I have been working on a new business venture for a few months now: an Amazon FBA business.
As this was a completely new venture for me, I made huge mistakes which resulted in huge loss of $$$ but luckily, this being Amazon FBA, my mistakes didn’t result in loss of time. Time is much more important to me than money. This is one of the reasons I chose Amazon FBA.
The pros and the cons of an Amazon FBA business
Before we get going I want to say that – for the first time ever in this blog – I’m not going to suggest you do what I do. I’ve always advocated blogging, email marketing, video marketing, and info-product creation because I know these are good for every business. However, this is different. There’s a lot of money involved…
However, let’s start with the pros:
- Compared with my other businesses (video course creation and graphic design for clients) it’s less labor intensive
- It’s possible to get started with little prior experience in e-commerce
But, the cons:
- It’ll cost you! You need more of a cash investment than other online business models (I started my 6-figure business with an investment of $200!)
- Amazon FBA is more of a closed shop – there’s less information and transparency out there when looking for information
I’m NOT saying: do Amazon FBA. This was my decision. It looked right for me considering where I was in business and life at the time. But it certainly won’t be for everyone.
OK. If you’ve made the decision to sell physical products on Amazon, what’s the next step?
Researching your first product
This is really hard. You’ve read all the blogs. You’ve listened to all the podcasts. You’re itching to get going. However, there’s a really important decision to make, and you’re going nowhere until you’ve made this decision.
For me, I had to find a product that I was passionate about – a product that would make peoples’ lives better. However, I know not everyone will agree with me about this.
There are many classic criteria for a good Amazon FBA product:
- Average sale price should be between $15-$50 on Amazon
- Lightweight (preferably under 5 lbs)
- Small (can it fit in a shoebox)
- Market depth (does the 10th ranked seller sell at least 300 per month?)
- No big brand names within the product category/niche
- Simple item that is not easily broken
- 3-4 products with less than 100 reviews on the first page
- Other listings and photos on the first page are ugly and not optimized
- Top keyword has over 350,000 monthly searches in MerchantWords
There are some tools to help you research the Amazon marketplace quick for the products with the above criteria.
Firstly, MerchantWords ($9/month through that link – not an affiliate link but the rest are!), provides you with the number of searches per month on Amazon for keywords.
Amasuite ($297, one-off fee) is a suite of tools. The most useful for me is the Azon Top 100 Inspector which (as its name suggests) analyses the top 100 products in any given Amazon sub-category. It allows you to find products within certain price, size, and profit range which also have comparatively low numbers of reviews. This tool side-steps trawling through hundreds of Amazon pages hoping to spot a potential product.
JungleScout ($147, one-off fee) is a Chrome extension that provides excellent information on Amazon products. The extension will show you the estimated sales, estimated revenues, number of reviews, ratings and sellers’ status (FBA or not) of products on any Amazon page. This enables you to see, almost instantly, whether a particular category or keyword is worth competing for.
I bought all three of the above tools and they all helped me choose my first product. It really helped me find a range of products that sell well, provide profit and, most importantly, have low competition.
Researching your first supplier
This is something that will take a great deal of time and something I can’t help with much.
What you’re looking for is good communication, good quality products and products that can be unique in some way. (See next section on design). You have to compete against the hundreds and thousands of other sellers out there so your product has to be of the highest quality and you have to have the best supplier possible.
Designing your brand and first product’s packaging
This is another stage of the process that will and should take a considerable amount of time and money investment.
It’s painful because, again, you’re itching to get started. But this stage is critical.
And if that all wasn’t enough, you also have to decide on the name of your brand! I found the free tools LeanDomainSearch and BustaName useful for this. I wanted to choose a brand name that I could get the dot com for. It also confirms that no one’s taken that particular domain as a brand name although you should double-check this as well.
I used 99designs and Upwork. I like to find good designers by browsing 99designs, contacting them through the site and getting them to work on projects for specific fee. Much better than their practice of getting designers to work for free in a contest. Personally, I hate running contests on 99designs – the designers only tend to spend 5 minutes on a design and re-hash old projects.
Talking of bad practices, I find Upwork’s site and a support department lacks customer focus. However, you will always find good freelancers there if you’re prepared to put in the time to find them and pay decent hourly fees. Spy on competitors for inspiration.
The packaging and brand design cost me a total of $500. But bear in mind that I’m from a design background. If there’s anything I’m good at outsourcing, it’s design. I understand how lazy designers are and how to get the best out of them. (I was the laziest designer in the world).
The time it takes from product and supplier choice to selling on Amazon?
Phew, for me, it was 3-4 months. Most of the hold up was the design stage.
Otherwise, the time delay of getting the first units of a product from supplier’s order to selling on Amazon could be 2-3 months.
The cost of launching an Amazon FBA business
I had no prior experience of physical goods e-commerce business and no prior experience of an Amazon FBA supplement business. This was all completely new to me.
The cost of getting the first few hundred units to Amazon’s facilities was: $3,800.
… with the following on-going monthly fees:
Ouch! “But, surely,” I hear you say, “this includes the cost of inventory, you can sell that and make a profit? Yes?”
Well, no. Actually, I didn’t even make a running profit on most of the first few hundred units. 🙁 Yes, I’m saying you can pretty much kiss goodbye to four grand! In fact, it gets worse.
In order to get reviews I offered coupons for 90% off to Amazon users in exchange for an honest review. This is extremely costly. Not only are you losing money as you’re virtually giving away the product to the reviewers, you also have to pay a subscription to allow you access to the reviewers (through AMZtracker or Snagshout). Note: you don’t actually pay for reviews, that is against Amazon’s TOS. But you do pay subscriptions to allow access to review groups. No one is under any obligation to give you a review, good or otherwise.
I would add another $1200 that I spent to get 100 or so reviews.
It is possible to do this with less money. I made costly rookie mistakes with the promo coupons. I also lost my buy box to people who’d snagged my product in a review club and then re-sold it on Amazon. Ouch!
But that brings the figure to start my Amazon FBA business to a nice round fat five grand – $5000.
Calculating profit margins – on a per unit basis!
This is how I calculate my costs on a per unit basis for the second order (so notice that I’m writing off the expense of getting started with the first order – ouch!):
Inventory plus shipping to Amazon divided by the number of units: $4.31.
The Amazon fees (variable closing fee, pick and pack, weight handling, etc.) are $6.17 per unit.
$6.17 + $4.31 = $10.48 cost per unit.
So, if I price my product on Amazon at around $21, I’ll have around a 50% profit per item.
But this is not counting the expense of Amazon Sponsored Ads (otherwise known as Amazon pay per click or Amazon PPC). You pretty much have to spend money on Amazon PPC right from the outset.
Amazon PPC is the only way you get certain customer information. Amazon Sponsored Ads tell which search terms are performing best for your product. Then, armed with this information, you can target those keywords both in campaigns and super-URLs.
As the acronym PPC suggests, you pay per click with Amazon’s Sponsored Ads. You pay to get the information, you pay to optimize the ad settings and then, hopefully, you make a profit. I’m about breaking even at this point.
Calculating profits – on a per unit basis!
Amazon pays you twice a month. They have already subtracted PPC and their fees from it.
I find it’s best to take these payments and subtract the cost of manufacturing and transporting that number of units to Amazon – in my case this is $4.31 per unit, see above.
So for May 2016 my profit on a per unit basis is: $1,133.82.
However, it isn’t that simple…
It’s not as simple to say that I’ve spent $5000 to get an Amazon FBA business up to $1000+/month profit. For several reasons:
- I still had to find another few thousand dollars for the second shipment of product into Amazon
- I still have to keep on promoting the product, I’m thinking of doing a Zonblast to get another load of reviews and move me up in the rankings for my main keyword. If I do this it’ll basically wipe-out May’s profit and then some. But there may be greater profits to enjoy after that.
- I also might have to find another few thousand dollars to invest in the second product
So, I certainly wouldn’t say “$5000 is enough to invest before you turn a profit”. The situation is more complicated than that as I hope I’ve explained above.
Amazon FBA business – you can do it if you’ve got the cash
I’ve been earning over $5000/month passive income profit from selling e-books and video courses for nearly two years now. That money has built up in my business’s bank account and that’s why I think this Amazon FBA business is worth pursuing.
Is it right for everyone? Hell, no! Read the above article and if it’s too scary – don’t do it!
Another important point is that I got great advice from many friends and I paid for some top consulting. I really pays to talk to people who’ve been there, seen it, done it.
If you follow my quarterly income reports, I’ll be referring to this article in them. I wanted to make my income reports proper profit reports but I’m not going to count the first $5000 investment in this business when I report next. Do you think this is fair?