How to Run Your Amazon FBA as a Real Business, Not a Hobby
Starting and scaling an Amazon FBA business is not a get-rich-quick scheme. It is a real business that requires investment, commitment, cash flow, and hard work.
A popular belief reinforced by a lot of advertisements is that your Amazon business is something you can do on the side along with your day job.
IndiaSourcing.net’s Co-Founder, Margaret Jolly busts many myths around starting a business on Amazon in a freewheeling chat.
“A hobby takes money, a business makes money,” says Margret as she explains why you are heading for failure on Amazon if you are treating it as a hobby.
Watch the full video here or read a summary below
How much investment is required to start an Amazon FBA business
Selling on Amazon requires a financial commitment, and you need to scale your business to make real money. You can either scale slowly with your available resources or get a loan to buy a bigger amount of stock.
Like any other business, you need to learn the ropes of selling on Amazon. There are a lot of steps involved and many moving parts. You must invest in a proper course to learn how to do things right. Watching a few YouTube videos and trying to piece together the process is risky and time-consuming.
You must also invest in tools such as Helium 10, or find other means of doing product research and validation. Selecting a product that’s not in demand or not differentiated enough are the biggest mistakes new sellers make.
If you’re starting any other type of business, you would need to learn about it and invest in it. For example, if you want to open a hair salon, you must buy the tools (scissors, brushes, etc), know how to cut hair (or be able to hire staff who can do it), invest in space, and more.
Just as any other business, learning and investing is very important to start an Amazon business.
There is no hard and fast rule for the amount needed to start a business on Amazon but an outlay of at least US$10,000 is ideal when getting started. This maximizes your chances of success and enables you to do things the right way.
Amazon is getting tougher and more competitive. Even before you start selling, you need a trademark so you can apply for Brand Registry. You will also need to invest in high quality photos and videos of your product.
You should also be ready to lose what you invested if the product doesn’t sell and you may want to start another product. On the other hand, it is possible that your product does take off, and then you need cash to restock.
Know your costings before you start
When you are new to Amazon FBA, it is advisable to start working with one product only. Launching a new product can be quite expensive, so you have to get your costs right.
Here are the key costs you need to take into account:
- Product and freight cost: You can get the product and packaging cost from a supplier, and freight costs can be estimated by getting a rough quote from a freight forwarder.
- Amazon referral fee: Amazon charges a referral fee ranging from 10% to 15% of selling price, which varies by product category. But in general, for a package the size of a shoe box, the fee is about US$6. Amazon also charges a delivery fee.
- Storage costs: You can either store your products at Amazon’s warehouse or at a 3rd party logistics (3PL) service provider. This does add to your costs, but can also save you money during Q4 when Amazon’s storage fees increase significantly. In some cases, you will have to store in a 3PL because of storage limitations at Amazon’s fulfillment centers.
- Advertising costs: PPC costs on Amazon can quickly eat into margins, especially when you launch a new product.
- Other business expenses: Amazon FBA is a business and you will incur other business expenses such as company registration, accounting fees, product liability insurance, and more.
Buy India Sourcing Workshop on-demand videos to get a Profitability Calculator template that will help you estimate and keep track of all your costs.
Do your research
Finding the right products that are in demand but not too competitive is key to being successful on Amazon. Here are some noteworthy tips:
- Product development: If you want to sell private label products on Amazon, spend some time researching and developing the product.
But make sure there is enough search volume for the product on Amazon. You may think of making something new and different but if customers are not searching for it on Amazon, your product may never be found.
- Differentiate: Try to come up with ways to differentiate the product so you can stand out from the competition.
Differentiated and unique products such as this set from Vidhi Exports are essential to stand out from the competition.
- Documentation and certification: Some products might require certifications and testing. As an importer, it is your responsibility to know the requirements for your product.
For example, wooden products imported into the US require a Lacey’s Act declaration. If you source from an export-focused supplier, they should be aware of these requirements, but as an importer, you must ensure all requirements of the importing country are met.
- Choose a simple product as your first one: If you are new to Amazon, you need to be careful about products that can hurt or put a user at risk. Amazon requires sellers to have liability insurance, which may be expensive depending on the type of product.
So for your first product, avoid products that go in your mouth or on your body. Also, be aware that things like tropical supplements or foods will have an expiry date.
Toys are a good bet but they need certification and they have to be ungated.
You could focus on a niche that you are familiar with or have a passion for. It could be a hobby, an interest or something related to your job. It’s easier to develop a product that you’re familiar with rather than something you know nothing about.
Over time you can get involved in selling something that is a more complicated and harder to do.
- Avoid saturated niches: If top ranking products have tens of thousands of reviews, stay away from those as these sellers have deep pockets and are doing high volume sales.
Send detailed product specs to suppliers
When contacting suppliers for a quote, be as specific as possible with your product specs, dimensions and other requirements to get an accurate quote.
Think about your product holistically and what are the different specifications that you need to tell the supplier to ensure that there is no gap between your need and their understanding of the design, dimensions, color, shape to what sort of packaging you need for the product. You also need to decide which market you are going to export to because that will determine the certifications that are needed.
Here are some tips when contacting suppliers:
- Send detailed info: If you send a very basic inquiry to a supplier, they may not respond immediately but if you are more detailed and specific about your product, they will take you seriously and respond quickly.
Details about product sizing are important. Ensure you are giving detailed measurements of all sides, and of key parts and components. Suppliers have a higher chance of making an error if there is a gap in your specifications.
- Look for suppliers experienced in your product: If a supplier is experienced in your product and has dealt with a wide range of products and materials, they will be forthcoming.
- Get on a video call: Have a detailed discussion with your supplier about your product. You will be able to test your supplier’s knowledge and experience in the production of that product.
- Tech packs: If you are dealing with fabrics or textile-based products or apparel, you will need a tech pack. A sourcing agency experienced in sourcing apparel may also be able to guide you if you’re not familiar with this product category.
Don’t place very small orders
Even though manufacturers in India offer small MOQs, it is not viable for you to ship small quantities. Here’s why:
- Set-up costs can eat up margins: Expenses like trademarks, photography, listing creation, warehouse expenses, and the like should be considered. In order to be able to bear these expenses and be profitable, you need to order at least 300 to 500 units for your first order.
- Shipping can be expensive for small orders: There is a standard fee for any sized shipment, which is followed by the actual shipping fee based on the volume of the shipment. Then there are customs and port duties. If you’re shipping a really small quantity by sea, your shipping cost per unit will be high, rendering the product unprofitable.
- You need enough stock to last a few months: If your product quantity is less, and your product sells well, you will be out of stock on Amazon, and that will affect sales velocity when you’re back in stock.
Reordering and shipping might take another three or four months before you get into Amazon and by then you’ve got to start again. You will lose sales momentum on Amazon and then you’ve got to really spend a lot of money to get yourself back up.
Selling on Amazon is becoming competitive and difficult, and only those sellers who treat this like a real business will have a chance at success.
If you want to generate an income from selling online and potentially exit the business, you must invest in it like any other business.
You should also be ready for the fact that it may take six to eight months to sell your first order, so you have to have enough capital to last that long.
Commit to your FBA business by investing in learning, and allocating enough time and money. With time, you will surely reap the benefits of selling online and enjoy the freedom of time and money.