As tough as it is to launch an online business, it is even more challenging to maintain it profitable. Developing a successful eCommerce business is a complex process that involves meticulous planning and consistent financing.
According to market analysis, more than 20% of small businesses collapse during the first year and 50% fail within the first five years. That’s a massive quantity if we consider the number of online merchants emerging on some of the largest eCommerce platforms.
The primary reasons why new businesses falter include a lack of motivation, a shortage of demand for their products, a pricing war, and, of course, insufficient funding.
When it comes to Amazon, in the USA alone, about 4000 new vendors register every day to sell their products. Despite the risk of failure, entrepreneurs prefer online business to traditional in-store business simply because it allows them to do more with less. Especially since the pandemic, people have a different outlook on online markets.
The bottom line is that Amazon, the world’s largest online marketplace, remains an excellent platform for entrepreneurs. That’s a reason the company continues to witness an increase in the number of FBA and third-party sellers.
In this piece, I am going to talk about the opportunities up for grabs at Amazon. We will also go over the steps you can take as a seller to increase your chances of survival on the platform while also making enough profit to keep your business running in the early stages.
Introduction To Amazon E-commerce
Amazon is one of the best, if not the best eCommerce marketplaces in the world. Every month, millions of buyers browse the Amazon website to buy their favorite products online.
Due to high traffic, it’s a lucrative place for entrepreneurs to list their products and expose them to millions of buyers from a single platform. Amazon has proved that the eCommerce business is a real career and there are a number of merchants earning six figures just by selling their products online.
But what does it take to compete against the top vendors and what are the chances of thriving? Let’s figure it out.
To be able to sell on Amazon, you need to pick one of their 2 seller agreements – FBA and FBM.
It’s relatively easier to get started with FBA since Amazon takes care of processing the order, shipping, and delivery. Also, they provide customer support for your orders.
Sellers just need to purchase the inventory and ship it to the Amazon warehouse and from thereon, Amazon fulfillment teams take over. You can still keep an eye on your orders and inventory.
With FBM, you are allowed to list your items on Amazon’s website on your terms since it will be you fulfilling the orders. For start-ups, the FBM agreement may prove costly since you need to have your own storage facility as well as a fulfillment facility with trained staff in order processing and customer service.
With FBA, your products fall under the Prime category, meaning faster deliveries, and Amazon’s trusted service. From a customer’s point of view, FBA is better than FBM since a buyer is more likely to buy an item from the Prime category with premium services.
Here are some key features of the FBA seller agreement:
- Your products are listed with the Amazon Prime logo, which influences your stature as a seller.
- FBA is more suitable for merchants selling large-sized products as it’s convenient to store them at the Amazon warehouse.
- FBA can save you a lot of money that would be spent on packaging, label printing, and shipping.
- Your products are eligible for Prime service. That means faster delivery, easy returns, premium packaging, outstanding customer service, and so on. Since customers love these services, the chances of them coming back to your products are higher and you can establish yourself as a prominent and reliable seller.
Is Amazon Profitable?
With the advancement of technology and the internet, online shopping has been at its peak for the last decade. And with the current trends, it’s not difficult to predict that eCommerce is and will still be a force in upcoming years.
But what about Amazon? Is it profitable? Let’s analyze some numbers from the past 2 years.
According to a report by Jungle Scout, in 2021, over 65% of total online shopping was done on Amazon. This clearly indicates that at a time when major companies suffered huge losses in sales due to the ongoing pandemic, Amazon surprisingly showed upward trends.
As a matter of fact, in 2020 Amazon was ranked one of the most profitable establishments in the world with a revenue of $386 Billion. Its net income soared to $21.3 Billion from $11.6 Billion in 2019.
Given the figures, If you are looking to institute your own eCommerce venture, it’s a no-brainer to start with Amazon.
According to Freedom Ticket, a popular FBA online research, and training program, Over 20% of Amazon sellers have earned a lifetime net profit of $50,000.
|Lifetime Net Profit||Percentage of Sellers (Approximately)|
|$5 Million-$10 Million||1%|
The Cost Of Selling
To determine whether Amazon is profitable for you or not, we need to go through the expenses and investments you need to start and run your business on Amazon.
To sell on Amazon, there are certain costs you must pay:
Seller Account Fee:
Based on your business type, you can register with one of the two seller accounts offered by Amazon – Individual or Professional.
An individual account is for sellers who are not ready to commit to long-term investment on Amazon. With this agreement, there is $0.99 needed to be paid on every sold item.
Moreover, you don’t get premium seller services such as monthly order and sale reports, inventory tools, promotional gifts, and so on.
On the other hand, a professional account is perfect for long-term ventures. If you are selling more than 40-50 items in a month, it’s a better idea to get on with a professional account rather than an individual one.
A professional account costs $39.99 per month and you get to access all the premium seller tools and features that you can use to manage your orders and inventory.
As I stated prior, Amazon takes care of storage, order fulfillment, shipping, customer service, and so on. The sellers are required to pay a fulfillment fee to cover all these services.
The fulfillment fee includes:
- Storage Fee
- Long-Term Storage Cost (If applicable)
- Order Fulfillment Cost
The storage fee is the amount you pay to Amazon to hold your inventory. It is calculated on the basis of the space your products occupy in the warehouse. The monthly storage fee varies from $0.83/cubic foot to $2.40/cubic foot for standard-size items and $0.53/cubic foot to $1.20/cubic foot for oversized items.
At the time of the monthly inventory check, if any of your items are found to be stored for more than 365 days, you are liable to pay a long-term storage fee of $6.90/cubic foot on top of monthly costs.
To process and ship your orders, Amazon charges an order fulfillment fee. The amount largely depends on the size and weight of your product. The fee starts from $3.07 for the products less than 6 oz and can go up to $158 for oversized products above 150 lbs.
You are also required to pay a small cut of the total order value to Amazon as a referral fee. For sophisticated items such as jewelry, computer items, etc, there is a high referral fee.
Depending on the item category and price, the average referral fee can vary between $2-15 per order.
Other Costs (Inventory removal, Refunds, and so on)
There are other fees such as the Inventory removal fee that you need to pay if you want to remove/dispose of any of your items from the warehouse.
If a customer decides to return the item, the seller is charged a return fee that depends on the product category and the order amount.
How Much Money Do You Need To Start?
Apart from all the planning, product research, and data analysis, there is some cash to start any business.
Now, you must probably be wondering what is an appropriate amount you need to start an FBA business. You will be surprised to know that only 30% of all Amazon sellers have/had started their business with a capital of $1000.
Here are some interesting figures:
|Capital Amount||Percentage of Sellers|
How Much Does An Average Amazon Seller Make?
Coming to the big question – How much Do Amazon Sellers make?
Once you are through the initial period successfully, You can earn a minimum of $1000/ month on Amazon without putting any herculean efforts. Around 35% of new sellers are making up to $1000 per month.
Here are some interesting numbers representing average monthly sales
|Monthly Sales (in Dollars)||Percentage of Sellers|
|Unidentified/ No sale||3%|
In 2021, over 65% of sellers registered significant growth in their sales and profits. With deep market research and a good product selection, a seller can make as much as $25,000 in a so-called ‘side hustle’ business.
On average, more than 60% of Amazon sellers are able to extract a profit margin of over 10%. From another perspective, around 32% of sellers record over a 20% profit margin which is way better than a conventional business model or even online business on any other eCommerce platform.
|Profit Margin||Percentage Of Sellers|
Epilogue: Is Amazon Right For You?
I hope this article helped you clear your thoughts regarding selling on Amazon. It is relatively easy to start but your approach decides the longevity of your venture.
Here is an interesting fact, Amazon has over 1 million active sellers on Amazon who have registered a profit within the first 2.5 months after the start.
How can you do the same? It all starts with sheer determination and proper planning. You need a good product to sell that has a higher demand and ensures greater profit margins. You can use the Amazon Profitability calculator to evaluate all the expenses for a particular product before you make your final decisions.
For example, Automobile parts, Computers, smartphones, accessories, and books are not ideal products to start with since they don’t offer good profit and the competition is fierce.
Instead, pet supplies, stationery items, and home decor items are ideal to start with as they are always-in-demand products, have low selling costs, and promise a good payoff.
Building a brand on Amazon is a process rather than a get-rich-quick scheme. So make up your mind and prepare to devote some good hours every day if you want to say goodbye to your 9-5 job and start the process of “becoming your own boss”
- You can take Amazon FBA training programs to learn and understand the basics of Amazon entrepreneurship. Helium 10’s Freedom Ticket Jungle Scout Academy are the two best FBA courses in the market
- If your pocket allows, it’s smart to invest in FBA seller software. This will save you a lot of time that you will otherwise spend on product research, data analysis, listing optimization, and so on.