Amazon FBA – Highly Profitable, Passive Income?

  Amazon FBA is an increasingly popular and potentially highly profitable form of passive income investment. It’s effectively Amazon’s own-brand Dropshipping service, but it’s rather more complicated than that.

FBA stands for Fulfilment by Amazon and it means exactly what it sounds like – that orders are completed using Amazon’s own storage and distribution network. They’ll store your wares, pack them and ship them.

We’ll explain how you can profitably exploit this service, but if there’s anything you want more information on, please reply to this or any of our emails and let us know!  

TL;DR

• Passive Income – once you’ve set up your business, it will basically run itself
• Profitable – with the right product, the profit margins can be very good
• Higher Risk – the initial costs can be significant, adding a risk to the venture
• Competitive – finding a unique product is challenging, but rewarding
• High Effort – involves a lot of upfront time and effort before you can consider stepping away

What Is Amazon FBA?

The main difference between FBA and Dropshipping is that Amazon won’t supply to products for you. You’ll need to set up your own supply chain. FBA is not a business that you stick a front on and do the marketing for – it’s a tool to make running an eCommerce business significantly easier.

Like with Dropshipping, one of the really big advantages of using FBA is that it significantly reduces your up-front costs and complications. The challenges of warehousing, inventorying, listing, selling, packaging and shipping are all reduced to virtually nil. So long as you can arrange for your products to be delivered to Amazon’s warehouse, they’ll take care of the rest. They’ll even stick your labels on the boxes so that it’s still clear that they are your products and not Amazon’s.

There are different ways you can make use of FBA, the most popular of which is private labelling. It allows you to establish your own brand while making use of Amazon’s well-established systems. While it is the most profitable approach, it’s also one of the riskier ways to use FBA since it requires more significant up-front expenses. You will need to buy stock and get it shipped to Amazon and, while you can often get products cheaply directly from suppliers (certainly at better costs than you would from Dropshipping companies), there’s the ever-present risk that your products won’t sell.

As with all eCommerce business models, research is essential. Find the right product to sell and you could create a great multiple sources of income. Get it wrong and you could be saddled with a hefty debt and hundreds of unsold units.

A popular alternative is retail arbitrage, which is a lot more like Dropshipping. Rather than sourcing your own product, you simply buy an existing product and resell it through Amazon for a profit. While this is a far easier way of making profits, particularly in the short term, those profits are significantly lower.

In both cases, one of the advantages you get from using FBA is that your product is listed on Amazon. Not only are your wares in a very popular marketplace, but Amazon will handle the receipt of payments for you, removing another tiresome obstacle from setting up an online business.

It can be a slightly double-edged sword to use such a popular platform since it also means that you are going to be selling your products right alongside your competitors. This, again, is why proper research is essential. To be successful on FBA, you need to have the right product at the right price. Additionally, it’s worth noting that Amazon is not globally popular. It’s the go-to for online shopping in America and Europe, but can’t complete with Alibaba or Lazada in Asia. That certainly gives you no shortage of potential customers, though.  

How To Get Started With Amazon FBA

The process of starting to make a passive income through FBA is functionally the same as starting any business. Firstly, you need a product to sell. This can be pretty challenging because it requires a considerable amount of innovation. You need something that isn’t already easily available. Amazon’s own “Hot New Releases” section can be a good source of inspiration, but you can also trawl social media and the internet generally to find something that people want.

If you’re starting out and particularly if you’re looking to make a passive income, your ideal product should be something small, lightweight, uncomplicated and unseasonal. Fashions and trends come and go, limiting their long-term potential, so avoid clothing and anything inherently related to a specific time of year (like Christmas decorations). Larger items are more expensive to ship (both from the manufacturer to Amazon and then from Amazon to the customer), cutting into your profits. You may also want to check what kind of items are regulated in your country as having to work through excessive bureaucracy is extremely frustrating.

We mentioned before that Amazon has little reach in Asia, especially compared to Alibaba and Lazada. This could actually work in your favour and help your research since products available on these platforms might not be available on Amazon and could provide potential product ideas.

Once you’ve found a product, you need a supplier. You ideally want to buy from China since production costs are much lower, making your profits much higher. However, there are also benefits to using western manufacturers, including reduced shipping costs. Don’t necessarily go straight for the cheapest product since cheap can translate into low-quality, which will backfire on you later.

Now that you have a product, you need a company. You’ll need to design your logo and packaging to make your brand distinct. If this isn’t already in your skillset, consider hiring a freelancer from sites like Fiverr and Jungle Market to do it for you.

Finally, you’re ready to get onto FBA. Sign up for a seller’s account on Amazon and decide on the type of FBA you want to use. Create a listing for your product, optimise it as much as you can (potentially even using Amazon’s own sponsored ads, if you want a boost to get things rolling). You can do a bit of extra marketing but, in theory, all the work is now done. So long as there’s demand for your product and there’s always enough stock in the Amazon warehouse for them to fulfil orders, the business will effectively run itself.  

Things to Consider before starting an Amazon FBA Business

While FBA has the potential to be a truly passive form of income, requiring no additional input on your part once the processes are set up, actually setting up those processes is no small task. Finding the ideal product alone is a huge challenge, but every step outlined above is a challenge. Be prepared to spend a lot of time on research, negotiation and paperwork.

Not only is it a complicated process to set up an FBA business, but it has the potential to be risky and expensive. Part of the reason why we suggest starting with a small, cheap product is that the cost to you for an initial run of 500 units will not be a crippling loss if it turns out that no one wants it. Unlike many other passive income business models, you will need up-front capital for FBA.

However, as risky as it is compared to many other models, the potential rewards are also significantly greater.  

How Much Does It Cost To Get Started With An Amazon FBA Business?

In order to start selling through Amazon, you’ll need to set up a seller’s account. If you sign up as an individual, there’s no fee. However, if you mean for this to be a big business, you’ll need to sign up as a professional. While the first month is free, it’ll cost you $39.99 per month after that, as well as a selling fee.

You will also, as specified above, need a product. Exactly how much that will cost depends entirely on the product and how large your initial production run is. It’s recommended to go for a small, cheap product so that a run of about 500 units is not too expensive. Once you’ve got a couple of successes under your belt, you can consider bigger and more expensive products to increase your profit margins.   

Learn more about becoming a successful Amazon FBA Provider

If you are interested in learning more about Amazon FBA and how it can create you a passive income, check out these links:

Salehoo – Can be a great resource for getting ideas for products to create or replicate

Amazon FBA – learn more directly from Amazon on how you can use Amazon FBA

Fiverr – a great, low cost, resource for you research. Simply pay someone to do the research for you!

Ninja Seller – start your online store without the fuss

Amazon FBA For Beginners – 7 Steps To Getting Started With Amazon FBA

JungleScout – Number One Amazon FBA Product Finder and Research Tool