What is Amazon FBA?
Fulfillment By Amazon (FBA) is a service offered by Amazon that provides storage, packaging, and shipping assistance to sellers. Amazon FBA allows sellers to ship their products to an Amazon fulfillment center, where items are stored until they’re sold. Amazon FBA can help sellers scale their businesses and reach more customers.
To sell on Amazon, you simply need a product to sell, a seller account, and a means of getting your product to the customer.
Whether you have a product to sell or just want to get in the game but don’t yet know what to sell, there’s a business model that will work for you to sell on Amazon. We’ll review the many options and choices you have when building your business, and focus on one that has proven to be a profitable, scalable method: private label.
Is Amazon FBA worth and still profitable in 2021 ?
When Amazon FBA was released it wasn’t that much popular as it is today. Due to many other alternatives, entrepreneurs evaluate the up and down sides of Amazon FBA to know if it’s worth it before starting. To determine if Amazon FBA still is profitable, you need to consider a few factors :
- Amazon FBA costs
- Amazon doesn’t offer its service for free! You need to pay for storing your products in Amazon’s warehouses. Storage fees are different and depend on the type and size of your products. Oversize products are more expensive to be stored. Also, dangerous and brittle goods or clothes have a bit higher storage fee. Selling heavy, low-cost products that aren’t sold quickly isn’t worth it. In addition, these products have higher shipping rates
- Automated Business Workflow
- Choosing Amazon FBA make your online business workflow simpler and automated. You don’t have to consume your rooms and loft to store the items or spending numerous hours pressing them. The products are automatically transported with no time cost, you don’t have to manage diverse conveyance administrations for lower delivering rates and better quality service. Finally, you can take advantage of Amazon’s customer service to actually take a look at your customers’ concerns. This perhaps the greatest advantage of utilizing Amazon FBA.
- Optimise your conversion rate
- Thanks to amazon FBA, your products are listed for Prime shipping which can be delivered in 2 days for free. In addition, it’s more likely to win the Buy Box. It can help you to convince more customers to buy your products.
Understanding Amazon’s FBA Business Model
FBA stands for Fulfilment by Amazon. With FBA, merchants place their stock in one of Amazon’s fulfilment centre. When an order is placed for a product from the seller’s listing, it is as of now one bit nearer to the client. The FBA model implies that all the transportation coordinations are dealt with by Amazon from their fulfilment centre.
Since the fulfillment centre can house a wide assortment of items and can fulfill orders rapidly, it can help your business grow and make money quickly. Thanks to amazon FBA, all what you have to do is make sure that your stock inventory can handle the demand, then FBA will take care of all the logistics behind it. This point is so important to focus on business and make it scale to huge numbers.
How do you make money with FBA ?
Step #1. Decide On A Product
The first thing you need to do is choose a product that you want to sell. There are basically two different approaches you can take:
The Standard Approach
Most articles and courses related to selling private label products on Amazon will advise you to use criteria that will help you avoid some headaches and expenses.
With the standard approach, here are some attributes that you want to find in an ideal product:
- Priced between $15 and $50 on Amazon. After the Amazon fees for FBA, it’s hard to make much of a profit with products that sell for less than $15. Purchases under $50 tend to be impulse buys, so the sweet spot is between $15 and $50.
- Small in size. Typically, you’d want to sell a product that could fit inside a shoebox. The storage fees that you’ll pay to keep your products in Amazon’s warehouse are higher if you’re selling oversized products. Higher fees obviously cut into your profit.
- Lightweight. If you’re sourcing products from China, your cost will be influenced by the weight of the product. My wife and I had our inventory shipped by air express with DHL, UPS or FedEx. That’s the most expensive shipping option, but our products were very lightweight so it still worked out.
- Nothing with electronics or batteries. These types of products have a greater defect rate, and will probably require more customer service. Batteries can also be an issue when coming through customs.
- Simple products that people already know how to use. Ideally, you don’t want to have to train customers on how to use your product. Simple products require much less customer service.
There are obviously many legitimate and convincing reasons to follow these criteria, and this is the approach my wife and I took when choosing our products.
The Opposite Approach
If there are convincing reasons to follow the standard approach, why would you want to take a different route?
The vast majority of private label sellers are following the same criteria and looking for the same types of products. This leads to heavy competition.
If you go against the common logic, you may be able to find a product that you can sell with far less competition.
To take this approach you’ll need to be willing to jump through a few hoops, or potentially to invest more money. But the end result might be worth it.
If I were starting a new Amazon FBA business today, I would probably look for an unconventional product that most private label sellers don’t want to deal with.
If you choose an oversized product or a heavy product, you may need to have it shipped by sea (you can hire a freight forwarder to help). It’s inconvenient and intimidating to most new sellers, and you can avoid a lot of competition if you’re willing to do what other people won’t.
Similarly, if you choose a product that sells for $100 instead of $15 to $50, you’ll need to invest more money into startup inventory. But since most sellers aren’t willing to do this, you’ll probably have less competition.
When you’re deciding on the first product that you want to create (or have manufactured) and sell, you’re basically looking for an opportunity.
There are a few possibilities:
#1. Low Competition
Most sellers look for an existing product that’s selling well on Amazon but doesn’t have a lot of direct competition. Then you’ll create your own version of this product.
This is how my wife and I decided on our first product that turned out to be very profitable. Although, I have to be honest: it’s not that easy to find a product like this. There’s a lot of competition on Amazon, and we looked at many different products before finding one that we thought was a good opportunity.
You can use Amazon’s best sellers list to find products that are moving well. From that page, you can click through to specific categories and subcategories to see the top sellers in each. Or you can use a free tool like Unicorn Smasher to give you an estimate as to how many units of a product are being sold each month.
To check out the competition, search on Amazon for the main keywords that people would use to find this product. If there’s not much competition, you may have found a good opportunity.
#2. Flawed Products
Maybe a product you’re considering has a lot of competition, but the competing products all suck. If all of the competitors have bad overall ratings and reviews, there may be some opportunity for you to jump in.
Read through the negative reviews of the competing products and see what people don’t like. This could be things related to the product’s design, quality of materials, size, colors, smell, or anything else.
Take note of what seem to be the major issues. If you can find a manufacturer who will make a product that addresses these issues, you could have a product that’s better than all of your competitors.
Use your listing to point out how your product is well-designed and made from quality materials, and you may be able to sell a lot.
#3. Poor Listings From Competitors
The quality and price of a product aren’t necessarily what determines how well it sells. Some products on Amazon are presented very well, and others are not.
If you find a product where all of the competitors have bad listings, you may be able to come in and outsell them all with a good listing.
A bad listing will usually have poor quality photos, not enough photos, and/or a lack of information in the bullet points and product description. On top of all that, it may not be optimized for the right keywords.
Step #2. Find A Manufacturer
Once you’ve found a product that you think may be a good opportunity, the next step is to find a manufacturer.
The easiest approach is to use Alibaba and search for a manufacturer that creates the product you want to sell (or something similar). Keep in mind, most private label sellers use this approach.
With that in mind, it’s important that you customize the product in some way. Otherwise, it’s too easy for someone else to sell exactly the same product as you.
Most manufacturers are willing and able to change or customize products. Some will even create a completely custom product just for you.
The reason most private label sellers use Alibaba is that it’s easy. However, some sellers actually travel to China and go to the Canton Fair, where supposedly (I haven’t been there) you can find much more than you can find on Alibaba.
When you’ve identified a few potential manufacturers, you can contact them through Alibaba to get pricing on the product. Be sure to tell them that you’ll be selling the product on Amazon and that you plan to place repeat orders (they want repeat business, so they will be more eager to work with you).
If you’re a new Amazon seller, it’s helpful to work with a manufacturer that has experience with other Amazon sellers (which is increasingly common). So don’t be afraid to ask them if they’re familiar with Amazon’s rules and if they can prep the products for FBA, which includes a barcode on the packaging.
The price and minimum order quantity that you get from the manufacturer is negotiable. Some of them will also make a one-time concession to give you a small minimum for your first order. If you need a small quantity, ask if they would be willing to do a “test order” so that you can be sure that the product will sell before committing to a larger quantity.
Keep in mind that the smaller quantity you order, the higher price you’ll pay per unit. As your business grows, one of the best ways to increase your profit margin is to order larger quantities and decrease the cost of each unit.
Be sure to get a sample sent to you before placing an inventory order. I recommend getting samples from several manufacturers so you can compare them. I also like to buy competing products that are selling on Amazon so I can compare them to the samples.
Quality Is Critical
When you’re deciding on a manufacturer, don’t simply go with the lowest price. In order to have long-term success selling private label products on Amazon, you will need to prioritize quality.
Product reviews are extremely important for selling on Amazon. If your product is low-quality, you’ll get bad reviews and your sales will dry up. But if you have positive reviews, the product can continue to make money for a long time.
Manufacturers will often default to using cheap materials so they can give you the lowest price possible. But in most cases, they’re able to use higher-quality materials if you ask — and a lot of times, the price difference will be relatively small.
Step #3. Create The Product Listing
After you decide on a manufacturer and place your order, you will probably have at least a few weeks — and possibly a couple of months — until the product is in Amazon’s warehouse and ready to sell.
During this time you should be working on your listing.
Listing Key #1: Use Good Photos
Your listing’s photos are one of the most critical factors in its success or failure. You might be surprised by how many Amazon customers buy based on the photos alone, without even reading the product description.
If you have bad photos, you will have a hard time making sales. And if you have good photos, your product will stand out.
You don’t need to be a professional photographer to get good photos. One of the keys is to take the photos in natural light, avoiding harsh sun and shadows.
I took all of our own photos, and I did most of them outside on overcast days. I’d put the product on a piece of cardboard or something with a solid background.
Afterward, I’d find someone on Fiverr to change the background to solid white (I paid $5 for background removal on 10 photos).
Be sure that you take photos of all angles and all sides. Amazon gives you space to add a lot of photos to your listing, so use them all.
You can also take lifestyle photos that show the product in use. Amazon stipulates that your main photo needs to be on a white background, but other photos can be lifestyle.
If you’re not comfortable taking the photos yourself, you can hire an expert to do it for you. My recommendation is to find a photographer that specializes in product photos for e-commerce.
Listing Key #2: Use Keywords In The Product Title
Your product title is extremely important for Amazon SEO. You want the most important keywords to be in your title so that potential customers can find you.
Browse through your competitor’s listings and jot down all of the keywords you find. You can use a tool like Merchant Words to see which keywords get the most search volume.
It’s also important that you use keywords that accurately describe your product. Don’t just choose keywords because you think people will search for them. Amazon will use your conversion rate as a major factor in determining where you rank in searches, and if you’re ranking for irrelevant keywords your conversion rate will be low.
Listing Key #3: Use Benefit-Driven Bullet Points
Aside from the photos and the title, the bullet points are the next most important part of the listing. Make sure that your bullet points focus on the benefits of the product and how it will help customers.
Focus on what makes your product unique and better than the competition. The bullet points are the best place to sell your product.
Use all of the bullet points that Amazon gives you.
Listing Key #4: Fill Out As Much Info As Possible
When you’re creating a product listing in Amazon Seller Central, there are a ton of different fields. Fill out as many of them as possible. This will give the customer the most information, and it will also give you the best chance to rank in searches.
Step #4. Make Sales
Once your product is live, the next step is to make sales. If you were able to choose a product with low competition you may be able to start making sales within a few days, just by visitors finding your listing through a search on Amazon.
Getting traction and making the first few sales can be one of the hardest parts of the process. At first, you won’t have any customer reviews, which makes it harder to sell if your competitors have a lot of reviews.
Once you’ve proven to Amazon that you can make sales, they’ll rank you higher in the search results. So at first, you just need to focus on getting the ball rolling.
Here are a few things you can do.
Strategy #1: Pay For Amazon Ads
When you do a search on Amazon, you probably notice that the first few listings on the page say “sponsored.” If you’re willing to pay, you can get exposure even for a new product.
You can bid a maximum amount that you’re willing to pay per click, and you can set a max daily budget.
Amazon will give you reports to show your average cost per sale, so if you know your profit margin, you can work to keep your bids at a level that allows you to break even.
Even if you’re not making any profit from your ads, the conversions can help you to rank higher in searches and the result will be more organic (free) sales.
Strategy #2: Run Ads On Other Sites
A lot of sellers pay to run ads on other sites (like Facebook). Depending on your profit margin and the cost that you have to pay per click, this can be a good way to start making some sales.
Some sellers will use discount codes or special offers to generate more sales from these ads.
Strategy #3: Use Your Email List
If you have an existing email list, you can use it to help launch your new products or to promote limited-time offers.
Most new sellers won’t have an existing email list, but this is something that you can work to build over a period of time. A quality email list will make it much easier for you to launch new products and get reviews for those products.
Strategy #4: Use Discount Sites
There are a number of websites where Amazon sellers can offer discounts on their products in order to make more sales. You may not make much of a profit (or you may lose money), but the conversions can help your product to rank better.
The hardest part is getting those initial sales. Once you get some sales momentum and some reviews, things can pick up.
Step #5. Scale Up
Once you’re making some sales with your first product, you may want to consider adding a second product. Scaling up and adding more products is the best way to grow your overall revenue and profit.
There are a few different approaches that you can take for scaling up. The first approach is to build a brand in a particular niche where all of your products will be related.
For example, if you want to build a brand in the camping niche, your first product might be a tent. Options for future products would include things like other styles of tents, sleeping bags, hammocks, hammock straps, backpacks, or any other type of camping gear.
The other approach is to sell a wide variety of products based simply on whichever products give you the best opportunity to make money. Those that take this approach usually go with a very generic business name like Best Quality Products that will allow them to sell just about anything.
In this case, your first product might be a tent and your next product might be a baking mat. There is really no correlation between the products, so you’re not building a recognizable brand.
Although both approaches can work, my preference is to try to build a brand in a particular niche where all of your products are at least somewhat related. This will give you the best chance to sell multiple products to your customers and it will give you the best options for branding your business over the long run.
As you add more products, not all of your products will need to be a home run. My wife and I had several products that averaged around 5 to 10 sales per day. None of those products made us a significant amount of money individually, but the cumulative result was a successful business that didn’t rely too heavily on any one product.
Products that make a few sales per day can also fly under the radar of some of your competitors, whereas top-selling products tend to inspire a lot of copycats.
Probably the biggest challenge that you’ll face related to scaling up involves cash flow. As you add new products, you’ll need to invest money into the initial inventory for each product, and it can be a while before you start to recoup that investment. This can limit how fast you’re able to grow your business.