Here is the truth about Amazon FBA!
Entrepreneurs have been excitedly talking about Amazon FBA on message boards and online groups for years now. In their opinion, it’s the best thing since sliced bread. That might have been true at some point, but I wanted to find out—is Amazon FBA still profitable in 2020?
It sounds fine and dandy to ship items across the world and get paid. But if you end up making minimum wage or less, it’s more profitable to go flip burgers or stock shelves in a warehouse. Then you’ll at least get to network with people.
I decided to investigate Amazon FBA profitability. What you’re about to read is what I discovered from researching the experiences of other Amazon Sellers and briefly dabbling in Amazon FBA myself.
I would also encourage you to check out our is Amazon FBA worth it article as well, after reading this one.
Ladies and gentlemen, hold on to your hats, we’re going on a wild ride.
Is Amazon FBA Profitable? – Breaking Even
First of all, let’s take a look at what has to happen so you break even. Your cash flow from Amazon FBA depends on:
- Initial sourcing prices
- Amazon Sellers account subscription
- Shipping fees
- FBA fees
- Strategic planning
- Effective cash flow
- Demand for products
- The products themselves
It sounds complicated but the math is simple—your revenue (money coming in) needs to be greater than costs (money going out). On the other hand, if you don’t have any business or accounting training or experience, you can easily get overwhelmed. Ideally, someone will teach you how to manage business finances before you get into FBA.
Building a Revenue Stream
Let’s narrow down the above list to four key components for Amazon FBA:
Each of those naturally connects and builds upon the other three. They are inseparable, and you will have to consider them all. You can’t count on doing sourcing flawlessly and neglecting the rest.
These four components apply no matter which of these selling methods you’re using:
- Branded products (selling your own products)
- Online arbitrage (finding cheaper items online)
- Retail arbitrage (finding cheaper items in retail stores)
- Wholesaling (buying and selling in bulk for cheaper)
- Private labeling (selling products of others under your own brand)
Amazon FBA gives you a lot of flexibility in terms of what you buy and sell. Ultimately, all these selling methods come down to buying items for cheap and selling them for slightly more. The difference between the sell and buy prices is called your “margin”.
Every cost you incur eats into your margin. If you want to earn more money, you have to do one or more of the following: a) lower your buying price, b) increase your selling price, c) reduce fees and costs, or d) sell a larger volume of products.
Here’s where we come to the first obstacle – competition.
Amazon is a very competitive marketplace. Sellers constantly undercut one another and count on selling a larger volume of products to increase their margin. If you try competing against big sellers, you’re all but guaranteed to get squeezed out because they can always undercut you.
The trick to dealing with competition is what’s known as the long tail. In short, you don’t compete with big sellers but find a niche where there’s little or no competition and dominate it. Because there’s minimal competition, you’ll get a chance to grow and learn without being undercut.
You should also understand how big sellers think. For a big seller, $200,000 monthly revenue is peanuts. For you, well, I hope it isn’t or you should be teaching me how to build a business.
I’m trying to say that you should try a small scale endeavor before betting the farm on your Amazon FBA idea. If you choose a small enough niche, big sellers won’t even bother with whatever it is you’re doing and you’ll be able to experiment.
If you can stay under the big sellers’ radar, you’re like an ant that can slip through the cracks and go anywhere undetected. Being so small means you are much more nimble compared to the big seller and can adapt instantly to changes in the market.
Once you’ve grown in your niche, you can expect a big seller to try undercutting you, but this time around the tables have turned—now you’re the big seller and have the upper hand. Now you dictate the terms of the niche unless the seller is a true juggernaut.
You reading this text right now is research and so is you checking out forums, news clips, social media posts, and other sources of information. Naturally, there are only so many hours in the day so you can’t possibly be doing all the research, all the time.
You would ideally find a tightly-knit group of researchers, with whom you’d be able to share your research and get information in return. The group would also be curated and invite-only to minimize the noise, idle arguments, and leaks of valuable info to the outside world.
Research can happen across populations too. For example, if you find out how many people in your local area have birthdays around the same time, that too is potentially useful information. Just that one piece of info isn’t enough, so you’d need to keep researching and building your data.
I know I’m being vague, but that’s on purpose—you should be using every possible source of information, no matter how quirky it might appear. As long as the source is backed by verifiable data and there isn’t too much noise in it, you should consider it and piece it together.
Keep in mind there is a wealth of non-English information sources online, meaning their data might not be widely circulated or discussed. If you know how to access non-English info, that right there is an amazing advantage over all other sellers in your niche that wait for info in English.
If you can understand the mindset of your competition and detect their weaknesses, that is a massive plus to your entrepreneurial skill. For example, if all the big sellers from a certain region abide by certain ideas and practices but you don’t, you’ve got the upper hand.
Just because your competition does something in a certain way doesn’t mean you have to act the same way. As long as Amazon allows it, it’s fair game.
Let’s talk about party hats. They are cheap, disposable, and people wouldn’t want to hoard them. People would buy a bunch before a birthday party or a holiday celebration, meaning party hats are items in low demand.
So, the demand for party hats would appear in surges that would swell before or during holidays. There would also be a constant low demand for them from people celebrating birthdays, so perhaps one in a thousand people would buy a party hat at any given moment.
If you knew that there’s a lot of people born around the same time in a certain area, you could stock up on party hats, advertise to them, and time the surge to sell out completely, which is the ideal scenario. You can see how information reveals the market’s secrets.
There is very little profit to be made selling party hats, but can the idea be expanded further? How about party hats for pets?
By marketing party hats as a fashion accessory for pets, one could create a lot of demand for them. Pets wearing party hats would also look adorable and reap tons of likes and shares on social media. If you branded these party hats, each social media share would become an endorsement.
All of a sudden, pet owners would have a motive to buy hundreds and hundreds of party hats for their pets to build a collection. Instead of trying to wring blood out of stone by selling party hats, you find an unsatisfied market demand and fulfill it.
Can the party hats for pets idea work? I honestly don’t know, it just came across my mind and I wanted to share it with you. It would take a lot more research to figure it out; maybe it wouldn’t work for dogs but would for lizards.
My point is that given the right market conditions, any item can be in high demand. It’s just that most newbies blindly follow in the wake of big sellers and then fight for scraps. By thinking outside the box, you can strike your own path before anyone can undercut you.
Now you see why entrepreneurs have been gushing about Amazon FBA. That’s the allure of Amazon FBA, where even the silliest idea can turn a profit. Given enough research, you can use Amazon’s infrastructure to turn any idea into cold, hard cash and laugh all the way to the bank.
Getting products in your inventory is called “sourcing”, and it’s a key component to answer the question Is Amazon FBA still profitable? You can source used or new books, toys, electronics, and whatever else from any part of the world. Sourcing is an art form in its own right.
You might pick up the phone yourself and haggle with a factory owner halfway across the world or go to a clearance sale at your local supermarket store. Perhaps there’s a garage sale down the street or a liquidation sale in a city nearby. Sourcing possibilities are everywhere.
The main thing about sourcing is making sure the quality is as high as possible. You can very easily trick yourself into buying stuff sight unseen, only to get stuck with crummy inventory that you can’t sell but that’s still incurring Amazon warehouse fees.
Sourcing will still require you to do legwork unless you decide to get some help. Eventually, you might want to hire people from other parts of the world that are going to do the sourcing for you in their languages, regions, and time zones.
These helpers will most likely have a lower standard of living. If so, you’ll be able to save money on their pay and they’ll likely be thrilled with what’s basically an allowance in the US, UK, or Canada. You might recruit them through ads or through social media.
The best way to source items is to make them yourself. In this way, you have a direct way to ensure quality, which is a major boost to your brand. Sourcing products from others can give results, but the ultimate success is about building and selling under your own brand.
I’d like to briefly cover branding as well. Look around you. Notice all the brands on items around you, such as the brand on your smartphone, clothes, keyboard, and random tidbits of paper lying around.
Brands are all around us and we don’t even notice them, but we accept them wholeheartedly. The brands you buy represent quality, something you can depend on at any given time. I think that’s proof enough that the right way to build your brand is by striving for quality.
Your goal is to become an established brand just like Microsoft, Samsung, or Genius. You don’t have to be as big but simply be reliable enough that people accept and use your products daily. Everything you do through Amazon FBA will eventually have to result in you building your brand.
Don’t get lulled into thinking Amazon FBA is the end goal. It’s simply an appetizer, a way to whet your appetite. Dream big, plan ahead, and don’t get discouraged by the numerous obstacles.
Learning More About Amazon FBA
I wish I could share all I’ve learned about Amazon FBA but this kind of article isn’t a good format for learning. First of all, the walls of text can feel overwhelming, no matter how well I try to lay it out.
Not just that, but I feel like I can’t ever be exhaustive enough. Amazon FBA is such a deep, rich topic that it would take months of dedicated mentoring to get a single person up to speed on all the nuances. But, where do you find an Amazon FBA mentor?
For the longest time, I couldn’t find an Amazon mentor until I discovered the Amazing Selling Machine training, an 8-week course created by two Amazon big sellers from Texas – Jason and Matt. They started the course in 2013 when they figured out the potential in Amazon, especially FBA.
I’ve written a complete review of the Amazing Selling Machine Course, so do give it a look. In short, you get access to a curated community of sellers, mentoring programs, and the Private Resource Vault with tons of valuable info. In my opinion, the Vault alone is worth the price.
You can still make it gung-ho style but you risk burning out. A support network really means a lot when you’re just starting out so you can fall back and regroup. If you already have one, great. If not, I suggest finding one before doing Amazon FBA.
So… Is Amazon FBA Still Profitable?
I didn’t go into detail on the different fees and costs because they are liable to change and might vary from region to region. Besides, I think just seeing a “20% fee” would look scary and might discourage you from even trying Amazon FBA.
Not only is Amazon FBA profitable, but it’s also more profitable than it’s ever been. Amazon keeps growing year-to-year, with a projected 50% US market share in 2020. There’s a chance for everyone on Amazon, though you shouldn’t just dive in to the deep end.
By enlisting in expert training and mentorship, you can dip your toes in the kiddie pool and have a lifeguard that will keep an eye on you if you lock up and start sinking. A mentor will help you pace yourself, relax, and enjoy the ride until you gain confidence.
If you can…
- Understand your competition and find a suitable niche
- Do research and piece together data
- Understand and time the demand surges
- Get help sourcing and eventually make your own branded products
Then there’s definitely a future for you in Amazon FBA.
From what I’ve discovered, Amazon FBA lets you turn your pet project into a real business, provided that you apply the four core principles. It doesn’t matter how silly your idea, it simply has to be applied the right way and it will turn at least some profit.
Being able to piece information together is the key to success on Amazon FBA. The ability to connect the dots will keep you ahead of the market and able to recognize changes before they happen.
Now, we have so much information thanks to the internet. We can share, build, and grow together more than ever before. For me, knowing that this post might help someone out there build their own revenue stream is a source of immense satisfaction.
All the information out there means nothing without a curious, open mind that’s willing to learn and piece it all together. If I’ve sparked some curiosity in you about not just Amazon FBA but also business management and market research in general, mission accomplished.
Once you start thinking globally, the internet becomes a fire hose of information streamed into your life 24/7. All of that information can be distilled and put together to make a workable, profitable idea. Now that’s how you gain financial independence.
I advise that you do as much research as you can to understand the market and your competition. If the idea of turning a pet project into a revenue stream excites you, do give Amazon FBA a try. I’ve tried it and I love it.