10 Important Tips for New Amazon FBA Sellers
Update Jan 2016: I’ve now been selling on Amazon for nearly two years. All new posts related to Amazon selling and private labeling are on my new site PrivateLabelPreneur.com. This is still a very relevant post to read so don’t miss it!
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The quote below rings true. While we live in an amazing time where creative ways to earn an income are endless, there isn’t a shortcut to success.
I do think there is a real opportunity to make additional income (or even replace an income) as an Amazon FBA (Fulfilled by Amazon) seller; however, it will require that you work it like a job, be patient and stick with it.
Image Credit: SEO on Flickr (quote by Joe Girard)
I opened my Amazon FBA account on May 5, 2014 and started sourcing products from local retail stores. After packing and sending eight shipments to Amazon’s warehouses; adding 303 units to inventory, and selling 120, there are 10 important tips I can pass on based on my experience so far.
1. It takes money to make money.
If you are looking for a way to add to or replace income from a “JOB,” you really need to have some start-up capital. I think $1,000 is a decent amount to get started. Why? Because you need some money for supplies (maybe as much as $400) and inventory.
If you don’t have some cash to buy a decent amount of inventory, your trial-and-error period will drag out and you’ll likely never really figure out what works and what doesn’t.
2. You’ll be in the hole for awhile.
At the time of this writing, I’ve spent nearly $1,300 between inventory ($878) and supplies ($402). Sales so far are at $1,584.81 but the actual profit from those sales amounts to just $363.80. That’s okay, because I’m clear about the reality and I can see the potential as I work through the learning curve(s).
3. Don’t rely exclusively on Amazon’s reports.
I am a report freak…I love spreadsheets so it isn’t a surprise that I built my own spreadsheet to track my inventory and calculate the profit by product. AND I’M GLAD I DID.
Why? Because Amazon’s reports don’t factor in the cost of your goods, time, etc. YOU NEED TO KEEP YOUR OWN DETAILED RECORDS. I’ll give more detail and show you my spreadsheets in an upcoming post. Stay tuned!
4. Selling low-cost inventory will kill you.
Because I didn’t want to “waste” money on my Amazon FBA Seller test, I first only bought inexpensive items. But what I learned is that selling items for under $5 is NOT PROFITABLE even if you get it for nearly free.
The reason, you ask? The cost to ship and Amazon’s fees will rob you of any profit! There are good tools out there that can help you figure out what to buy and I’ll cover what I’ve tried and how I use the tools in an upcoming post.
5. Bundles and multipacks appear to be the best way to make money.
There are several reasons for this…
- If you buy and sell single items you’ll likely have a lot of competition.
- Profit on single-item sales gets chewed up by Amazon fees.
- If Amazon is selling the product, you’ll have a hard time competing with them unless you find ways to set yourself apart.
Making bundles and multipacks takes time and money (you need bags, stickers, a good scale, etc.), but they pay off in the long run. Stay tuned for an upcoming post on bundles and multipacks.
6. Any time you can use someone else’s listing, you’re stuck with what they created.
When you create your own listing (like you can with multipacks and bundles that have not yet been created), you have control over what the product listing says, the images, etc., but more importantly, you provide the list of search terms.
These search terms are needed to make it easier for customers to find your products. You can’t see the search terms for an existing listing but I have had success asking Amazon’s Seller Support to modify them.
UPDATE 2/3/15: I’ve been at this for a while now and I have learned that you can update existing listings. It’s not intuitive and I plan to write a post on how to do it.
7. It’s really hard to know what will sell.
Some people out there recommend only buying products that are selling on Amazon and have a “ranking” of 50,000 or less (the lower the number the more popular the item). I’ve bought inventory with rankings at or below the 50,000 range that remain unsold.
On the flip side, I’ve bought products that had much worse rankings and are selling like hotcakes…go figure! If I uncover a magic formula, I’ll let you know. Better yet, if you know one, please share with the rest of us!
8. You’ll take it in the shorts on some items.
Let’s face it, you’ll make some bad buying decisions. That’s part of the learning curve. If something appears to be a dog, lower your price and get it sold. You’ll probably take a loss but that’s better than paying storage fees month after month to hold it.
9. Avoid the race to the bottom.
Seth Godin is among my favorite entrepreneurs and marketing gurus. He talks about how companies are often in a race to the bottom. That means companies offering a similar product or service keep lowering their price to attract new and repeat customers. At some point, the price gets so low that they have to sell volumes to make any profit.
I’ve noticed that when you are selling a particular product on Amazon and there are a lot of other sellers selling the same thing, you are tempted to get in a price leap-frog race. You lower your price to be the low-price seller but minutes later another seller drops his price by a few pennies below yours. You get mad and drop yours to out do that guy…you see the problem. No one wins.
Don’t get caught up in the race to the bottom. (BUYER TIP: I now see that being a buyer on Amazon can really be beneficial. If you don’t like the price today, check back later and you can probably get the same item for considerably less!)
10. Amazon loses stuff.
They lost an entire box of my product and misc items from other boxes. If I didn’t keep my own records (see #3 above!) and report the problems, I’d probably never know what was going on. Following up to make sure my records match theirs is TIME CONSUMING AND FRUSTRATING. But it’s critical to do so. I’ve caught at least eight problems so far…that’s too many to ignore.
When Amazon admits to losing your product, they use a formula to determine what they will pay you for the loss. In my experience, they come up with less than the seller’s asking price AND THEY DO NOT COVER YOUR COST TO SHIP THE PRODUCT TO THEM. I have a bone to pick with them over that. On the plus side, they have an excellent seller support system. You get help ASAP.
Is it working?
If you remember, my Income Lab experiments will focus on ways to generate income through location-independent methods. So far, it looks like there’s some real possibilities for Amazon FBA sellers. Here’s why:
- I can carry all the supplies I need to run the business in the trunk of my car. I’ve tested this because I spend about half my time with my mother who lives 75 miles from me.
- The cost to entry is low, which means the risk is low.
- I’ve made more to date as an Amazon FBA seller than I have in total as a personal finance blogger!
- You have a lot of control over your time. You can shop and prep shipments when it’s convenient for you.
Are you considering becoming an Amazon FBA seller? What’s stopping you? If you already sell on Amazon or some other platform, do you have any other insights to share? We can all help each other! Please leave your thoughts or tips in a comment below…
- Income Lab 1.3: Amazon FBA Seller Tools & Resources
- Income Lab 1.2: Setting Up Your Amazon FBA Account
- Income Lab 1.0: Selling Through Amazon FBA (Intro)
- About Income Labs
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