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With over $220 billion in revenue in 2018 and no signs of slowing down in 2019 and beyond, it’s no secret that Amazon is a dominant force in the retail industry.
As Amazon has continued to grow, the company has implemented easier and more convenient ways that individuals and businesses can offer products for sale on their marketplace. While many manufactures and retailers sell on Amazon, it’s now possible for virtually anyone to start an Amazon FBA business from home.
In this article, we’re breaking the down the basics behind creating your very own Amazon FBA business.
What is Amazon FBA?
FBA stands for “Fulfillment By Amazon”, meaning that Amazon offers a service that will package, ship, handle customer service and take back returns on a sellers behalf, for a fee.
In simpler terms, a seller sends products to an Amazon warehouse in bulk, and is then able to list that product on the Amazon website as a “Prime” product.
Amazon handles basically all of the selling aspects so that the seller can be hands off, which allows sellers to no longer need a warehouse, customer service team or to drive to the post office each time a product is sold.
I started selling through Amazon FBA in mid 2017 with only $3,200, and saw immediate success of over $5,200 in sales my first month selling. As I became more experienced with Amazon selling, my sales grew to over $23,000 in just 5 months, earning me thousands of dollars per month in profit. I’m now on a journey to help others start their own Amazon FBA businesses as I’ve seen how lucrative this can be.
Are you ready to start an Amazon business from the ground up?
How To Sell On Amazon FBA
There are two ways that you can get involved with selling through Amazon FBA. Each way has its own set of pros and cons, which I will break down:
1. Retail Arbitrage
Retail arbitrage is fairly straightforward. It involves you going to a retail store (such as Best Buy, Walmart, Costco, etc) and purchasing a branded product that’s on discount or sold for less than online. You then purchase that product and re-sell it online for a higher price.
Many people utilize this method as there is very little overheard or cost involved, however the profitability is also less since margins are thin. See the photo below that shows several sellers all selling the same item at various prices. I do not use this method, but for anyone that is interested in trying, here is a helpful guide on how to do retail arbitrage.
2. Private Labeling
Private labeling is how I sell through Amazon FBA, along with thousands of other sellers. Private labeling is more involved and requires greater startup capital, but profit margins around 40-70% can be achieved. The remainder of this article will be focused on private labeling, which is when a seller purchases a product in bulk from a manufacture with their own design requirements, and then places their own logo/brand on each product. This product is then sold under a sellers own company name on Amazon.
Here’s an example of a “private label” company. This product brings in $108,000 in revenue per month:
How To Find Products That Sell
It seems that most Amazon sellers each have their own way they go about product research, as this is the most important part of the selling process. Deciding which product to sell is very important, as this will determine your profitability.
Choosing a product that has low demand or that is highly competitive will result in no sales. Choosing a product that is oversized, fragile or extremely heavy, may cause your profits to be eaten away by added fees or broken goods.
In order to find a profitable product, I look to sell a product that meets the following criteria:
- can be sold for around $35-40 while earning a least a 40% profit margin
- the product niche has under 60 average reviews
- enough demand to sell roughly 150 units per month
- under 3 pounds per unit
- is a standard shape
- is not made of glass or other fragile materials that can be easily broken in transit
- is not electronic
- does not contain a liquid
I was successful from Day 1 because of my product selection. I have always used Jungle Scout to do my product research and swear by their service; you can read my in-depth review here. Jungle Scout has a suite of tools specifically designed for helping Amazon sellers to become profitable in less time and for less money.
The two products that I use from Jungle Scout include:
- The Chrome Extension
- The Web App
The Chrome Extension
The Chrome Extension enables you, an Amazon seller, to see critical product details for a product niche at a glance.
When you run the extension, it quickly generates a list of the top 16 listings for the product niche you are searching in while showing “Average Daily Sales”, “Average Sales Rank”, “Average Selling Price”, and “Average Reviews”. With these four calculations, you can determine if a niche is worth entering within seconds. These numbers give you a good idea of competitiveness and demand of the product niche. The Chrome Extension will save you hours of work per product, which will increase your profitability and productivity.
Here’s an example of the Chrome extension in use for examining “yoga foam rollers”:
Note: this is just an example. We can see that the top sellers are selling thousands of foam rollers per month, bringing in tens of thousands of dollars. By quickly looking at average price and average reviews, I determined it would not be lucrative to compete on this product. Although the number of sales is fantastic, the competition is way too high, it would be a constant uphill battle trying to outrank the current listings.
The Web App
The Jungle Scout Web App helps find lucrative niches and produces by searching a massive Jungle Scout database of Amazon listings. The Web App gives you the ability to narrow your search by category, price, rank, sales, revenue, etc, giving you total control in finding a product that meets your particular criteria
The search results appear like this:
Going back to the foam roller example, if you wanted to see additional metrics about a particular foam roller that you were considering selling, you could enter the product into the product tracker Web App to reveal your competitor’s sales, inventory level, price points, and demand.
How To Source Products
Once I have found the product that I want to sell, I find a manufacturer on Alibaba, a website that brings manufactures and wholesale buyers together. By simply entering a few keywords about your product into the Alibaba search bar, you will be presented many different manufacturers that can create a version of the product that you have found to sell.
I look for manufacturers that have the highest ratings along with a high dollar amount in transactions. The website also offers buyer protection, but do your due diligence before purchasing any products. I highly recommend paying via credit card rather than a wire transfer for security reasons.
Once you have found suppliers that can supply you with a product, message two or three of the top companies in order to find the cost per unit, the shipping cost from overseas and the lead-time. I typically order 300 units my first order, and then re-stock if sales are going well.
When shipping products from overseas to the United States, there are two options:
- Air shipping
- Sea shipping
Shipping via air is more expensive but much quicker, while shipping via sea is slower but more cost effective. I’m not very patient and want to get to market quick, so I always ship by air. Make sure to ask the manufacturer for this cost, as this will be additional to the cost of each unit.
Send your logo or brand name to the manufacturer so that it can be added to each unit. If you need logo design work, I highly recommend finding someone on UpWork to help.
Once you have the cost per unit plus the shipping cost, head over the Amazon FBA Calculator. This calculator is provided by Amazon and will help determine costs and final profit margin.
In the “Find your product on Amazon” search space, enter the ASIN of your soon to be competitor. Under the “Amazon Fulfillment” column enter the item price (selling price), your total cost of product, and enter $.50 for the “ship to Amazon” cost. Once the calculations are done, you will see the profit margin along with the profit in dollars per unit sold. You can quickly change any of these inputted numbers to test different scenarios.
Make sure to check your profitability before ordering any products!
I created an Excel template to help keep track of your product costs, you can download it for free here.
I recommend having the products sent to your house for inspection and sticker application. Using the Amazon Seller Central you can purchase UPS labels at a discount to send your bulk inventory to the Amazon warehouses.
How To Create A Quality Product Listing That Drives Sale
I’m a firm believer that a quality product listing plays a major role in driving sales. Put yourself in the shoes of a buyer. When you’re shopping on Amazon, do you tend to purchase an item that has crisp photos and detailed text, or from a seller who put their product listing together with clearly minimal effort? Often times sellers sell products that are very similar, with the only difference being in the quality of listing.
Here’s an example of a poor Amazon listing:
From the listing you are able to determine that the product is a dog toy in the shape of a chicken, soccer ball, and…steak? But other than that, there is a lack of detail or quality. I guarantee a vast majority of potential buyers that land on this listing do not convert in a sale. They will find a different dog toy to purchase.
When creating your own product listing, keep the following tips in mind:
- use a DSLR camera to take your product photos (or high quality smart phone)
- use a white background for your featured image
- use proper lighting
- add product dimensions to your photos if helpful
- add ample amount of detail including possible uses
- format your descriptions with HTML tags
- error free text
The extra hour you spend creating a quality listing will pay for itself right away!
Below is an example of a quality listing for dog toys. This product earns the company $54,900 in revenue per month:
Another way to increase sales immediately is by using the Amazon PPC ad system. As an Amazon seller you have access to Amazon’s ad system, which allows you to boost your product so it’s seen. The PPC system allows sellers to bid on keywords that are related to the product.
Since you have a quality listing at this point, there is a good chance you’ll convert the potential buyer that clicked on your ad. I recommend you set your own keywords manually, and adjust these keywords every couple days, removing the keywords that are under performing.
Want to Learn More?
There is a lot that goes into starting your own successful Amazon FBA business — more than what we can cover in a single blog post. If you’d like to learn even more about the process, I have teamed up with Jessica at The Selling Family to create an Amazon private label course that goes into even more depth about Amazon selling.
Amazon is showing no sign of slowing down, so there is no better time than now to begin selling. Amazon selling has its ups and downs, but if you’re looking for a way to earn extra income each month, Amazon FBA may be a decent option for you. If you stay dedicated and put forth effort while employing general business acumen, anything is possible!