Amazon launched its FBA program in 2007 as a way to help third-party sellers grow their businesses. The premise was (and still is) simple: Amazon would store and ship products on behalf of sellers, taking care of all the logistics so they could focus on growing their sales. FBA quickly became a popular choice for online sellers, and it’s now estimated that over half of all units sold on Amazon are through FBA businesses.
If you’re not currently selling products on Amazon then now may be time to start doing so as it provides access to millions of online shoppers and is the market leader in e-commerce.
If Amazon continues to grow at its current rate, it will almost certainly generate $4.5 trillion in revenue by 2020, which means that even if Amazon doubles fees for FBA sellers, it will still cost less than 1% of their projected income.
What is the Amazon FBA program?
Last year (2021) Amazon changed things by instituting a monthly fee to be “Fulfilled by Amazon” which I absolutely hate. Not only do they now charge an additional 25 cents per item, but you also have to pay storage fees if your items don’t sell within 6 months.
As for this year, 2017, the fee is only 15 cents per item to be able to sell on Amazon FBA which is way better than last year’s fee of 25 cents. But still not as good as the days when there was no fee at all. So, what’s this mean?
Well, it means that now you have to sell more items in order to make the same amount of money because all of your items are now 15 cents more expensive. It also means that if you don’t sell all of your items within 6 months (almost impossible) you will be charged storage fees (which I consider an even worse fee).
How to get started with Amazon FBA?
The Amazon FBA program has been around for a while, but it’s still growing with about 174% year over year sales growth. Joining an online training program like Nine University is the easiest way to get started. Learn more about the course in this review.
You can also take it slow and learn on your own.
Basically what FBA is, is you send your products to an Amazon warehouse once they are sold on your online store, and they do all the rest. They handle the packaging of everything sent to them, packing, shipping to customers, managing inventory, etc.
The most profitable way to use Amazon FBA is e-commerce arbitrage. This means you buy products at a low price from a place like Walmart, and then sell them on Amazon for a higher price. You can also look up products online or in stores, and see if people are selling them at a price far below the market value. Look for things that either have high demand, but low availability (basic economics, supply & demand), or that you know will eventually become popular (e.g. based on trends).
Types of business models
Following are some common types of business models on Amazon.
- Product-Based Business Model
A product-based business model provides goods or services to its customers at a price that is the same as the cost it takes to make them. This type of business model is the simplest, where there is no middle man or creator, but it also requires that you have all the skills necessary to make your product yourself.
- Service-Based Business Model
A service-based business model creates a service for its customers without charging them anything more than what it costs to provide it. This type of business model is also simple, but it requires that you be able to complete the task successfully.
- Distribution-Based Business Model
A distribution-based business model involves selling a product or service to customers with the help of distributors and resellers. The original company can sell to these third parties at a negotiated price and this model is usually found with physical products. For example, Apple sells its iPhones to cell carriers like Verizon at a discounted price and the company splits the difference with them.
- Marketing-Based Business Model
A marketing-based business model involves customers paying for a product or service because they have been influenced by an advertisement associated with it. For example, you might buy a pair of jeans because they look cool and you see an ad on social media with your favorite celebrity wearing them.
Advantages of Amazon FBA:
There are some advantages of amazon fba that are listed below
- Amazon has a more powerful algorithm than other selling platforms
- There is a greater number of customers on amazon
- Amazon professional identifier increases product views and sales. For experienced amazon sellers, being able to list products using the Amazon Professional Sellers’ Program can increase sales rank and visibility compared to third-party selling applications.
- Amazon is a more powerful network in terms of traffic and visibility
- Amazon fba has lower fees compared to other selling platforms
- Amazon FBA provides additional inventory capacity in the form of FBA in addition to MFN, enabling sellers the ability to source and fulfill orders from both channels without the additional time and costs associated with maintaining a separate inventory in each channel.
- FBA sells products to amazon customers at low costs for 24 hours a day, 7 days a week
- Amazon fba provides new product information such as on-time delivery and customer satisfaction.
- Multi Channel Fulfillment (MCF) across multiple platforms can further increase sales by expanding the reach of FBA to include MFN and vice versa.
- Amazon fba’s service is cutting edge; it has all the latest features such as smart pricing and predictive sales estimates.
- Sellers can reach an expanded international market by using Amazon Global Selling
- (Amazon GSP) which allows them to sell on a Global Store accessible to customers in over 150 countries.
- Amazon fba enables sellers to run promotions on the product page by using the ‘make an offer’ button.
- Amazon fba provides useful tools such as a sales rank chart, sales history graph etc. which are very useful for evaluating products that are selling well or poorly.
- Amazon FBA provides benefits such as easy to use software, automated shipping service, and reliability. It helps sellers with little to no experience in logistics or warehousing because the warehouses are maintained by amazon itself. This means that all of the storage, packaging, and shipping issues are solved for you by them
Disadvantages of Amazon FBA
There are some disadvantages that should be considered. Some of these include:
- You have to constantly turn over inventory
- The buy box may not always go to the lowest price seller
- The fees, though very low compared to other retailers are not zero
FBA storage fees are getting more expensive, though they are still lower than standard storage rates. You’ll also need to accurately estimate how many units you’ll sell.