My Amazon FBA Business
Regular readers may have noticed that I haven’t posted on Thrifty Points in a while. This isn’t because I’ve been enjoying the wonderful weather we’re having at the moment (OK I am a little) but more importantly about 5 months ago I decided to learn how to sell on Amazon and launch an Amazon FBA business. I was a little skeptical when I started, having read various Amazon FBA guides which were promising me the world, however I took the plunge and have finally got to the point where I’m having reasonable success selling on Amazon.
This review will give you a whistle stop tour of my progress over the last 5 months, covering everything from my adopted Amazon Business Strategy, software for Amazon Sales Analytics I’ve used to help me on my way and how to source Amazon best sellers. I’ll also take you through the profit I’ve made during the process and what I wish I’d known from the start!
Let's break this post down...
What is Amazon FBA?
Since its creation in 1994, Jeff Bezos has developed Amazon into an incredible business enterprise. One of the key successes of the Amazon Business Strategy has been to allow third party sellers to list and advertise products on the site. This process has development into the finely tuned Amazon FBA business model. Most people don’t actually know that the products they are purchasing are coming from a third party seller (just like me) using the Amazon FBA programme.
Amazon FBA stands for ‘fulfilment by Amazon’ which essentially means that a third party sends their goods to an Amazon warehouse who then look after the product. When an order is place, Amazon will then pick the product from their shelves and deliver it to the customer. What’s even more beneficial is that Amazon also handle the customer services side of the process, essentially processing returns, customer questions etc. This allows third party sellers to create a fully automated business.
Now let’s take a look at a worked example of an item which has been fulfilled by Amazon UK. Below you can see a set of two adapters. You’ll notice that the charger is sold by the Gadgets Hut UK (an Amazon FBA Business) and fulfilled by Amazon.
Finding Amazon products and creating an Amazon FBA business is a great way to generate a source of income which can be run remotely with limited day to day involvement following the initial set up process.
The fact that you can a use Amazon to distribute your items will also allow you to scale your business and enable you to expand without taking on staff.
Is Fulfilment by Amazon worth it?
Before I continue any further with this review, I thought it would be useful to provide you with a brief overview of my success to date and why I’d recommend following this review through.
I began researching Amazon FBA 5 months ago and purchased my first order of products towards the end of March. I refused to sign up to one of those Amazon FBA guides that you see plastered all over the internet. Truth is whilst these may provide some details they tend to miss out the important parts of the Amazon FBA training process. The information is out there free of charge, just do you research.
As everyone who’s set up a business will know, the first year is always the toughest and the vast majority don’t make profit until the second or third years.
As you can see from the table and graphs below, with an initial investment of £1,250 I’ve managed to generate a weekly profit somewhere in the region of £500 in the last 5 months. I have invested a further £3,500 since then but only when I was sure the Amazon FBA business model worked. Whilst £500 per week doesn’t sound like a crazy amount, it’s taken a total of 10 weekends to set up so the return on time employed is crazy. Plus now all the hard work has been done I expect there to be limited involvement from myself going forwards and as such my return on time invested is likely to increase significantly!
Finding Items for Amazon FBA
How to sell on Amazon? OK so the secret to creating a successful Amazon FBA Business is sourcing the right items… simple hey?! Well yes and no. Let’s start off by finding where you can locate items to sell using Amazon FBA. There’s one place where the vast majority of Amazon FBA sellers source items and that is Alibaba. Alibaba is an online wholesale market where you can contact factories and distributors from all around the world.
Let’s take a look at an example of items selling on Amazon which are also available on Alibaba. Below you can see a set of two gloves available from OMorc (found here on Amazon) for £8.47.
Below is the same pair of gloves available for $0.60 – $0.86 per glove on Alibaba (found here).
Now you’ll need to add a customised label but when buying in bulk that would cost approximately $0.10 per glove. So a breakdown of your total costs would be somewhere in the region of:
- Two gloves at $0.70 per glove
- OEM Customised Logo $0.20 per pair
- Shipping to UK Amazon – based on 100 pairs – $1.26 per pair
- Taxes (VAT and Import Duties) – $0.64
- Total all in cost: $2.80 or £2.15
Now you can check what your Amazon costs are likely to be by using this handy calculator.
A couple of key points when sourcing items Amazon products from Alibaba for your Amazon FBA business are as follows:
- Always buy a sample of the product (no matter how straight forward the item may seem). You’ll usually be charged somewhere in the region of $30 per sample however it’s well worth it. I’ve just received a faulty batch of iphone adaptors and whilst I’m current in the process of receiving a refund it’s caused a significant delay to the expansion of my Amazon FBA business. This also leads onto my second point.
- Always pay through Alibaba and trade assurance. This will cover you if anything goes wrong throughout the process.
- Approach a number of suppliers to get the best quote. You’ll be amazed at how much prices vary and how much you could reduce the price through clever negotiation. Also pay attention to the seller ratings on the right hand side of the page. I usually ten to go with companies with over 3 years of trade experience and if possible approach factories as opposed to import/export agents. You can usually tell by the name/company description. What you may find with factories is that their minimum order quantity (MOQ) are too high for your initial order and you’re therefore forced to go with an import/export company.
OK so now we’ve learnt where to source the items for our Amazon FBA business lets focus on the best things to sell on Amazon. Now to undertake in-depth research, I’d strongly recommend subscribing to two pieces of specialist Amazon FBA software. These are Jungle Scout and Amzscout.
Let’s focus on Jungle Scout. I’d point out that whilst they used to offer a free trial period using this link (worth a try to see if they’ve implemented it again) they do however offer a full 14 day refund policy, so if you’re not happy with the software you can always get your money back. There’s also some handy tips on how to sell on Amazon, details of Amazon best sellers and a Amazon FBA UK guide.
Jungle Scout is a deep search tool which allows you to undertake professional product research (in my opinion vital for an Amazon Business Strategy). It comprises of three useful Amazon FBA tools:
- Product Database: Allows user to filter through it’s extensive product catalogue to find highly targeted products with estimated sales volumes.
- Product Tracker: You can get real time data about competitor products (units sold, remaining inventory, estimated sales) to enable you to get ahead of the competition.
- Niche Hunter: This is the import section to help you become an amazon merchant. The niche hunter will identify keywords with limited competition and high sales volumes (i.e. the best things to sell on Amazon). See the example below (and here) for ‘wristband for women’ which has a competition ranking of 10 out of 100 and an opportunity score of 80 which is strong. Lets now focus on the first bracelet in the list. We can see that estimated sales are approximately 113 per month with a total revenue in the region of £1,918. Anticipated costs are in the region of £3.60 which means that your net position of £13.38.
Now let’s jump on Alibaba to see if it’s possible to source the bracelet and if so how much is it likely to cost. Bingo – see below… 100 bracelets would cost a total of $793.27 including shipping to the UK. With an allowance of 30% for VAT and import duty, I estimate the approximately cost per bracelet to be in the region of £8.05. That’s a potential profit of £5.33 per item or £602.29 per month based on sales of 113 bracelets. Not bad for one item. Still wondering if fulfilment by Amazon is worth it?
Creating an Amazon FBA Private Label
Now we’ve seen that it’s possible to source items from Alibaba and sell them on Amazon for a profit, let focus on the creating a private label for our Amazon FBA Business Model.
Sourcing items to be Fulfilled by Amazon UK
So how to find out what’s selling on Amazon? Whilst I’ve touched upon the importance of undertaking extensive product research, I can’t stress how important it is to find a niche that you understand. Try starting with your passions and make sure you think outside the box. I’d recommend focusing on small items less than say £15 which generally tend to be impulse purchases and then use the likes of Jungle Scout to research, research and research a little more.
I’d recommend avoiding competing with brand names where products can simply be trendy due to the brand name. I’d also avoid entering a product category with a large number of well-established non name brands with thousands of reviews.
Whilst private labels are initially more expensive to start, one important factor is that it prevents other third party sellers piggy backing on your listing. What does this mean? I wish I had known about piggy backing when I started out on my Amazon FBA training.
I spent considerable time create a listing for a generic product. With extensive keyword research, strong listing contents and good photograph, ‘my’ listing rose to the top for a number of key words and sales increased significantly. It was at this point, three other sellers decided to list the same product that they had on my listing and significantly undercut me. Unfortunately there’s nothing I can do in this situation however I’m currently in the process of having the product customised and once this has happened I’ll update the pictures. I can then report each of the sellers for providing products which are not consistent with the pictures. A lengthy process where I stand to lose a significant amount of sales.
Find a supplier for Amazon Products
As discussed above, it’s important that you approach a number of suppliers on Alibaba and negotiate hard with 3 or 4 to get the best price. Make sure to always request a sample (they usually the cost is refunded when you place your first order).
Also remember to protect yourself by using Trade Assurance to make payments on Alibaba. Now we’ve learnt how to find products to sell on Amazon FBA let’s look at creating an Amazon FBA private label.
Customising Amazon FBA Products
Unfortunately my graphic design skills are rather limited and as such I’m not best placed to create customised packaging and logos. Fear not though, Fiverr has a number of free-lance designers who can prepare your logos / packaging for you in a cost effective manner. The below packaging would set you back about £15 if you shop around. You’ll need to provide wording and some ideas as to how you would like it to look however I’m always amazed at the quality of the work.
Creating Listing for Your Amazon FBA Business
First you’ll need to create an Amazon account and it would be advisable to do this before you start manufacturing your private label products.
You can either sign up to a free individual Amazon Seller account or alternatively there’s the option to sign up to a professional account. Individual accounts are free but you pay an extra fee per item sold and the professional account costs with a month fee (£30 for the UK).
I’d recommend starting with an individual account and then switching over to a professional account when sales hit the threshold where the professional account is cheaper.
Once you’re signed up you can then navigate to the inventory tab and select ‘Add a product’.
Then create a new listing and you’ll see a large number of fields some of which need completing and some that can be ignored.
Make sure you fill out the follow:
- Product ID: You’ll need to purchase a EAN number for your goods. The official website is gs1uk.org however costs are high with an annual license fee costing £142.80. There are a number of third party providers however I’d strongly recommend avoiding these as the Amazon do check EAN numbers with GS1.
- Item Name: As part of your product research it’s vital that you also undertaken Key Word analysis which can then be used to create your title. See more about this below.
- Brand Name: Your new private label brand that you’ve created.
- Manufacture: Again this can be your new brand.
- Your Price: We’ll discuss this in a bit more depth later in this review.
- Condition: New
- Convert to ‘Amazon to dispatch and provide customer service for my items if they sell’
Amazon FBA Search Engine Optimisation
Search Engine Optimisation (SEO) is one of the keys to ensuring that your product appears as close to the top of the search results. Do not underestimate the importance of this for your Amazon FBA Business! Finding the correct keywords to include within your listing and title could be the difference between your product sinking or swimming. There’s a couple of ways you can undertake keyword research for your product.
- Google Keyword Planner: Whilst not connected with Amazon, finding keywords variations using Keyword Planner can help find niche keywords that competitors may not have considered. What’s better Keyword Planner is completely free.
- If you’ve used Jungle Scout to undertake your product research (strongly recommended) then I’d also recommend using their keyword tools which I have to admit is second to none! It provides search volumes as well as variation suggestions to ensure you cover all appropriate keywords.
Amazon Best Sellers – Importance of Photography
One element that I hadn’t really appreciated initially was the importance of good quality photography. A huge number of people are drawn into your listing without even reading the item title but from looking at the photograph. As such, I’d strongly recommend that you invest in some professional photographs (Fiverr is a great place for this) or alternatively like me invest in some decent equipment. I’m currently using this mini photo studio to ensure picture quality is perfect.
Also make sure you have at least 5 to 6 additional pictures. Add text to these because again most people won’t both reading the description but will focus on the listing photographs!
Sending stock to Amazon
At this point you should have received your products from the manufacturer and created a first class product page. Next you’ll need to prepare and send your goods to the Amazon warehouse so head over to the ‘Send/Replenish Inventory page’.
Follow the step by step instructions. When sending items to Amazon they’ll need to be labelled. Amazon will provide a barcode that they use to track and manage inventory. You can either do this yourself or pay Amazon to do this. At £0.15 per item, I think it’s beneficial if I do this myself / ask the manufactures to add. You can print your own barcodes using this paper and your own home printer.
Then just carry on working your way through the shipment process. Using an ‘Amazon Partnered Carrier’ is generally cheaper than sending via Royal Mail etc and Amazon will generate pre-paid labels for you in the form of a PDF file.
Once you’ve sent you parcels, Amazon will email you when they’ve arrived and subsequently been checked into the Warehouse.
So now you’ve got your customised product in stock and appearing on Amazon. The next thing to consider is marketing your Amazon FBA Label.
Advertising on Amazon
The most effective means of generating sales through Amazon is to appear at the top of the list when someone searches for your product. There are two ways to do this. Either get your listing selected by Amazon’s algorithm as the most relevant result for the searched keyword or pay to be at the top.
Let’s take a look at the example for Dog Brushes below and here on Amazon – Dog Brush
You’ll notice that the red boxed items are all sponsored products and a customer would need to scroll past three items to reach the first none sponsored product. As a result, Pay Per Click advertising is becoming big business on Amazon.
Amazon PPC is fortunately relatively easy to set up and what I’d recommend that you do is start of with a low daily budget and gradually increase your bid price over a month until you find a sustainable level that works for your product. I’m talking starting at £0.30 per click and increasing by 1p per day. At some point in the future we’d hope that the Sales Rank of the Item increases to a level at which point you no longer need to sponsor your adverts to appear at the top. One of the items I sell has recently risen to a strong Sales Rank and the organic sales which have been created as a result are incredible.
Importance of Reviews to Create Amazon Best Sellers
Reviews are important for two reasons. Firstly it provides confidence and encourages potential customers to make a purchase. Secondly, a number of good reviews signals to Amazon that the product that you’re selling is of a good quality and customers are pleased with their purchases. As such this should boost your items ranking.
There are a number of shady ways to get reviews and I’d strongly recommend avoiding these. However I would encourage your friends to purchase your items and leave a review. You shouldn’t give them a discount and don’t refund their purchase because this could be perceived as review manipulation which could end up with your seller account being closed.
Another way of generating reviews, is through automated emails. I currently use Feedback Express (free trial available here) which helps me monitor and maintain positive feedback across my various listings.
Monitoring Your Amazon FBA Business Performance
As your Amazon FBA business expands and grows, it’s vital that you keep a handle on both revenue and profit. I initially began to do this using Excel and quickly learnt that it was both time consuming and relatively tricky to keep on top off.
I was referred to Fetcher by a friend who like me add started off using excel but quickly converted. Fetcher essentially pulls sales and cost data from your Amazon Seller Account to provide up to date performance analysis. There are a number of functions that I use however I find the dashboard and sales / profit pages the most useful.
The Dashboard gives you a daily breakdown of sales and profitability over a custom period. Useful when monitoring from a high level.
The sales and profit page below (with reference to the items I sell removed I’m afraid) gives unit cost and profit, total profit per item, Return on Investment and Gross Profit Margin. It’s almost impossible to undertake this analysis in excel which is why I recommend using Fetcher as one of your Amazon FBA seller tools. As you can see below, I have one item when generates a significant proportion of my income.
The platform has the ability to record all the expenses you’ve incurred while running your Amazon FBA Business. This includes all product costs, Amazon fees (including PPC), various other costs (design costs, IT costs, etc). This can then be exported for tax / accounting purposes.
You can sign up to a free trial of Fetcher here which I’d strongly recommend doing even to just run analysis on your existing Amazon FBA business. With monthly fees of £18 per month, it’s cost effective and a great way of staying on top of your growing Amazon FBA business.
Amazon FBA Business Summary
With a lot to cover, this has been quite an extensive review although I hope you’ve found it useful and provided food for thought! You should now have an idea as to how to sell on Amazon, the benefits of selling on Amazon and an insight into some Amazon best sellers. I thought it would be useful to just provide a quick summary of my Amazon FBA guide and the various stages you should progress through whilst setting up your new business:
- Product Research: I cannot stress the importance of carrying out significant research into various products. This can either be done manually or alternatively with a software provider such as Jungle Scout (normally I’d try and recommend more than one software provider however unfortunately Jungle Scout is head and shoulders above all competition). Remember that if you’re not happy with the product in the first two weeks you can always request a refund – for those that are interested sign up here.
- Sourcing a Product: Make sure you contact a large number of suppliers using Alibaba and negotiate to find the best price for your product. Make sure you protect yourself by paying with Trade Assurance. I’d recommend using Fiverr for product design (if like me you’re lacking in graphic design skills!).
- Create an Amazon Account and Listing: Sign up to an individual account initially and then switch to a business account when it makes sense. When creating your listing I’d recommend using professional pictures and undertaking extensive keyword research. Again Jungle Scout can help with this.
- Marketing: Use Pay Per Click advertising initially to generate sales and improve your Sales Rankings. I’d recommend starting with a small budget and a low PPC bid price. Slowly increase the bid price until you find a profitable level for the item.
- Monitoring your business: Use Amazon FBA Software such as Fetcher (free trial here) to monitor the profitability of your overall business as well as drilling into specific items.
Best of luck launching your new Amazon FBA business and as always, I’d be interested to hear how you’re getting on so please do comment below. Please do contact me directly if you’d like more advice about how to sell on Amazon.