Amazon FBA Business Model Explained

Amazon FBA (Fulfillment by Amazon) allows you to sell products by utilizing Amazon’s network of distribution centers and the Amazon.com website, which already has the traffic and buyers to give you a launchpad.

After you sign up as a seller, Amazon provides you with two options for order fulfillment: Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA). Choosing FBM means you’ll take care of handling, packing and shipping orders directly to your customers.

Selecting FBA, on the other hand, implies that Amazon will use its fulfillment centers to store your inventory. Once a customer places an order, Amazon will use its expertise to manage, pack, and ship the relevant items to your customers’ addresses. Simply put, you sell it, Amazon ships it. Customers get an industry-leading logistics solution that reduces delivery times and keeps them happy.

What this means for entrepreneurs is that you can run a hands-off business from anywhere in the world. You can capitalize on the traffic and marketing that’s already done by Amazon to grow your business. Also, with fulfillment taken out of the equation, you can focus on finding profitable items and sharpening your own marketing strategies while Amazon does the rest on your behalf.

How Does FBA Work?

To use the Amazon FBA service, you need to go through the following steps:

1. Create an Amazon Seller Account

In case you aren’t registered to sell on Amazon, you’ll need to create a Seller account. Once you do, you’ll see an option to choose FBA. Just follow the on-screen instructions and get the job done.

2. List The Products You Want to Sell

Once your account is activated, you should list the products you want to sell. Click “Inventory” > “Product” at the top of your screen to do so.

3. Choose Amazon FBA as the Shipping Method

Follow the steps here to add FBA to your Seller Account.

4. Prep the Products to Be Shipped

Your items should be prepared, packaged and labeled the way you want them to arrive at your customer’s doorstep.

5. Send Your Items to Amazon

Amazon has connections with several companies that offer discounted shipping to FBA customers, making it simple to send and track your products. You can read Amazon’s Partnered Carrier Program page for more information.

Once your products arrive at an Amazon Fulfillment Center, they’re ready to be shipped to the customer. Amazon picks, wraps, ships and tracks the ordered items for you.

Of course, the company charges you a fee for handling both storage and fulfillment. You can get more information by visiting the pricing page for Amazon FBA.

How Do You Make Money with FBA?

To make money with Amazon FBA, you need to know how to sell, and there are a few techniques and avenues that successful merchants use. Below are some popular options:

• Retail Arbitrage

One option is to buy low-priced items and list them on the Amazon marketplace at a higher value. The best sources of supplies are the clearance racks of Home Depot, Walmart, and other similar stores.

• Used Books

You can buy used books (hardcover) for cheap at yard sales, book stores, and other places to resell on Amazon at a higher price.

• Wholesale

Another way to make money with Amazon FBA is to buy goods in bulk to resell at a higher value. Suppliers are often willing to offer good discounts to those who buy high volumes, so you can make a decent margin on every item you sell.

• Private Label

With this option, you can have a third-party vendor or contractor manufacture a product for you, then sell that item under your own brand name. You can get private label products made through sites like Alibaba.com.

In addition to the selling technique, you need to know how much to sell the items for. For FBA merchants, it’s ideal to have a profit margin of at least 30 percent and a minimum dollar value profit of $5. However, certain items, such as groceries, will generally have a higher margin and lower profits.

Pros & Cons of FBA

Now that you’ve learned the basics of Fulfillment by Amazon, let’s get to the good stuff! Below are some of the biggest benefits of using Amazon FBA.

Pros of FBA:

• Fast Shipping

When you sign up for Amazon FBA, your products immediately qualify for “Prime shipping.” This is a huge advantage because all members of Amazon Prime are entitled to free two-day shipping for FBA products.

What’s more, you don’t need to pay any additional fees—you’re charged the same rate, regardless of whether or not the buyer orders through regular or Prime shipping.

• No Shipping Partner or Fulfillment Center Needed

With FBA, you don’t need to worry about shipping because Amazon takes care of it. All you have to do is send Amazon your products in good condition. Once they’re with Amazon, you can have peace of mind knowing that they will reach your customers in time.

Also, you don’t have to invest in a fulfillment center because Amazon has several fulfillment centers around the country.

• You Can Sell Anywhere

Finally, when you enroll in FBA, you’re not restricted to just selling on Amazon. In fact, you can also use FBA to fulfill the orders you receive through other channels like Shopify.

This way, your customers can enjoy solid delivery options like two-day, one-day, and standard shipping times. You can even automate this process by using the ByStand Amazon FBA Shipping app.

Even though Amazon FBA provides you with several benefits, it has a few downsides you need to be aware of.

Cons of FBA:

• You need to pay a fee

Amazon charges you a storage fee based on how much space your products occupy in their fulfillment center, as well as how long they stay there. In addition, you will be charged per-unit fulfillment fees every time you get an order processed through the FBA service. And finally, you also pay a monthly fee for the privilege of having a seller account on Amazon.

Ultimately, you need to calculate how much you need to generate in revenue to offset the costs and see a reasonable profit. Then, you can decide if you can meet that threshold.

• You need to prep

As a policy, Amazon requires your products to be prepped in a certain manner if you want to keep them in Amazon’s warehouses, which can be both costly and time-consuming.

But since you’re adhering to the Amazon FBA rules, you have no other option but to comply: Either you spend time in packing and preparing your items or Amazon does it for you for a fee.

• You have limited control over the stock

Having your products shipped via Amazon means that you are entirely dependent on the company’s ability to receive and process your orders.

During holiday seasons, there can be delays in getting your shipments into the fulfillment centers, which can result in loss of control over inventory. You can find information on Amazon forums about how to tackle such issues.

Difficulty Level of FBA

Thankfully, Amazon FBA is beginner-friendly! With the right guidance and training, anyone can make money with this online business model. You don’t need to possess prior business or online marketing experience to get started with FBA. However, without this experience, you should expect a learning curve as you get a handle on the logistics.

If you want help from the experts, you can team up with the Amazon seller consultants at an agency like Buy Box Experts, who can set you up for success. We have software solutions that can provide competitor assessments, product research, inventory forecasts, listing tools to integrate eBay into your Amazon business service, and more. We can also help you formulate winning content strategies to increase your traffic.

Startup Costs of FBA

The average startup cost of launching a full-fledged Amazon FBA business ranges from $500 to $5000. Beginners can test the waters by investing $500 to $1000, which will get them an FBA membership, a Seller account, and a decent inventory.

The trick to getting started with a small investment is to find manufacturers or suppliers that are ready to ship or manufacture as few as 50 units. You will also need to find good deals for shipping your products to Amazon’s fulfillment centers.

Average Timeframe to See Results with FBA

Most people start making money with Amazon FBA within three months of starting the business. However, this isn’t always the case, as it can take time to find a profitable product and streamline communication with prospective suppliers.

Also, there is a waiting period before the samples arrive at your doorstep so that you can test the quality of a product before listing it on Amazon. Other waiting times include putting your logo and brand name on your private label items, as well as delivering your items to Amazon’s warehouses.

Profit Potential with FBA

Simply put, the sky’s the limit when it comes to earning a profit with Amazon FBA. You’ll find success stories of FBA sellers making a seven- to eight-figure income, or over $10,000,000 annually.

Selling via Amazon FBA also provides you with the opportunity to earn a passive income. With sites like PeoplePerHour, you can hire a freelancer to generate product listings on your behalf. There are even companies that will send your products to Amazon automatically, as well as manage orders for you.

However, it’s always recommended that you keep tabs on your business activity as potential changes can impact the way your operations are set up at any time.

FBA Frequently Asked Questions

Here are some of the most common questions people ask about Amazon FBA.

Q. Can I sell in countries outside the US?

A. Yes, you can list products on any of Amazon’s marketplaces, including Amazon.ca, Amazon.co.uk, Amazon.de, and others.

However, you’ll need to make sure that the FBA service is available for the country’s marketplace. Also, you’ll need to create a Seller Central account with the Amazon website of the country you plan to sell in.

Q. What price range should I target to earn $X in profit?

A. There’s no set price, and it’s not necessarily about how much you sell a product for. Margins vary based on the type of inventory you’re planning to sell. Products that sell in the $50-to-$100 range can still make you $2,000 to $3,000 a month, while those selling for $500 to $1000 can fall short of that profit figure.

The amount you take home each month depends entirely on the cost of goods sold, the quantity you manage to sell, and profit margin potential, among other factors.

Q. I saw a great product the other day, and I think people will buy it. Should I go with my gut feeling?

A. In a word: No. Many sellers believe that their product idea is excellent and that buyers would flock to their Amazon page, but the truth is, great FBA businesses aren’t built on gut feelings.

In fact, it’s always advisable that you do market research to see what people are buying on Amazon. Find a product category and see what items are in high demand, then research the competition to ensure you aren’t entering a cutthroat market.

Q. Does the FBA fee vary for selling products outside of Amazon?

A. Yes, it does. Amazon multi-channel fulfillment costs vary from the standard FBA expenses, but you still get competitive rates and capacity to scale. You can get more information by visiting this page.

Infographic

Over 170 million unique monthly customers are making their purchases with Amazon. This makes it an ideal place to list their products on Amazon. There are many success stories of selling on Amazon enticing many sellers to put up their products on the website. However, there are also drawbacks that many people seem to forget. Here are 5 pros and cons to making money on Amazon that every seller should know.