business.
Amazon controls everything and when you don’t have full control over the outcome, things can happen. Much worse, other Amazon sellers that are using hacks to hurt your listings.
While mistakes are going to happen, learning curves will have to be met, you don’t control all of the show with Amazon FBA.
On the other hand, with dropshipping, you’re in full control of your store. It’s true, you still have rules to follow with Shopify/BigCommerce or any other payment processor you choose to run with, but you do have a lot of freedom.
Another key you need to know, the Amazon FBA business model is pricey in the beginning versus Dropshipping. With the Dropshipping model, you don’t hold any inventory and therefore you don’t pay any storage fees. The only up-front costs you’ll have will be your Shopify theme or any additional Shopify apps you may have. You’ll also have marketing costs you have to consider as well as outsourcing costs.
How Much Does Amazon FBA Cost?
Amazon FBA cost can vary depending on what level you’ll be using for Amazon. It also depends on what type of commerce business you’re going to be operating.
Private Label – Private label products are those manufactured by one company for sale under another company’s brand.
There are other methods of making a profit on Amazon such as retail, online arbitrage or wholesale, but in this guide we mainly focus on the Amazon FBA private label model.
Without further ado, let’s break down the start-up costs of starting an Amazon FBA PL business and give you some basic strategic insight:
Mandatory Costs Include:
- Amazon Pro Account – $40 a month (It’s recommended that you create a free Amazon seller account while you’re in product research/development phase and then upgrade to pro).
- Total Cost Of Product – You can definitely start with less but ~$1500 should be enough for 100 to 1000 units of whatever you choose to sell. This includes developing, manufacturing, shipping and PPC (Pay Per Click).
Optional Costs Include:
- Product Research Tools – Jungle Scout Chrome extension ($97 or $197 flat fee) + Jungle Scout web app ($40 a month — use 1 month until you find your product and then cancel subscription). There are other product research tools such as Helium 10 and Viral Launch, do your own research and pick one.
- Brand Logo – You can find a freelance artist to design your brand logo for anywhere from $5 to $100.
- Pictures of Products – Pay a professional photographer to create high quality listing pictures of your product for ~$20-$100.
- Barcode – $5
- Product Inspection – $100
- Incorporation – preferably an LLC – $50 to $500 depending on the state where you choose to incorporate.
Total cost ranges between a minimum of ~$1500 and advised total of ~$2000.
Now, in the grand scheme of things, this is a relatively small amount of money to start a business. However, as previously stated, Amazon FBA is very cash flow demanding and you’re going to need cash to keep it running. Due to this, we recommend that you start with X2-X3 the money of the total cost of the product since you’ll need a big buffer in case your first product succeeds and sells out in the first month or so.
The last thing you want is to go out of stock with your first product, this could ruin your business right out the gate. It’s bad because when you’re out of stock, your product ranking will drastically decrease or even disappear. Once this happens, it’s going take a lot more money to get back to your “normal.”
Starting An Amazon FBA Private Label
Now that you know about the Amazon FBA process, now we can focus on starting your own FBA private label business.
There’s 5 steps you need to follow, broken up in 2 sections. Up first;
A) Steps you need to take before your product reaches an Amazon fulfillment center:
- Product/Market Research
- Sourcing A Product
- Navigate Seller Central And Product Listing
B) Steps you take to successfully launch your product after it arrives at an Amazon fulfillmentcenter:
- Shipping Your Product
- Launching And Marketing Your Product – First Sales And Reviews
The way you scale an Amazon FBA private label business is simple: go through the same process and add more products. Rinse and repeat.
(1) Researching Products
One of the most important steps in the process is finding the right products to sell. You should never guess, NEVER! You always want to make calculated decisions as it pertains to choosing products. Finding that perfect product can be stressful, challenging and tedious. Even so, it has to be done, better do it right.
Product research is all about the numbers. You’re looking for a niche or industry that you actually enjoy and know a lot about. Even if you have to learn, it’s better to focus on a niche you love versus one you don’t. The goal is finding a product that’s high in demand and low in competition. Well, how can you do that?
Product research tools can save you countless hours of time and effort. Thankfully for you, there’s a ton of them out there that are pretty good.
- Viral Launch
- Helium 10
- Jungle Scout
Remember, it’s all about the numbers. You’re looking for indicators that will help you find the right products to sell. Now, these research tools differ, they’re controlled by different algorithms. While they don’t know the exact numbers of Amazon, they can give you enough data to make the right choice.
What Products To Avoid
Pay close attention to the metrics of Amazon sellers. When looking for a niche, you want to stay away from niches where sellers have over 1000 reviews and 4.00+ rating. These are going to be difficult to crack. If you’re experienced, that’s a different story. If you’re new to Amazon FBA, make note of this.
What We Mean By Knowing Your Numbers
There’s going to be a number of different terms you’ll learn with Amazon FBA, one important term is profit margin. Profit margin refers to the amount of money you make selling a product. For example, if you buy a product for $5 and sell it for $20, that’s a 75 percent profit margin.
The goal is to get the highest profit margin you can possibly get.
Launching And Marketing Products
Sales will always be the driving force of success. Once you’ve found a winning product, found the right supplier, found the right shipping partner and created your Amazon product listing, you’re going to be ready to launch.
Your priority focus is to get sales and positive reviews as soon you launch your product. We want you to get noticed by Amazon’s algorithm called “A10.” If you get sales and great reviews, Amazon is going to rank your products higher, which will lead to more sales. You want to get on the first page of Amazon for your target keyword. If you can, you will see a big boost in sales.
When you first launch, it’s tough to get traffic organically. You have to be a step ahead, you need to an email list, you need paid ads, the combination will help you achieve these early goals.
You need to tell everyone you know that your product is launching. You don’t want to do it in a shady way, but a “valuable” way. You don’t want to get involved with Amazon TOS. However, if you’re authentically growing a community, there’s nothing wrong with that. Never direct anyone with a link to buy your product, telling them to buy your product. That’s against the rules.
If friends or family will be buying, they need to search for that product on Amazon themselves.
Next thing you want to do is to set up giveaway promotions where you give 50-80% discounts for your product. Offering steep discounts means you’re likely going to lose money on these sales at the beginning, but it almost guarantees that you’re going to get a lot of sales because of the competitive prices and rank your product faster.
You need to understand that when you first start selling on Amazon your primary objective will be to rank your product, not make profits. The return on your investment will come when you place your product on the first page of the relevant keyword. The time it takes you to do this depends on many factors: your choice of product, quality of your listing, ad spend, price, competition and so on. It may take you two weeks or it may take you three months — but that doesn’t really matter if you go into this prepared and with the right mindset.
Amazon Sponsored Ads
Running Amazon ads takes time to learn and master. Don’t just put a lot of money down and cross your fingers. Learn the craft, study the craft and test the waters. Get your feet wet, learn everything you can but you do need to make the leap.
Amazon Sponsored Ads, also known as PPC (pay per click) is an essential marketing tool for your FBA business. When you first start selling on Amazon, don’t be surprised if your product is on the 10th, 20th, 30th page of results. Customers won’t find you here, we can guarantee you that.
Amazon ads give you the opportunity to play with the big boys. You can pay to play and that’s a great idea. When you run your campaigns, you’ll get the opportunity to collect data that shows you all of the keywords (and their relevance) that led customers to your product listing. You can use this report to optimize your campaigns and produce more sales.
Automated PPC Campaign
To get started, open your Seller Central account, go to Advertising > Campaign Manager > Create Campaign
When you’re launching a new product on the market you want to bid a bit more conservative and keep a close eye on the performance of your ad; if you’re not getting enough impressions or views after a few days of running the campaign it means that your bid was too low and you need to bid higher.
After you run the automated campaign for about a week you’ll have enough data to start a manual campaign. The process is simple: after you chose “manual targeting” click on “Enter keywords” > copy the first 50-100 best-performing keywords from the campaign report, and paste them in the empty field. Finally, click “add keywords” and you’re done!
Continue To Optimize Your PPC Campaigns
Running an efficient PPC campaign is not a set-it-and-forget-it type of situation. Staying on top of the game means that you’ll need to keep tweaking your keywords, bids, listing, product photos, and bullet points in order to stay ahead of the curve and dominate your competition.
Managing PPC campaigns is an art form in its own right; countless videos, books, articles, and blog posts have been written on this subject alone and to try and cover all of this information in one guide is unfeasible. We can, however, give you just enough information to build you a solid foundation, a data directory and a research tour guide of sorts that you can later use as a starting point for your own learning endeavors.
There’s a number of Google ads resources out there for you to learn, it’s worth taking that time to learn and master this skill.
In order to do this, first you need to know your keywords:
- Broad Match – Search terms that are broadly related to your product. Less competitive and cheaper.
- Phrase Match – Search terms that appear in phrases that the customer searches for. More competitive, expensive, and specific than broad.
- Exact Match – Search terms that exactly match your product. Quite competitive and more expensive.
- Negative Keywords – These are the keywords that you don’t want to show up for. Use them to prevent excessive ad spend and increase conversion rate.
You have to set clear goals. What are you optimizing for really? Are you optimizing for low ACoS and bigger profits on an already established product on the market, or are you putting all of your efforts in ranking or brand recognition? If you’re doing the latter, having a higher ACoS (typically above 40%) isn’t necessarily a bad thing. If you’re intentionally raising your ACoS and you’re doing it with a specific goal in mind (ranking your product) then the first thing you need to do is calculate your break-even ACoS.
Break-even ACoS basically tells you at what ACoS you make zero profit and zero loss. Here’s how you calculate it:
Let’s assume you’re selling your product for $25 and your total cost of product is calculated at $12. This puts your pre-ad profits at $13. If we assume that you want to put all of your profits into PPC advertising, your break-even ACoS will look like this:
Break-even ACoS = Ad cost ($13) / Sale price ($25) = 52%
This means that at 52% ACoS you’re not making any money, but you’re not losing any money either. Your break-even ACoS is possibly the single most important measurement for your Amazon FBA business. If you don’t know your break-even ACoS before you start your PPC campaign, you might as well light your money on fire right now and save yourself the headaches that will come.
Selling on Amazon isn’t easy. If it was, everyone would be doing it and making money. The numbers are heavily against you, but don’t let that stop you.
While there’s more advanced strategies on how to sell on Amazon, that wasn’t the purpose of this guide. We wanted to give you some structure and clarity more than anything so you can get started selling on Amazon.