If you were paying attention this past holiday season, you likely saw countless boxes taped up with the signature “Amazon” logo making their way from truck to truck to store to home.
Amazon has been around for a long time, but it has recently gone to new heights, contributing significantly to the rise of online shopping around the world.
All of this activity from Amazon might have you wondering, “How do they do it?!” Sure, it’s a big company, but how are they able to get so many products from so many different sellers to buyers located literally around the world?
Well, part of this is a secret; it’s what makes Amazon such a successful business.
But a big part of it is not: Amazon gets a lot of help from people just like you and me to bring producers and consumers together.
One of the ways they do this is through the Fulfillment by Amazon (FBA) program.
This system helps Amazon spread its brand while also helping individual businesses reduce overhead and deliver a top-notch customer experience. This business model has become very popular, as it’s both convenient and affordable.
For those interested in starting an online business, and in growing it to the point where it is profitable and a valuable commodity you can put up for sale, an FBA business could be a perfect option.
While an FBA business isn’t inherently different from other types of businesses, the model understandably has its own features you need to be aware of to be successful.
In this article we will go over the following to help you understand how this business model works and how you can make it work for you:
- What exactly is an FBA business?
- What are the advantages and disadvantages of an FBA business?
- How do you start an FBA business?
- How do you find your market?
- How do you reach new customers?
There will of course be some growing pains as you get to know the space in which you are operating, but hopefully after reading you’ll have a good idea as to how to start and to get yourself working at the next level.
What exactly is an FBA business? What does FBA stand for?
Fulfillment by Amazon (FBA) means that you turn over your logistics to Amazon and focus purely on sales and marketing.
This is huge for small businesses, especially those that operate primarily over the internet.
Having to order, stock and ship merchandise to your customers in a timely manner can be not only expensive but also a massive headache.
With FBA, you store your merchandise in Amazon’s warehouses. Then, you put your products up for sale on their site, and when someone makes a purchase, Amazon’s procurement system kicks into gear, locating the product and sending it out to the customer in a timely manner.
You can also make use of Amazon Prime, which will get products to your customers even more quickly, delivering an even more pleasant experience.
Another feature of FBA is that Amazon also handles the customer service aspect of your business. If there is a problem with the product and the customer wishes to make an exchange or a return, Amazon takes care of all of this for you.
So what does this mean for your business? Well, here are some of the advantages and disadvantages:
Advantages of FBA:
- It’s far cheaper than doing it on your own: Amazon has an immense infrastructure of warehouses and procurement facilities. Doing this on your own would require a massive investment your company may not be willing or able to make.
- It frees you up to focus on other things: Because of Amazon’s efficiency and effectiveness, you can basically forget about this aspect of your business, leaving you more time to focus on core functions and growth.
- It boosts credibility in the eyes of the customer. Amazon is known all over the world, and associating yourself with this well-respected company can only do good things for your business.
- It improves your customer service. Smaller companies are often unable to dedicate the necessary resources to customer service, and this only hurts you in the end, as customer service is increasingly becoming an important way for brands to distinguish themselves.
- It’s scalable. A big concern for small businesses is managing their growth. Sometimes companies grow too quickly, and because they can’t handle it, they end up collapsing in the end. Amazon makes sure that this doesn’t happen. They already have a massive operation and the capacity to handle an influx of orders that you may not be able to on your own.
Disadvantages of FBA:
It might seem like an FBA business is a guaranteed home run, but we want to try and discourage this type of thinking. It’s certainly effective, but there are some downsides we would like you to consider so that you aren’t taken by surprise when you get going with your company. For example:
- You have limited control over customer service. While the handling of returns and exchanges by Amazon is a great feature of FBA, this can create some disconnect between you and your customer. Perhaps they would like to speak with you to ask you a question, or perhaps you would like to offer a more personal touch. There are ways for people to contact you through Amazon, but having to work through a third party may put some people off.
- You have to do the marketing part yourself. If you’ve ever sold anything on Amazon before, you know quite well that it’s one thing to list your product on Amazon and quite another to actually sell it. You need to have done your homework first to make sure you are offering a product for which there is a demand, and you also need to have a detailed marketing strategy in place so that you can generate leads and bring people to Amazon to buy your products. We’ll go over how to do this a little later on.
Overall, the benefits of FBA do outweigh the downsides. As long as you have done some quality market research, have a plan in place and have reasonable expectations for when you first start out, you can expect decent success. Let’s go into how to specifically make this a reality.
How to start an FBA business [Guide]
Starting an FBA business is actually really simple. To get connected with Amazon, all you really need to do is to sign up.
Go to Amazon.com and scroll to the bottom where you’ll find the link “Sell with us.” Or, just follow this link.
You’ll need to decide between a personal and professional plan. The Personal plan has no monthly fees, but you pay $.99 per transaction. It’s recommended for people planning on executing less than 40 transactions per month.
For more serious sellers (those looking to do more than 40 transactions per month), go for the Professional plan. It costs $39.99 a month and then you pay a small fee for each transaction. This is chump change compared to what it would cost you to do this on your own.
The other thing you will need is a site of your own. While your products will be sold on Amazon, you want a place where you can market your brand, interact with customers and boost your performance with SEO. If you don’t already have a site, set one up through WordPress or some other hosting platform.
Next, you’ll need some products to sell, which brings us to the next part: finding a market.
How to find a market for your FBA businesses
To make your FBA business successful, you need to make sure you are selling products that people actually want to buy, or that they would want to buy if they knew more about them.
To do this, you need to get a good understanding of the market in which you are hoping to operate.
Understand that the internet operates by niches. It’s a diverse space with infinite resources, but it divides up nicely by different categories and interests.
Think about the things that interest you and that you are willing to dedicate hours to researching and understanding.
While you might not be able to focus on your top passion, if you hone in on something that bores you to death, you’re going to end up regretting it.
Once you get an idea of the niche you want to work in, start looking for opportunities to exploit. A great way to do this is through keyword research.
Brainstorm a list of products relevant to your niche, and then use tools such as Ahrefs or Keyword Finder to see how many people are searching for them and how hard it might be to rank near the top of search results pages for these terms. (Here are other SEO Tools to consider)
When you find search terms that are popular but relatively uncompetitive, you’ve likely found a hole in the market you can exploit.
Once you get to this point, you need to make a decision. Are you going to:
- Create a product from scratch?
- Improve upon an existing product?
- Re-brand and relabel an existing product?
This decision will really depend on what is out there.
If there’s demand for what you want to sell because there aren’t any good options out there, then you are going to have to try and design something yourself.
However, unless you a real expert, be careful with this, as it can get costly and time-consuming to find manufacturers who will produce your design affordably and effectively.
One thing that has helped make FBA businesses so effective is Alibaba.
This online wholesale marketplace features countless products from manufacturers all over the world. However, many of these manufacturers lack the marketing prowess to get their products to customers.
By purchasing these products for cheap, re-branding and re-labeling them and then selling them at a premium while fulfilling through Amazon, you can keep expenses and headaches to a minimum, increasing the profitability of your business.
If you do decide to go the Alibaba route, know that shipping products from abroad will require some paperwork and the payment of taxes and duties.
To make this a bit easier on yourself, consider using services such as Flexport, which will help organize all of these logistics and get your products to the Amazon warehouses where orders will be fulfilled and delivered to customers.
A lot of this is easier said than done, and it will require a time commitment on your end, but there are opportunities out there to make lots of money following this model.
Once you figure our what you’re going to sell and to whom, you’ll next need to figure out how to communicate to people that your product is available to them.
How to reach new customers
Since Amazon offers literally millions (if not more) products, an effective marketing strategy is going to be essential if you hope to have success with your FBA business.
Otherwise, your products will get buried among the countless options and your business will struggle.
Your marketing strategy will ultimately depend on your target audience, as everyone finds out about new products in different ways, but here are some strategies that tend to have success with FBA businesses.
- Get in touch with influencers in your niche. Bloggers are huge for marketing on the internet. They develop intimate relationships with people from all over the world, and their recommendations can often lead to a big boost in sales. Offer them things so that they review your product and let their audience know about it. You can set up an affiliate marketing scheme so that they make a small commission whenever someone buys through their recommendations. This way both you and the blogger win when a sale is made.
Pro Tip: Find influential people on Future Sharks.
- Incentive reviews. Amazon wants to make sure its customers are getting the best, so they will push items with good reviews and quality sellers towards the top of search results. So when someone buys your product on Amazon, encourage them to leave a review by following up with them or even by offering a discount. This small investment will be well worth it in the long run when you are able to draw more people to you and your products.
- SEO, SEO, SEO. The majority of people you get to see your products will find you through search engines. You want to make sure your site and/or your products show up at the top of relevant search results pages so that you can bring in more interested buyers and increase sales. For search engine optimization (SEO) to work, you need to have a great content marketing strategy so that you can draw links to your pages and rise up in the rankings. If you don’t have time time/resources to do this yourself, then consider hiring a marketing firm like Flux.LA to do it for you.
- Social media and paid traffic. These tactics are all “free” or relatively inexpensive, requiring no more than some time to generate content or the giving away of your product. But you can also pay to market your product. Social media is an effective way to advertise as it can really accurately find people in your target audience. But you can also pay for traditional forms of advertising, such as print, radio and TV, but these will only be effective for certain audiences, making your research once again the star of the show.
There are lots of different ways to market the products you sell through your FBA business, but these tend to be the most effective and are a good place to start.
But don’t hesitate to try new methods and see how they work for your company.
Related: How to do SEO like a pro
FBA businesses are on the rise.
By leveraging the logistical power of Amazon, small companies can remove the need to worry about procurement and order fulfillment, allowing them to focus on core business process and to grow without concern of suffering growing pains.
This is not a “get rich quick” scheme but instead an effective business model that can help you start and grow a successful business.
About the author: Jock is the founder of Digital Exits, an online brokerage that specializes in the buying/selling and appraisal of online businesses. He has helped many individuals sell their successful FBA businesses, giving him first-hand experience with this model and how successful it can be. He advocates for its adoption wherever possible, especially with eCommerce businesses. You can find Jock’s work featured on CNBC, Forbes, Entrepreneur and Business Insider. He is originally from Australia but now lives full-time in the U.S.
Alejandro: Check out my own Amazon Store selling the Flux Charger