The Amazon FBA Explained
Amazon FBA stands for Fulfillment by Amazon. It is a service that Amazon provides to its sellers where sellers send their products to Amazon and Amazon then takes care of storage, sales, payments, delivery, returns, and customer service.
How Does Amazon FBA Work?
The business model of Amazon FBA is very simple and consists of several steps:
- The seller finds the products they want to sell and list them on Amazon. This process is often called ‘sourcing’. There are multiple ways how you can source products, which I will cover later in this article.
- Then the seller should prepare products according to Amazon requirements and send them to Amazon warehouse. This process is very simple and straightforward.
- Once products have arrived at Amazon, they will take care of everything.
- They will store it in their warehouses. As their customers are spread across different locations they spread products across multiple areas according to the demand.
- Once the product is sold, they will pack it and deliver to the customer.
- They will provide all the necessary customer service and support to make sure that their customer is happy.
- Finally, they will handle all returns for you too.
As you can see, Amazon takes care of the most difficult steps in any retail business model. This is why many sellers are attracted to FBA.
There is a common mistake where people think that Amazon FBA is about private label products. This is not true. Private label products are just one type of sourcing products to sell.
We all know that Amazon is not a charity organization and you understand that those services are not free.
How Much Does Amazon FBA Cost?
There are two types of seller accounts that you can open on Amazon – Basic and Professional.
With the Basic seller account, there is no monthly fee and sellers only pay a fixed charge for each sale they make. The charge is £0.75 in the UK and $0.99 in the US for each item that you sell.
The Professional plan is £25+VAT in the UK and $39 in the US per month. With the Professional account, you have fewer restrictions. You can sell in more categories, plus products that you sell are eligible for Amazon Prime listing, which makes a big difference in terms of sales.
There are additional fees that sellers need to pay on top of these fixed charges. Every time an item is sold you will be charged a referral fee and in case of Amazon FBA an additional FBA handling fee. Those charges are calculated, based on product parameters, like size, price, etc.
You can use a profitability calculator to estimate Amazon fees and as a result your profits.
How To Start Selling On Amazon?
It is very easy to start selling on Amazon. You simply need to register a new seller account and you are good to go.
When creating a new seller account, make sure to provide accurate information to avoid any issues with your account validation. Amazon has a threshold of earnings and once reached they will make sure that all information that you have provided is valid. When I was starting my Amazon business, the threshold was about £10,000.
The main issue that I had at the time was that the name of my account did not match with the name on my business account bank statement. I simply had LTD on one and LIMITED on another. So, make sure that all the information that you enter is the same everywhere.
You can register new seller account here:
What To Sell On Amazon?
When starting selling on Amazon, the first question everybody faces is what to sell and where to find it. For new sellers, some categories are going to be restricted, but a lot of them will be automatically allowed as your seller account matures.
The best categories to start with are Books, Home and Kitchen, Toys, Groceries, etc. I would not really limit myself at the start and would sell products and any category which is enabled for my account.
Where To Find Products To Sell On Amazon
There are many ways to find products to resell on Amazon marketplace.
Here is a list of the most popular sourcing methods:
- Retail Arbitrage – this is the easiest and the cheapest way to get your feet wet with Amazon. With retail arbitrage, you simply go to retail stores, buy products there and resell them for a profit on Amazon.
- Online Arbitrage – this process is similar to retail arbitrage, but instead of going to physical stores, you source all your products in online eCommerce shops. You can do it manually or using software tools, which cost money.
- Wholesale – this is similar to the previous two sourcing methods, but in this case you buy products in bulk from wholesalers, distributors or manufacturers. It is not easy to get trade accounts at reputable wholesalers, especially when you have just started. I would recommend starting looking at this sourcing method once you get some track record of sales.
- Private Label – this is a very popular sourcing method and very often people mean it when talking about Amazon FBA. As you now should be aware, that this is not the case and you can use any sourcing method with FBA.
Private Label simply means that you source and sell products under your own brand. You can manufacture and source them from anywhere in the world, but the most popular place at the moment is China. This is the most difficult method as it involves a lot of learning, but it can be very profitable too. As with anything in this life, the risker the thing is the more profit/loss you can get.
- Garage Sales – you will be surprised how many gems you can find there
- Liquidations – product sales from businesses that are being liquidated. You can get great prices for liquidation stock, but you need to keep in mind that those are usually sold with no proof of the authenticity of the products. This can result in your account suspension if Amazon decides to check it.
- Auctions – this is self-explanatory
How To Start Amazon FBA Business With Little Money?
Many people ask the same question – “How do I start an Amazon FBA business with little money?”, which is a good question to ask. No one wants to jump into unknown venture and risk a lot of money without knowing the results. Some simply do not have a lot of spare money to invest. As with any business, this one has some risks. Depending on the model you chose, the risk can vary.
As I mentioned earlier, Private Lable is the riskiest one and requires higher investment.
I would definitely recommend anyone who considers starting Amazon FBA business to start it with retail and online arbitrage. Both of them do not require big investments and allow you to quickly see results. Using these models you can get your feet wet in a couple of weeks’ time, so you understand whether this business is for you.
The benefit of online and retail arbitrage is that you will be selling known products that already sell well and you will definitely see sales quickly.
Is Amazon FBA Worth It?
Amazon FBA business is not the same as it used to be even one year ago.
More and more people are aware of it and as a result, there is more competition out there.
The thing is that if you are afraid of competition, then you will not be able to go into any business. There is competition everywhere.
Amazon FBA is not getting rich quick business and you need to think about it as of marathon. If you constantly take action and consistent, then you will definitely see results. But this is true with any business.
I still believe that Amazon is the easiest retail business to start today, especially if you do not have a huge amount of money to invest.
You can start Amazon FBA business with as little as £100 or $100. Of cause, this will put some limitations on what sourcing mode you can use. With this capital, you will not be able to do Private Labeling as this would require an investment of at least £3000 – £5000 or $3000 – $5000.
You will also need more money to order in bulk from wholesalers. They usually have a limitation of £250-£300 per order. Having said this, there are some wholesalers that do not have those limits, but they are usually pretty small and do not have attractive prices.
Overall, I believe that Amazon FBA is still a very viable business model and with consistent action, everyone can achieve success with it. You can at least get an additional parttime income with it.
There are plenty of people making money with each sourcing model. You can also use it to expand to other areas. Once you start seeing sales, you can expand it to your own eCommerce store, so you do not depend only on Amazon. There are other platforms available too.
What I am trying to say is that if you enjoy retail and if you see that Amazon FBA and retail is what you would like to be doing moving forward, then the sky is the limit here, really.
The only thing you need to do is just TAKE ACTION and START!