Today on the all things Amazon FBA blog, I will discuss six crucial parts of Amazon FBA a beginner must know.
I get it; it’s overwhelming when you begin. Your friend tells you about Amazon FBA, and now all of a sudden, you decide it’s time for a change─a change in your life where you want to be behind the wheel driving the car instead of having to be pushed around by your boss.
It’s an excellent choice to start on your own. However, there is a learning curve you have to get around. You have to develop new skills to do product research, source from China, pay taxes, rank your product, and a lot more.
I understand you can get overwhelmed at some point, but don’t give up. Take it step-by-step.
To make your Amazon FBA business successful, you have to understand certain aspects thrown at you. So today, I will discuss the basics but also more complicated questions I had as a beginner. On top of that, you will get some actionable tips that will drive you forward. Keep on reading!
What is Fulfillment by Amazon (FBA)?
With FBA, you store your product in one of Amazon’s fulfillment centers. It’s a service where Amazon takes care of warehousing your inventory. It will pick, pack and send orders to customers when you sell a product.
They will even handle customer service and returns.
FBA takes away multiple barriers to entry. You can start earning money with little start-up costs and don’t need a team to operate.
It also allows you to scale incredibly fast, not only in the US but also internationally.
This is why FBA has gotten so popular over the years and why more sellers understand the opportunity.
It’s also super easy to send your product to Amazon fulfillment centers.
- Set up FBA – Create an Amazon selling account and login to seller central
- Create product listing – Make your product available on the Amazon marketplace
- Prepare products – Pack and pack your products in bulk according to Amazon packing guidelines
- Ship – Create a shipping plan, print labels, and ship to an FBA center
The absurd part is, as a seller, you don’t even have to see, feel and touch your product. You can directly send your product from a manufacturer in China to a fulfillment center. Just think about that for a second. How crazy is it?
Should I buy a $997 course?
It isn’t hard to know that the more accurate information you have, the more likely you will succeed. There are tricks and tactics out there that can help you get towards your goal.
However, I will say 90% of all training programs are not going to help you. The information in them is primarily common industry knowledge that you can get by doing a google search.
The people who are selling the courses are what I call money wolves. The primary thing they are selling is a dream towards the lower class of the population—those already struggling to pay for rent and push a $997 course down their throat.
Take the Amazing Selling Machine. that crappy course you have heard about before. The money wolves sell their “secret information” in a package for only $4997! And it costs them nothing in terms of supply.
They can literally spend $4000 on Facebook and Youtube ads to acquire a customer. Sell them a dream, collect the money, and go.
On one side, I find it incredible how it is not talked about more. On the other side, I understand. I can earn 2,392.80 per sale I bring them. It’s called affiliate marketing.
It is no wonder so many people are speaking positively about the “crappy selling machine” and dropping a promo link at the end of their pitch. They earn money─a lot of money.
Currently, I’m shitting on the Amazing Selling Machine, that is because they are priced the highest at $4997 per training. However, there are many more examples like this, especially in the Amazon space.
As I said, only 10% of courses out there genuinely help people get out of debt and change their lives. I don’t think helping someone pay $5000 upfront, let alone the additional costs like manufacturing, will make their lives better.
Yes, they are targeting beginners. Yes, they are selling them a dream. Yes, it’s the same as selling drugs. If I didn’t scam them, someone else would have.
Dam, I could have probably made 5 to 10K if I just talked optimistically about them. Tell you how life-changing it was, and drop you a link. Oh well…
I don’t want you to get me wrong. Courses CAN be a good purchase, but you have to do a background check to see if the course creators’ claims are legit.
What is the reason Amazon sellers fail?
Look, if we know why Amazon sellers fail, we can start to make different decisions. That is precisely what you need to do.
There are a handful of different reasons we know off why Amazon sellers fail. Reason can be:
- Not differentiating
- Lacking a clear marketing plan
- Selling low-quality products
- Thinking Amazon FBA is a “get rich quick scheme”
The above reasons are prevalent. However, there is one reason that stands above them all. One reason why almost every seller fails.
Which is… Not getting started at all.
Thousands of soon-to-be Amazon sellers are reading, studying, and thinking about starting an Amazon business. They (might) buy a course, get into a community, do excessive product research to a point where you are two months further. They might buy a sample and then…
All the upfront work of learning, researching, ordering samples is all thrown in the bin because someone gets a negative thought running through the back of their mind.
Let me explain.
They say that a great salesperson must believe three things: The product they are is selling—the company they sell it for… And in themselves.
They have to stand behind their ability as a salesperson to manage the selling.
Being a salesperson is far, far more straightforward than living a life as an entrepreneur. When you start as an entrepreneur, you don’t have a product or a company to stand for. That only leaves you.
That’s why it’s a misfortune when Amazon sellers quit because they don’t think they have what it takes.
The truth is, all entrepreneurs are faking it until they make it. We’re all figuring it out as we go. No one has a real clue what we are doing.
When we start, we don’t have any know-how on winning—or the capabilities we need—so we develop them along our journey.
Never quit your Amazon business because of a lack of self-belief. Everyone else who has succeeded before you felt it too. But they continued anyway. It’s persistence that guarantees a big win.
Knowing your numbers is crucial
The rollercoaster that Amazon is leads to a hard time knowing your exact numbers. Amazon indeed has a trillion different fees, and that taxes can be challenging to understand at first. However, you must, and I repeat, must understand your numbers. It’s even more critical if you are just starting as you most likely run on a tight budget.
When I first started selling, I had a hard time calculating my actual profit. I didn’t understand what fees applied to me and what taxes I had to pay for every sale I made. It was horrible.
So what happened was I was losing money on my product without me knowing. I couldn’t calculate my break-even ROAS; thus, my advertising spend wasn’t transparent.
Even worse, I didn’t have the funding to buy a second batch of inventory when I almost sold out. I settled on borrowing money, although I promised myself not to do so.
These rookie mistakes could have been prevented if I had precise know-how and an overview of all my numbers.
To get your numbers right, you have to first know all current Amazon fees. Here is a list that applies to you:
- Professional seller plan
- Variable costs fees
- Fulfillment fees
- FBA storage fees
- Additional fees
The above fees can be calculated. Only the additional fee is a variable that applies in some cases. Several different fees fall under this section, things as disposal costs, return shipping costs, commission costs, inbound shipping costs, and more.
Further, we have direct costs on our business. Here is a list that applies to you:
- Shipping costs
- Acquisition costs
- Product costs
See these costs as the brain of your business. It’s what determines your baseline and margins.
Further, we have indirect costs on our business. Here is a list that applies to you:
- Payroll and benefits
- Product samples
These expenses apply to the foundation of your business. What happens behind the scenes. They are overseen by some Amazon sellers and not calculated at all.
For starting sellers, you don’t want to leave your numbers unknown. Calculate them and track them within a third-party software to automate the process and help determine your profitability.
Different types of Amazon FBA business models
When you hear Amazon sellers talk about Amazon, don’t directly assume it’s about Private Labeling. There are a ton of sellers who are using another business model to sell on Amazon.
In my eyes, there are three main business models that 90% of sellers follow. These are:
- Private Label
- Retail/Online arbitrage
Private label is the most popular and the one I’m interested in the most. Private labeling is the art of sourcing ODM and placing your (private) label on it. ODM stands for, Original Design Manufacturer, which means that the manufacturer designs and produces the product and that the buyer has limited design abilities.
Wholesale is the second most popular one. In simple words, the business is about purchasing directly from a wholesale/distribution company of a given product to resell it on Amazon. With wholesale, you will quickly see big numbers and believe that person is making a ton of money. WRONG, the profit margins are low, sometimes even less than 10%. Comparing wholesale to Private Label, I would say your initial risk is lower, and it’s easier to get started.
Retail arbitrage has the lowest barrier to entry. What you do is buy goods at a low price, most of the time at some retail store, and sell them for a profit on Amazon. The business model takes a lot of work and isn’t scalable like private label and wholesale. However, it has the lowest risk and lowest startup cost. It’s an excellent way for beginners to get started selling on Amazon.
There are more models than just these three I briefly touched on. Here is a list of the ones I know:
- Merch by Amazon
- Amazon services
- Amazon work from home jobs
- Amazon flex deliveries
- Amazon Associates
- ACX Voice over acting
- KDP print books
- Kindle books
- Amazon handmade
I want you to understand the different business models available on Amazon so you know that there isn’t just one way to earn money. Be creative and research what you find exciting and worthwhile. You don’t have to start with a Private Label at first if you don’t have the capital.
Don’t take Amazon product research criteria literally
In my research for today’s article, I found out there are too many “gurus” telling you to source based on specific criteria—criteria like: sales price between $10 and $30, only three sellers with more than 200+ reviews, small and lightweight, no seasonal product, no gated products, not easily breakable, not electric, etc.
What happens is that no Amazon seller is thinking out of the box when all they do is take product research literally. Not only will you not find real profitable opportunities, but you will land in a red, bloody ocean of sellers thinking the same, leading to low margins.
Instead, what I recommend is you go and source products that are easily breakable. Find a solution on how to fix the problem of it breaking easily.
Or source a seasonal product. You will find less competition in those niches, and it will be more profitable.
Or source products that are priced $200+.
It all comes back to barriers to entry. A barrier to entry is one of the most critical factors in selecting which markets to go into, and I can write a complete book about it. A barrier to entry is ANYTHING that can make it challenging to enter a market and are rather a good thing as a bad thing.
Look back 20 years ago. The term, entrepreneur, was still undiscovered. Almost everyone had a job, worked a 9 to 5, and retired late. There was no website builder like Wix or an Amazon fulfillment center that takes care of everything on the back-end. No, you had to raise capital or needed to be lucky to be born in a wealthy family. The barrier to entry for starting a business was just too high.
Now, in the tech world, we live in today, it’s possible to start a business without any upfront capital. There are entrepreneurs in their 20s making millions a month after being in business for a year. It’s isn’t comparable with what was used to be possible. The barrier to entry, because of the internet and the tech world, is insignificant.
In today’s world, barriers to entry are a good thing as not everyone can compete with you. You can only compete if you have to money and resources to do so. Hence the reason you want to stop taking product research literally, so you don’t step into a red ocean of entrepreneurs who are all able to compete with you.
Read more about barriers to entry here.
If not, I will speak with you next week.