With the ever-increasing amount of shopping being done online, eCommerce is booming. The internet allows businesses to market their products and brands far more easily and effectively than ever before, and this, plus the added convenience for consumers, has made online shopping more popular than ever.
However, as easy and convenient as it is for individuals, retailers still face many of the same challenges as they do when selling in a traditional setting, such as the logistics of buying, stocking, procuring and shipping merchandise when an order is placed.
Several solutions to this have been developed over the years, such as drop shipping, which helps connect wholesalers to customers and facilitate the sale process. But another solution that seems to be growing every day is Fulfillment by Amazon (FBA). In short, this is a business model that works much like any other eCommerce business but that it allows Amazon to stock inventory and ship it to consumers when an order is placed.
These types of businesses are growing quickly, and they are a good way to make money online, as they have low overhead and high margins, making them highly profitable and scalable enterprises.
If you are considering starting an FBA business, here’s everything you need to know.
What is an FBA business?
An FBA business is not much different than any other eCommerce store, and it is also not unlike any other seller on Amazon. It works like this: you create your products just as you normally would, but instead of posting them only on your page, you advertise on Amazon.
At the same time, you provide Amazon with your product, and they store it in their warehouses. Then, when a customer makes a purchase, they will pull it off the shelves and send it to them. Amazon will also handle all of the customer service aspects of the business, taking care of customer returns and complaints.
To the customer, there is no difference between purchasing a product through an FBA business or through Amazon itself. This helps save eCommerce businesses tons of money and headaches, as they don’t need to worry about stock nor procurement.
How to Start an FBA Business
Getting started with an FBA business is actually pretty easy. The first thing you need to do is to create an Amazon seller account. You’ll need to decide between an individual or professional plan. The individual plan comes with no monthly subscription fee, but instead charges per transaction. It’s recommended for businesses that plan to fulfill less than 40 orders per month.
The professional plan costs just under $40 per month plus additional per item fees. It is designed for businesses planning on selling more than 40 orders per month.
How to Make an FBA Business Profitable
There are a couple of ways to make an FBA business work really well. One of the most popular is private labeling. This is when you buy a product at the wholesale price, put a branded label on it and then sell it for a higher price on Amazon. It has become very popular to do this using the Chinese wholesale market Alibaba, as products can be bought there in mass quantities for very little money.
The other way to make this work is to produce and sell your own products. The advantage here is that you are selling something you can truly call your own. However, you’ll need to find a way to make production costs manageable, as this will still affect your profit margins.
No matter which way you go, though, you’re going to need a marketing strategy. There are hundreds of millions, if not more, products listed on Amazon, and yours can easily get lost in the mix. Develop a way to try and get your products to show up on search engines, offer them to bloggers for reviews and encourage customers to leave reviews on Amazon after a purchase, as this helps push your listing towards the top of results pages.
Advantages of an FBA business
We’ve briefly discussed some of the reasons why this business model is so attractive to so many people, but here are a few more to highlight the point:
- Focus on your business. By removing the need to worry about logistics, you can focus on longer-term growth strategies such as branding and marketing, setting your business up for success
- Added credibility. People like buying things from Amazon and trust what they see there. FBA allows you to tap into this image and apply it to your business.
- Save money. Amazon does this for cheaper than you could ever imagine doing on your own.
- Scalable. Amazon’s logistical capacity is enormous, so you don’t need to worry about outgrowing your capacity. This ability to grow without concern gives your business a lot of value, making it an attractive option for investors should you ever decide to sell the business.
- Improved customer experience. Take advantage of things such as Amazon Prime and hassle-free returns to delight your customers and convince them to continue to do business with you.
Disadvantages of FBA Businesses
While the positives of FBA businesses greatly outweigh the negatives, there are a few downsides you should keep in mind:
- No control over customer service. Amazon handles all of this for you, which is great, but if a customer has a problem with shipping, and they call you, you’ll be unable to help. To some customers, this may be a problem.
- Marketing is a challenge. Getting your product listed on Amazon is easy, but getting it in front of people looking to buy, not so much. It takes time and money to get your marketing strategy right, but once you do, FBA makes everything far more profitable.
FBA businesses are great ways to make money online. You can focus on the core functions of the business, keeping overhead low and profit margins high. In this guide, we’ve covered all the basics for getting your FBA business off the ground. You’ll be sure to uncover a few more tricks along the way, but for now, the only thing left is to get started.
About the author: Jock is an entrepreneur who specializes in the buying/selling and appraisal of online businesses. He works with other entrepreneurs to value their business so that they can be sold to willing investors. Through his experience, he has found FBA businesses to be incredibly profitable ventures, and he encourages anyone interested to take the time to find out more.