The “FBA” in Amazon FBA stands for “Fulfillment By Amazon.” That means that the full title of the service is “Amazon Fulfillment By Amazon.”
While that might be a little janky though, online entrepreneurs shouldn’t let it put them off, as FBA is actually one of the most powerful tools at their disposal if they want to start making money on the web.
Amazon FBA allows small businesses and even individual entrepreneurs to compete with much larger brands.
So what is Amazon FBA? Essentially, it means that Amazon will handle the storage and shipping of products for you, so that you can sell physical items without owning a warehouse or worrying about logistics. It’s one of the great “equalizers” provided by the web, allowing small businesses and even individual entrepreneurs to compete with much larger brands across the largest store on the web.
In this post, we’ll explore how it works in detail, and how to start an Amazon FBA business of your very own.
The basic fulfillment by Amazon business model
When you use Amazon FBA, you will go through the following basic steps:
- First choose the product you would like to sell
- Find a supplier to sell it to you
- Get the product packaged and delivered to one of Amazon’s fulfillment centers
- Create an Amazon store listing
- Wait for buyers and let Amazon sell and distribute your items
So, why is this such a big deal?
As many internet marketers will already know, it’s possible to make a lot of money by selling products online. If you create a website, pay for advertising, or find another way to reach a large audience, then you can either sell a digital product like an ebook, or an affiliate product (a product you earn commission on, which will often also be digital).
This can make a lot of money, but it ultimately limits your potential market. In your own life, how many people do you know who buy ebooks? Not only does that person need to be someone who reads, they also need to be tech-savvy enough to be happy to read a PDF. And they need to feel that a digital product – that costs nothing to produce – is worth the money. That can be a hard sell.
And, of course, selling affiliate products also means you only get a small slice of the pie.
That’s why physical items are still, by far, the most profitable products, even online.
But selling physical products without a service like Amazon FBA is hard work. It involves ordering stock from a wholesaler and then storing it somewhere in your home. Then you need a way to market your items, to take individual orders, then to package, send, and track each one.
Physical items are still by far the most profitable products, even online.
That’s before you even consider issues like damaged goods, lost items, or refunds!
With Amazon FBA though, you can sell a physical product almost as easily as you might sell a digital product. You simply point buyers in the direction of your Amazon listing, then let Amazon do the rest.
Not only does this mean that a small business can make sales without thinking about logistics, but it also means that buyers can order knowing their item will be handled by a company they already know and trust. And they can even benefit from Amazon Prime’s next day delivery if they’re signed up!
That’s before you even consider issues like damaged goods, lost items, or refunds!
That’s not to say that an Amazon FBA business is the perfect solution though. For one, it means Amazon will once again take a larger cut. For another, there are still certainly some logistical and administrative hurdles you’ll need to overcome. We’ll get to that in a moment.
How to start an Amazon FBA business
So, you like the idea of an Amazon FBA business, the next question is where to start!
First, you need to find a product you like and a wholesaler willing to do business with you. Thankfully, this is easier than it sounds even for those new to this kind of thing. That’s thanks to a site called Alibaba, which is essentially “Amazon for wholesalers.”
Head to Alibaba and you’ll be able to find a whole bunch of different products that can be ordered in bulk at wholesale prices. The best part is that these products often don’t require huge orders – in some case you only need to buy two! That minimizes your risk significantly.
Many manufacturers on Alibaba are happy to offer white label services, which means that their own branding won’t be anywhere on the item and they may even let you print your logo on them.
Some manufacturers will even be open to making small adjustments to the designs, creating entirely new products! That means you can stand out with something unique to you. However, customization normally (understandably) requires a larger up-front order from you.
Now you need to place your order and have the inventory shipped to Amazon’s fulfillment centers (which sounds like the meeting place for a self-improvement cult). There are a few more steps you need to follow before you can do this though.
Amazon FBA requires that some form of packaging be in place
First, you’ll need to buy a barcode. There are plenty of places you can do that online. Every product on Amazon with a unique listing will require this. You’ll need to ask the wholesaler to attach that barcode to the packaging before sending it onward.
Wholesalers will normally only offer basic packaging (e.g. a plain box or transparent plastic pouch). If you want more packaging, then you’ll need to organize this through a third party. Amazon FBA requires that some form of packaging be in place, and won’t handle items that arrive loose or in parts.
Next, you’ll need freight forwarding to have your products delivered to the right country – remember that most manufacturers are located in China. A popular option for freight forwarding is Flexport, but there are many others to choose from.
Now you’ll need a carrier to take your products to Amazon. UPS is the most common choice, and is an “Amazon Partnered Carrier.” You’ll need to prepay for your delivery and get a shipment ID and PDF label. That PDF needs to be passed on to the freight forwarder, where it will be attached to the cartons used for shipment.
How to create your Amazon store listing
Now your item is safely with Amazon, you need to provide buyers with a way to order it.
First, you’ll need to create your Amazon account. This is easy enough, you’ll just need to choose whether you want to sign up with Amazon UK, US, or India. Herein lies one of the limitations of Amazon FBA: you won’t be able to receive payment in your local currency if you choose an overseas site (not without incurring significant costs at least).
You’ll also need to choose between an individual account or a professional account. Either is eligible to use Amazon FBA, but individual accounts are charged additional fees on each item sold and have access to less analytics. Amazon Professional accounts are charged monthly, but make more sense as your business starts to grow. This is an extra cost to consider when calculating profits.
Handily, the process of creating an Amazon listing is very simple. You’ll need to sign into the homepage, then find the inventory tab. Click “Add a Product” and then “Create New Product Listing.” The following steps are fairly self-explanatory. There are lots of fields to fill out, but happily most can be ignored.
Some of the details you will need to include are as follows:
- Item name
- Brand name
- Recommended Browse Node
- Product ID (this is the IUPC number on the barcode)
- Payment method
- Business address
- Fulfilment channel
For that latter option, choose: “I want Amazon to dispatch and provide customer service for my items if they sell.”
You’ll then need to fill out the details of the store listing itself by including photographs, a description, keywords, etc.
The process of creating an Amazon listing is very simple
The next page is titled “Send/Replenish Inventory.” Here, you will provide some more details about your product, including the proportions and weight of the item when packaged. You’ll get this information from the wholesaler/your packaging contractor.
Where it asks how the inventory will be delivered, choose “Small Parcel Delivery” and “Amazon Partnered Carrier.”
And now you just wait for the inventory to arrive. Once it does, you’ll see the number go up on your listing and your product will be available to buy!
How to make your Amazon FBA business a hit
While setting everything up is a little fiddly, it is still leagues simpler than attempting to handle all this yourself. Unfortunately, success is still not guaranteed. In order for your Amazon FBA business to be successful, there are many things you need to consider.
Pricing is an important thing to think about. When pricing a product, you need to remain competitive and reasonable as compared with the competition, while still maintaining a good profit margin. Research similar products to get an idea of pricing, and keep this in mind when browsing for items to sell.
A common benchmark when pricing an item is something called “keystone pricing.” This means that you will charge the buyer twice the wholesale cost. So if you bought something for $10 per item, you would then sell it for $20 per item. Is this roughly in-line with what the competition is charging?
That doesn’t mean your profit will be $10 per sale however! You also need to consider the following costs:
- Freight forwarding
- Additional packaging
- Amazon FBA fees
- Any marketing
- Returns/damaged items
For a full list of Amazon’s fees and charges relating to FBA, check out this page.
You might also want to leave a little room for offering discounts and deals to help promote your product.
The way you write your listing is also going to have a huge impact on your success. A high quality photo of the product will help it to stand out and create a greater “must have” feeling for your buyers. Likewise, a good description needs to accurately describe the item and its dimensions/features, while also building interest and desire.
Just as important is ensuring that your item is discoverable. That means careful use of keywords in the description, and potentially in the title. Amazon is a search engine like Google, and the same principles of search engine optimization still apply.
Your aim is to get your “conversion rate” as high as possible. In other words, for every 100 people who view your store listing, how many actually go ahead and buy?
Another way to improve discoverability for your item is to market it. That means getting word out about its existence through social media, a blog if you have one, and online forums and communities. In many cases, it will also mean using advertising platforms like AdWords and Facebook Ads in order to reach a targeted audience.
Finally, the actual item you choose is the most important facet of your Amazon FBA business model. Does your item have a broad enough appeal, while still offering a clear unique selling point (USP)? Is it currently trendy? Is that trend likely to last? Or is it perhaps something that will “always” be in demand?
An Amazon FBA business can be immensely profitable.
Once you figure out how to use Amazon FBA, your success will likely come down to your ability to sniff out emerging trends and great deals, and then to offer them to Amazon’s huge audience. Crack that, and an Amazon FBA business can be immensely profitable for you. The next step? Your own original product and a large-scale operation!