How to Start an Amazon FBA Business 6 Step Guide

How to Start an Amazon FBA Business 6 Step Guide

Hey guys, I’ve been selling online through my Amazon FBA business for a period long enough to call myself experienced, although I would hesitate to call myself an expert like other experienced sellers tend to default to in this space.

I will talk about private labelling (white labelling) only in this article and not retail arbitrage – I may make a guide on this at some point if requested.

If you can bare with the slightly longer post today, I hope this guide can serve as a baseline to fill in the gaps in your knowledge and enable you to start your own successful business.

I hasten to add that many information sources out there allude to Amazon FBA offering get-rich-quick qualities, this in a rare case may be true however, if you choose to embark on this journey please do so treating it with respect as a serious business – or face the consequences.

Initial workload can be high with cash flow quite poor, but conversely successful products will see you bringing in good money with little work required, which brings me to how it all works.

The Business Model


Amazon is the largest online commercial retailer in the world, but what many people don’t realise (or care) is that when you purchase a product from the Amazon website, you are in many cases buying from a third-party seller (like me) enabled by a service called Amazon FBA.

In short FBA, in long Fulfilment By Amazon. When a seller is using Amazon FBA it means that Amazon physically stock the seller’s product in an Amazon warehouse, Amazon employees then pick and pack the order before shipping it out to the customer. The seller will simply see that they have made a sale and are required to take no action. Goodbye eBay-style taping, packing and post office running.

The customer will in many cases not know which seller they have bought from as they receive the same experience with the same Amazon customer service to boot. We as sellers of course just pay for the service with a fee per sale (dependant on item size/weight/price more on this later).

This simplicity is why the passive income/lifestyle label gets associated with the business model. While perhaps not entirely true, it’s easy to see why it does.

The key point here for me is that a 1-employee business can sell 1000s of products daily with little change in work load from 10 products a day. Which if packing and shipping each item yourself would start to become extremely hard graft (and unenjoyable at the least).

The image below shows the steps required to start selling using FBA.

Business Plan

While I consider myself reasonably freethinking and creative, if I were to create a brand-new product, find a supplier to manufacture it then list it on Amazon, I may make some sales. But by virtue of the fact that the product is new, there is no history and thus no evidence to suggest that my new mega creation will sell at all.

For this reason, I prefer to research the Amazon product database using various pieces of software to find a profitable niche or product, where importantly, there is evidence of good sales. I then simply rebrand the product and make small changes to it, enabling me to release a new (improved and unique) product to the already profitable niche.

This technique massively lowers your risk of a non-starter and is much more cost-effective. Many call this process ‘Private Labelling’ which in it’s simplest form consists of just adding your logo to an unbranded product to increase its perceived value.

Private label

Now that you hopefully understand the underlying principles, I’ve prepared 6 steps that will have you on your way to Amazon FBA mastery:

Step 1: Create an Amazon Seller Account


In order to sell, we need an Amazon Seller account (different to the one you use to buy things with). On occasion it can take a while to get approved, therefore I suggest getting on and creating your account as soon as possible.

There are two types, Basic and Professional.

Basic vs Pro

People ask me which one to choose – I would suggest starting with a Basic account as there is no monthly fee, you only pay 75p per item when sold. At the point you are selling over 35 items a month simply switch to the Pro and pay monthly – it’s the most cost-effective way.

Note that you will use a website called Amazon Seller Central to manage all your selling (not amazon.co.uk).

Sign up here https://services.amazon.co.uk/services/sell-online/how-it-works.html

Step 2: How to Find Products to Sell


There are many ways to find a product to sell on Amazon. You could have a random great idea and sell it, search the Amazon database for a product and improve it, search Google, Pinterest and Alibaba etc. All are valid ways of finding a potentially profitable product.

However, the quickest and easiest way to find a product is using a specially designed tool such as the JungleScout Web App which I have previously discussed in detail here.

In order to stop this post from becoming enormous, let’s just say that this tool searches Amazon for products that satisfy criteria that you select (e.g. 400+ sales per month, less than 10 reviews, less than 1kg in weight etc). This allows you to very quickly find niches and product opportunities.

Once you have found a product that you like the look of with good sales history, I personally use the JungleScout Chrome Extension (discussed at length here) to then analyse how well that product is selling and how well it’s niche is performing.

JS EXT.jpg

Once I’m happy with the sales and how I’m going to improve the product, I make sure to double check the Amazon FBA fees that will be incurred for each sale (as I mentioned earlier).

To do this I use either AMZ Scout Calculator Chrome Extension  or the Amazon FBA Revenue Calculator

Once the estimated costs have been entered – I know roughly how much I need to source the product for and to have it shipped to still make a profit!

Calc

The above duster example would make me £6.48 profit per unit – now to source the manufacturer to make the product.

Step 3: How to Find a Supplier (Manufacturer)


There are many huge online wholesalers but the biggest (and best) is the Chinese giant, Alibaba. It’s a search engine that allows you to find suppliers that can create your vision for you, usually at an alarmingly low cost too.

Here if we searched for our duster, I would then use the search results to find me a supplier who makes similar, if not the same products.

ali

Click the Contact Supplier button to start talking to a supplier that manufactures your types of product, here you can start to negotiate (always negotiate) prices, order quantities etc.

I do this for about 3-5 suppliers enabling you to compare prices and how easy they are to work with etc – I will be creating another post to discuss in-depth nitty gritty things like negotiating tactics, key terms and tricks that should offer some help if your struggling.

As a quick checklist for now, I tend to look for 2+yrs selling with the Gold badge, On Site Check badge and that they accept Trade Assurance as a method of payment (safest escrow service available that ensures you can get your money back if anything were to go wrong).

Once you have established a price and quantity that you are happy with, you now have as many data points as possible to start calculating your risk and profitability before pulling the trigger.

Step 4: Calculating Risk and Profitability


Now I like to run the AMZ Scout Calculator on a similar product’s Amazon page, with the addition of our new found product cost and shipping cost from Alibaba (more on shipping next).

amz duster.jpg

This will give us the most accurate estimate possible for expected revenues and profits. For example now if we were to sell this duster with the sourcing costs added – we’d make £4.80 profit per unit at £1829.37 profit per month – not bad.

Personally, I input all this data into an Excel spreadsheet, so I can maintain an objective overview of the many products which I am researching at the time. This also allows me to assess different products ROI / ROI per month based on their estimated sales. A higher ROI will allow better cash flow – which can be a hindrance in this business model.

Step 5: How to Ship your Products to Amazon


Also tied in with the supplier negotiation, is the choice of shipping method. There are three types to consider here using sea or air.

Air Express (simplest)

In general, if your item is small and lightweight then air shipping using a courier such as DHL/TNT is my preferred option. The supplier can get you a quote that will deliver your items directly to an address (called DDU – delivery duty unpaid). All you need to then do is pay the required import taxes / VAT that will come through the letter box in the weeks following. Delivery time 5-10 days

Air Freight (compromise)

Alternatively, you can use air freight, which will be slightly cheaper but means you will have to employ a third-party freight forwarder which adds complications (but not unworkable) to ensure your items get through customs and to your door. Delivery time 5-20 days.

Sea Freight (cheapest)

Finally, if you have heavier and larger items, sea shipping is the way forward being much more cost-effective. However, you will need a freight forwarder to get your items from customs and to your door, similar to air freight. Boats also travel very slowly – delivery time 30-50 days.

I get all my initial small quantities of products sent to me so I can inspect their quality, I then send the items on to Amazon’s FBA warehouses myself. This is the simplest way of getting the products from China to the FBA warehouse.

When you get more experienced, freight forwarders can be used to get your products from China to the FBA warehouse without you ever interacting with the products.

Step 6: Methods of Launching your Product


So now we have found a good deal, an appropriate shipping option and pulled the trigger on the order – it’s a good time to create your Amazon listing.

Using Seller Central add a new product making sure to select ‘Create New Listing’.

add prod.jpg

I won’t go in to mega detail here but do ensure your pictures are absolutely stunning, and that you use all 9 images available.

These are what really sell the product – if you aren’t the most gifted with a camera and Photoshop, consider finding a professional to take care of this for you.

Money spent here will no doubt be the difference between a successful product and a failed product!

Regarding launching technique, I consider 4 avenues:

  • List without doing anything (a good listing in the right niche will sell automatically).
  • Use PPC (Pay Per Click advertising) very aggressively in the first few weeks to build up sales velocity.
  • Set a low price to again build initial sales velocity, once your product ranks on the 1st or 2nd page you can adjust it appropriately.
  • Give-aways by using a service or just to people you know, again to build that spike in sales.

All methods serve the purpose of increasing sales to the point that you start to show up on page 1 or 2 of the Amazon search results – at this point you should start to see steady and continual sales without the need for the above. A combination of the above techniques usually works best for me.

Reviews are also important on the Amazon platform, so make sure to give a few products to your friends (they buy on Amazon, you reimburse them) to create a base of say 5 good reviews. This will serve as a cushion for any silly early negative reviews that may adversely affect your new listing.

Time and Money Required


Most time in this business model is spent in the product research and supplier negotiation stages – often concurrently. However, once you have found and ordered your product the time requirement drastically reduces.

When your product/s are selling expect to answer the odd question on your listing, respond to the odd request, monitor PPC campaigns and keep an eye on inventory levels for clues on when to re-order.

The smallest financial investment to get started can be as low as £500 for all costs. I did it for around £600 however, you will see lower and slower returns of course at this lower entry point. For the less risk averse it’s still a fairly small gamble to test the waters.

Those with higher appetites for risk may wish to go all in with £1000s invested in their first product. Done right, this can be greatly rewarding but beware of the risks and especially be wary of cash flow issues.

Say for example your 200 units of product start selling, you may be sold out before you’ve been paid by Amazon (every 2 weeks) and need to make your next order – thus pushing you more greatly out of pocket than you might have expected.

Extra Things to Consider


Business bank account – I use NatWest in the UK as it was free for the first two years (keeping initial overheads down while I tested the waters). This allows you to keep track of all your relevant payments and purchases in one place – a massive help.

Excel or Accounting software – I use Excel to track all my product data and costs as mentioned earlier. However, I also use it to track every transaction for my own records. I use an online tool called Fetcher to keep track of my seller account’s nitty-gritty details, discussed here. It provides data for each individual product (including PPC costs) with some handy features – it works great for tax calcs. I can’t recommend it enough actually.

Phew. That was a longer than expected, sorry. If you managed to get this far well done, I hope you can take something useful away with you from this marathon-post. I’d love to go into more detail, but I’ll save that for more specific smaller posts in the future (when I have time!).

Useful Links


Jungle Scout Products

Jungle Scout Sales Estimator

Amazon FBA Fee Calculator

AMZ Scout Calculator

Fetcher

Take care,

Summary
Article Name
How to Start an Amazon FBA Business 6 Step Guide
Description
The one-stop guide to learning the ropes of selling with Amazon FBA.
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