“Did you know that you can turn $8 a month into $8,888 with Fulfillment By Amazon? Nothing to sell? No problem. Just find a supplier, ask them to drop-ship a few hundred products to Amazon’s fulfillment centers hassle-free, and watch the money roll in.”
At least, that’s what I heard when I became an official Amazon Seller about six months ago. At the time, I was a twenty year-old junior in college without an ounce of experience. It sounded simple, and what college student’s ears wouldn’t perk up at the promise of easy cash? A mentor of mine offered to loan me some startup capital, and in a matter of days I was off to a running start with my new online business through Fulfillment By Amazon (FBA). Six months later, believe it or not, I find myself writing these words with over 500 product sales on Amazon. Yet I have no small fortune. In fact, I have yet to see a dime of income myself. What I do have, however, are a few lessons that might benefit any considering the move to sell with FBA.
1. It’s not as easy as it looks.
Aside from needing a corporate tax identity to apply for FBA (sorry, students–find a trusting investor), the supply process is also deceptively cumbersome. Finding a product not already listed on Amazon is exceedingly difficult, so if you want to sell a “unique” item, you’ll need a unique UPC code. This involves printing hundreds of labels (with a laser printer, no less), personally sticking them to every single unit, repacking, paying more postage and sending them to Amazon’s fulfillment centers–not quite my definition of “hassle-free.” Of course, Amazon will take care of it for you–for a whopping $0.40/unit. Expect to expend a good bit of work (or cash) before you can sit back and “watch the profits roll in.”
2. It’s as easy as it looks.
While the supply chain process might be wearisome, Amazon’s Seller Central platform is actually quite user friendly. In fact, it’s so user-friendly that you almost forget that you’re paying them on average more than 40% of all your revenues.
3. Be prepared to strike out on at least 90% of your product ideas.
Think the electric back scratcher is a phenomenal idea? Maybe it is. That still does not mean it will sell. The success of a product on Amazon has next to nothing to do with its practical functionality and everything to do with (1) the volume of people searching for it and (2) a volume of competitors that will not cause your listing to sit peacefully on page 47 of the search results. Expect most, if not all, of your first batch of products to sit idly for weeks in your FBA inventory.
4. A handsome amount of startup capital is a must.
Yes, Alibaba is an entrepreneur’s best friend. But unless you have stockpiles of cash sitting around, expect that MOQ (minimum order quantity) of 1,000+ units and $200+ shipping from China to eat up your precious capital like a hungry pit bull. With limited startup capital, you are almost sure to be restricted to domestic suppliers, which is where 90% of your competitors will get their goods as well. Importing is a huge advantage–if you can afford the risk of striking out a few times.
5. Amazon always gets the (much) larger end of the stick.
I already mentioned Amazon’s fees of about 40% of your revenue share. This is a conservative estimate. Take a brief example, with actual figures from my own startup:
These are the figures for what has been by far my best selling product. As you can see, Amazon currently takes away $3.54 of my $6.28 sales price. That’s a neat 56%, without factoring in the product cost or the $39.99 subscription fee Amazon charges to your account monthly. At this point, I begin to wonder where I am going to get my thousands of dollars, because it is definitely not from a margin like this. This frustration leads into the next lesson.
6. Don’t bother if it’s selling for less than $10.
Amazon’s fees are based primarily on size and weight of your product. If you can land a healthy sales volume on something selling for $25/unit, then $3.54 in Amazon selling fees doesn’t sound so bad. The problem is trying to find something lightweight and valuable that isn’t technology-based. Why not try to sell technology? Go ahead. Try it. Let me know how it goes with all of China selling everything from thumb drives to robotics for next to nothing on Amazon. The competition for tech retail online is ruthless (even the phone case market is impenetrable–trust me).
7. Competition springs up like daisies – and Amazon helps.
Soon after experiencing my first encouraging sales from one of my products, I found myself backordered while I waited for the next order to arrive from the supplier. Within days, two other sellers had popped up on Amazon, selling the exact same product (using my own purchased UPC, no less!). I soon learned that Amazon, the shrewd capitalist that it is, automatically alerts other FBA sellers when a successful product in their industry is out of stock, thereby encouraging your competitors to take advantage of the opportunity (and keep paying Amazon those pesky fees). Today, rather than remaining the sole seller of my product on Amazon, I now compete fiercely with 7-8 other online stores that are continually driving my prices (and my weak margins) ever downward. The lesson here? Amazon knows how to play the game.
8. Labeling is a task straight from Purgatory.
Perhaps you were promised a blissful supply chain experience like I was, where your supplier will drop-ship your product directly to Amazon without you having to lay a finger on your product. And maybe you have found a niche where such a system works. I have not. If you want your own unique product page on Amazon (i.e. your own sales, not the leftovers of someone else’s), you’ll need to apply your own UPC code. This, once again, will require you to (1) purchase a unique UPC code (I highly recommend speedybarcodes.com), (2) purchase labels, (3) print labels with a laser printer and (4) try not to pull your hair out as you label unit after unit after unit, just in order to ship them to Amazon’s fulfillment centers. Unless you have found your $25+ lightweight non-technology best seller, this work is as time-consuming as it is monotonous.
9. Splurge a little for a quality product.
If (like the example above) your product costs $0.90 a unit, it will most likely arrive with evidence of why the supplier is selling it for so little. The shipping materials will be cheap, the product packaging will be cheap, and, more than likely, your product will be cheap. When five-star reviews are essential to your online store’s success, don’t mess around with penny products. Spend a little more and make your customers happy.
10. Don’t expect to get rich.
If somehow you do, come back and let me know how you did it. Unless you reinvent the Beanie Baby, chances are that Amazon will take you for all you’re worth while letting just enough cash drop through their fingers to keep you interested. Yes, I am still selling on Amazon. And yes, I am still waiting for my thousands.
Take a look at my store on Amazon here.
Or, connect with me on LinkedIn.