The global ecommerce market is expanding rapidly, and Amazon is at the forefront. Two day (or same day) shipping. Almost any product imaginable. A high-performing supply chain and logistics powerhouse. A company focused on customer service. If you want to join this phenomenon and start learning how to sell on Amazon, keep reading.
As they say, in the end if you can’t beat em, join em. In 2018, Amazon’s share of the US ecommerce market hit an unbelievable 49%.
Having built trust for over two decades and amassed 2.5 billion shoppers every month, Amazon, which is the world’s largest online retailer, presents new ways to make money online for every seller that joins their ranks.
In this article we will discuss how to make money on Amazon, how to sell on Amazon FBA, how to price products, and how much money you need to get started.
Selling on Amazon FBA
Amazon FBA (Fulfillment by Amazon) is a program that allows you to sell on Amazon without having to fulfill orders yourself. Amazon will pick, pack, and ship your orders for you.
With FBA, you can also pay as you go—you are only charged for inventory storage space and the orders that Amazon fulfills. Plus, the cost of shipping is included in your early fees, with no extra charge for Amazon Prime free Two-Day Shipping.
One beautiful thing about selling on Amazon is that it is scalable. You can start small and step it up with time. With sales estimation software, you can anticipate your sales beforehand.
To get started, let’s look into what you need to do to get up and running so you can start selling on Amazon.
The first step to head over to Amazon Services, where you can sign up for an Amazon Seller Account.
Scroll down and click the link to get started.
At this point, you decide if you want to “Sell as a Professional” where Amazon charges you $39.99 monthly or “Sell as an Individual” where Amazon charges you $0.99 for each sale you make. If you’re just starting out and don’t have a ton of sales under your belt, you can choose to get started as an individual.
You’ll need to input information and enter a credit card with a company like Mastercard or Visa for international charges.
If you are outside of the United States, Amazon will request your local bank information. Note that precisely this local bank must support ACH for wire transfers.
You will also need your local phone number (bearing the allocated prefix of your resident country) as well as your home address for your personal mail.
Lastly, you would need a US Employer Identification Number (EIN) if you run an LLC or a social security number (SSN) for a sole proprietorship.
Now that you’ve gotten some basic information out of the way, let’s discuss exactly how Amazon FBA works.
As the seller, you first have to choose which products you’d like to sell on Amazon. Once you have products in mind, you add their details to your Amazon account including titles, descriptions, prices, images, and other additional Amazon-specific product information.
Next, your listed items are prepared (boxed up) and shipped to an Amazon FBA warehouse.
Once your items are packed and shipped to Amazon, they will take care of the fulfillment for you. Amazon first goes through a verification process to ensure your items were delivered correctly and in the right condition.
After this verification, Amazon activates your listings. Once activated, your seller name is visible on your new product detail pages where you can now sell your items.
These items are then stored in Amazon’s warehouses until a buyer orders them.
When Amazon receives the order, they handle the fulfillment and can ship it as Prime Two-Day Shipping.
Generally, Amazon FBA first settles your account balance 14 days after you start, and you’ll get paid every two weeks.
The most significant advantage of the Amazon FBA program is that you as a merchant don’t have to focus on logistics, returns, and customer service, and only focus on generating sales. Additionally, your customers enjoy the benefits of Amazon Prime Two-Day Shipping. It’s a win-win.
Now that we’ve discussed with Amazon FBA is, how to get started, and the benefits of joining, let’s go over the total cost.
Selling on Amazon FBA is a pretty cheap options for getting your feet wet in ecommerce. If you’re a professional seller and paying the $39.99/month, you can avoid paying the $1.00 per item fee. So typically if you’re selling more than 40 items per month, you should join Amazon FBA as a professional seller.
Here is my advice. If you plan to sell 41 items or more monthly, it would be better to start off with the professional seller account. But if you are going to sell less than 40 items monthly, you can go with the individual seller account.
However, there are also Amazon Referral Fees which vary based on the type of items sold. For example, if you’re selling books, Amazon will take 15%. If you’re selling consumer electronics, they’ll take an 8% referral fee.
This definitely adds up over time, which is why it’s important to calculate the fees and expenses you’re paying to Amazon. While it’s great to leverage their large user base and get your products in front of more people, you need to have a plan to sell from your own website.
I recommend using an ecommerce platform like BigCommerce that can sync with your Amazon listings so that you can sell both from your own website as well as Amazon, Facebook, Instagram, and other channels, giving you more visibility and an omni-channel approach.
How to Choose Products to Sell on Amazon
To a large extent, your profitability on Amazon is tied to the product category you choose to sell in and how well you can create a distinct brand. If you’re selling simple commodities like kitchen utensils or paper products, it’s going to be hard for your brand to stand out from the crowd.
That’s why it’s important you understand private-label products.
Private label products are goods or services made by one company to be sold and branded by another company.
With private labels, goods can be created by third-party producers which allow you to sell them under your own brand name with your personalized logo.
As said, I would recommend the private label method. But why will I do that?
Many sellers are embroiled in the rigors of sourcing multiple products in small quantities. This is particularly in the case where you are selling via retail arbitrage. However, in private label, you don’t need to be stressed about that and can focus on obtaining a larger amount of products.
In the private label model, you are directly responsible for your Amazon listing. In arbitrage as well as wholesale selling, there is a strong tendency to underprice the competition. But in private label, you’re more in control of the price.
With Amazon private label, you can better predict your sales on the Amazon FBA program. When you have more control with your own brand image, you get to dictate price and enjoy a stronger ROI.
Now, let’s dig deeper into how you can identify the best products to sell.
The right product has a strong profit margin and is also a product that fits your expertise and brand image.
One easy way to start generating product ideas is to choose a category you’re interested in and check out the products where companies have a sponsored listing. In these instances, you know that brands are willing to spend money on these products, so it may be a good indication of ROI.
1. Use Product Research Tools
Finding the right product to sell on Amazon also has a lot to do with your choice of product research tools. These product research tools enable you to filter through products identifying which best fit your chosen criteria.
Many Amazon sellers make the mistake of either pricing their products too low or too high.
If your price is too high, it is likely that buyers are going to be turned off and not purchase. If the price is too low, your brand’s quality perception may decrease – or you generate a lot of sales, but the profit margin is too low to maintain profitability.
2. Understand Your Gross Margin and Cost of Goods Sold (COGS)
If you understand your gross margin and cost of goods sold, you can better understand the price point that will make you both competitive in the market, and profitable.
Gross profit margin is the amount you get when you subtract the cost of goods sold (COGS) from total revenue and then divide that number by total revenue. The top number in the equation is the gross margin – the total revenue once you subtract the total cost of goods sold (COGS).
In the case of Amazon, the formula looks something like this:
Gross Profit Margin = Total Revenue – Cost of Goods Sold (COGS) – Amazon Referral Fee
If you can maintain a 20-30% margin after all associated costs and Amazon Fees, you are in good shape. So make sure to check your product categories’ Amazon referral fees and understand your COGS when finalizing your pricing strategy.
3. Keep an Eye on Your Competition
If you’re selling in a competitive space, you can virtually sell at the same price or slightly lower than your main competitors.
One factor for a new seller to consider in this case is if your products have stayed too long in Amazon warehouses and you want to avoid Amazon’s long term storage fees. You can always drop prices in instances like these to ensure you’re in good standing with Amazon.
At the end of the day, there isn’t a “Holy Grail” pricing strategy that accurately applies in every scenario on Amazon. Typically, before you adopt a pricing strategy for your inventory, it is best you experiment in a beta phase (with minimal risk) before wholesome assimilation. The key is to hit the balance between profitability and sustainability.
How Much Money Do You Need to Sell on Amazon?
As I have earlier stated, your starting capital as an Amazon Seller is decided by your cost of product acquisition – where are these products being sourced from? We’ve discussed retail arbitrage, wholesales buying, and private label manufacturers.
Now, there are five areas where you are most likely to spend money on when you start selling on Amazon. I will delve into them, and you can decide how much you can allocate to these areas.
By your beginning inventory, I mean the items you will start selling on Amazon. I have established before now that your beginning inventory can make or break your Amazon adventure. Therefore it is paramount you correctly identify the products you want to start with.
For the cost of your beginning inventory, anywhere from $150 to $500 is cool for a start. This way you would have sufficient inventory to keep you going for a while rather than just depleting your inventory too quickly and losing momentum.
Of course, your beginning inventory should have substantial profit potential. You can use the Amazon FBA calculator to estimate how profitable such items would be on the long run, especially after Amazon takes off its operational fees. Another tool to use for such profit anticipation is the Amazon Seller App.
Now, for a start, if you are not using the private label I mentioned earlier, I would suggest you keep your inventory diverse rather than investing all your capital in one product. You can go with two or three copies of about 18 different items. This strategy can help you hedge your investment rather than pouring all your capital in one item that can flop miserably.
As I have earlier pointed out, you will need to open an Amazon account where you will choose between a professional reseller account and an individual seller account. The professional seller account is your best choice if you are selling above 40 products – unlike the individual seller plan where Amazon takes $0.99 for every sale. The professional reseller account goes for $39.99 monthly.
So add this $39.99 to your starting budget.
To begin selling on Amazon, it is necessary to procure a standard barcode. This is fundamental for the generation of an “FNSKU” – Amazon’s proprietary barcode, which is a mandatory code printed on your product packaging.
To get your FNSKU, Amazon’s TOS will demand a Global Trade Identification Number (GTIN) from you. This goes for the UPC code.
Some time ago, Amazon made modifications to their TOS procedure. These modifications stipulated that barcodes can only be acquired from GS1. This comes at an initial registration cost of $250 in addition to a $50 yearly renewal fee for about 10 barcodes.
To cut down cost, there is also the option of buying such UPC codes from third parties. However, this may not be the best path to follow as Amazon is making frantic efforts to clamp down on such third party UPC acquisition.
The power of high quality product photos on Amazon can’t be overstated. In 2019, people want to view high quality photos, and experience something as close as possible to an in-store retail experience.
It is worth investing in good quality photography as your photos are one of the most important things that can increase product sales and conversion rates.
If you’re a private-label Amazon seller, you will have to get a registered trademark.
Additionally, your branding should stand out. If you’re just starting out, you’ll still need a designer to create a company logo and Amazon image assets for you so that you give off a professional presence.
If you can’t beat em, join em.
If you’re looking to start selling online, a safe bet is to join Amazon FBA and tap into a huge customer base. As Amazon just increased their Q4 2018 profits by 20% year-over-year and brought in $72.4 billion, the market is larger than ever and still growing.
So do some product research and get started with Amazon FBA – it’s a great way to test out product ideas with little risk, and can help you get to a place where you build your brand, create your own website, and sell directly to your loyal customers.