Starting an Amazon Business for Beginners: All You Need to KnowUpdated: November 13, 2020
Starting an Amazon business is quite easy once you know what it implies and what steps you must take.
Thinking about starting an Amazon business but don't know where to start from?
In order to start selling on Amazon and put together a thriving and sustainable business, you have to make some decisions first.
Before you start selling stuff on Amazon, it's crucial you understand how selling on Amazon works, what are your options, what can you sell on Amazon, and what to expect from each business model.
Lots of sellers fail to develop a good business because they didn't take the time to understand the process. I've seen beginner sellers buying hundreds of items from manufacturers before knowing anything about Amazon's guidelines or the fees involved, which led to massive loss of money. You don't wanna be that seller!
I've put together a guide which goes over the Amazon business opportunities out there, what kinds of accounts you can choose from and other things you need to consider, like the marketing strategy.
The goal of this post is to provide you with the essential information you need to know before jumping into selling on Amazon.
How does selling on Amazon work?
As we all know by now, Amazon is a platform where you can buy stuff from. All kinds of stuff. But where do the stuff comes from?
At the first glance, many people live under the impression that the products sold on Amazon are also sold by Amazon – not true.
Yes, Amazon sells its own products too. Products like Alexa, Amazon Echo speakers, tablets, and all kinds of household items. They also own brands that sell products on Amazon but which you can't see directly related to Amazon itself if you take a look through their listing.
For example, these shoes are sold by Franklin & Freeman as you can see in the listing and there's no visible connection between this brand and Amazon. But, the thing is, Franklin & Freeman is a brand trademarked by Amazon.
Although Amazon sells its own products, the big money comes from third-party sellers.
Most of the products you see on Amazon are not sold by Amazon, are sold either by more established brands or by people like you and me. Anybody can become an Amazon seller (if he's over 18 years old).
You put your products on Amazon, and with every sale made Amazon will take a commission from that sale.
This way Amazon makes money – you make money – everybody is happy.
The process of selling on Amazon is pretty simple
- You register for an account
- You find the products to sell
- You create a listing for the product (if the product is not already on Amazon)
- *You send the items to the Amazon warehouse (for FBA sellers)
- Fill in your inventory
- Start selling
- Ship the products
- *If you sell through FBA, Amazon will fulfill and ship the orders for you
Even though the process itself is simple, you have some decisions to make before starting an Amazon business and it's best to do your homework ahead.
Things you must consider
More than 90% of Amazon sellers give up after a couple of months, and it's not because selling on Amazon is not a good business. It's because they don't know what they are getting into and surrender after the first fall.
Before you start selling on Amazon is crucial to be aware of the risks involved. Like in any other business, you gotta be willing to take risks in order to gain. Businesses that promise guaranteed success with no dangers are mostly scammy trades.
First, selling on Amazon is not an overnight get rich kind of business. You have to invest time and thorough research before you start seeing money piling up.
Second, there is the risk of losing money if you don't do your research for products right and you choose items that people won't buy, or you get into overly saturated niches where the competition is too stiff for you to make any sales.
And another cause for failing dramatically is not carefully revising Amazon's policies. This is important. There are too many sellers out there who don't know Amazon's rules, trust any sketchy tip for making more money (tips that obey the rules, of course), and then they find themselves with a suspended account and no business to run.
So, before you start a business selling on Amazon, be prepared to grow your business one step at a time, read Amazon's policies, and do as much research as you can on finding profitable products.
There are gonna be ups and downs, and as long as you learn from them and keep improving your strategies and techniques, you'll be able to develop a profitable business.
Amazon seller registration
When you sign up for an Amazon seller account you have an important decision to make. You have to choose between the individual and professional seller account.
What is the best type of account for you? It depends solely on what kind of business you plan on running.
So you can get the best decision, take a look at each account type features.
The individual seller account comes with basic features and it's pretty straightforward. It's free to register and you pay a fee for every sale you make.
With the individual seller account, you can sell a maximum of 40 items/month and those items must already have a listing on Amazon. You can't create a new listing by being an individual seller, so you have to opt for products that are already selling on the Amazon platform. If you plan on selling your own private labeled products, an individual seller account is out of the question as you won't be able to list your customized products.
Also, you don't have access to use the Amazon's advertising platform, which can play a huge role in your business development if you plan on acquiring a great number of sales.
- You can sell up to 40 items/month
- It's free to register
- $0.99 per item + referral fees and variable closing fees
- You can't create listings
- You can't use the advertising platform
As a professional seller, you get a lot more perks for a $40 monthly fee and this might be the best option for most sellers.
You are free to sell an unlimited number of products and you can create your own listings for products that are not already sold through Amazon. You can also use the advertising platform and you can register for the fulfillment by Amazon (FBA) program.
If you plan on selling more than 40 items/month and/or sell private label products, registering for a professional account is your only way to go.
- You can sell an unlimited number of items
- $39.99 monthly fee
- Referral fees and variable closing fees
- You can create listings
- You can use the advertising platform
- You can register for a prime account
- You can register for FBA
Amazon business models
Retail arbitrage is the easiest way to start selling stuff on Amazon.
You find retail stores nearby, purchase products at a great discount then sell them on Amazon at a higher price.
You can start by hunting down a couple of products in stores like Walmart, or Big Lots then register for an Amazon account and see how they sell. In the beginning, you can buy less than 40 products and sell the items as an individual seller so you won't have to pay the monthly fee for the professional seller account. This is a great way to test the waters and see how the products you have chosen are doing.
Even though selling retail products is a simple process, the risks involved are high.
- You need to have a receipt/invoice proving that you purchased the products from the manufacturer and the receipt from the store won't do.
- Because you won't have the invoice, you need to list the items as “used”.
- Some categories are gated, and even some products are restricted even if the category they are in is not.
- It is easy to get your account suspended as you may encounter problems with the products' manufacturers.
- The profit you can get from retail arbitrage is way lower than the profit you can get from wholesale or private label products.
Most retail sellers had turned to sell wholesale or private labeled products because is a more profitable and sustainable business.
Online arbitrage follows the same process as retail arbitrage does. The only difference is that you purchase the items from online stores rather than from physical stores.
Online arbitrage shouldn't be as profitable as the customers can find the products themselves at the lowest price online. But people love to be comfortable and they would rather buy directly from Amazon than having to search the entire web.
As with retail arbitrage, online arbitrage is a risky way to starting an Amazon business, and it's not a sustainable business model.
I recommend retail and online arbitrage only if you are after a couple of bucks or you want to test how Amazon works without having to invest a lot of money. For a steady business, selling wholesale or private labeled products is the way to go.
Selling wholesale products means buying profitable products directly from the manufacturer and reselling them on Amazon for a profit.
You purchase the products from the manufacturer and sell them as they are, without any alteration, under the manufacturer's brand. The products are not branded under your business, you're a third party seller.
Before you start selling wholesale products you need to get a wholesale license following the requirements in your country.
Selling wholesale products is one of the most profitable business on Amazon because you can buy the items really cheap from the manufacturers and resell them on Amazon at a way higher price.
The most important part of wholesale is finding Amazon profitable wholesale products which generate a great number of monthly sales. Moreover, you have to able to increase the sale price in such way you'll have a profit margin of at least 60% so you can cover the expenses (shipping, FBA, Amazon fees) and still make you a sweet profit.
Private label products
Selling private label products is probably the most popular Amazon business opportunity nowadays. That's because it can be highly profitable if done correctly.
Private labeling products mean targeting a profitable generic product, finding a manufacturer and having the product fabricated under your own brand. By doing so, you'll be developing a brand, and not just a store, which can turn to be extremely powerful.
By selling private label products you'll be getting your own listing of the products so you won't have to compete for the Buy Box, you can increase the quality of a product and place something better on the market, and it'll be differentiating you from the crowd as you'll have unique products to sell.
How can you sell private label products
- Buy the products from the manufacturer exactly as they are but with your brand placed on them
- Having the manufacturer make some changes to the products to improve their quality
- Designing your unique products and finding a manufacturer willing to fabricate them
Fulfillment by Amazon (FBA)
Fulfillment by Amazon (FBA) is a program in which any professional seller can register. By registering to be an FBA seller, you'll be sending your inventory to the Amazon warehouse and your orders will be fulfilled by Amazon in return for a small fee. The process includes picking up the items, packing, shipping to the customer, and handling basic returns.
Lots of sellers turn to this method because it's more convenient than handling the shipping yourself. By being an FBA seller you just have to ship your items to one of Amazon's warehouses and Amazon will take care of them for you. Every time you make a sale, Amazon will ship the package to the customer.
The benefits of being an FBA seller
- You won't need to worry about shipping the products to the customers. You can be anywhere in the world and still have your products delivered anytime.
- The fees are small given the time you earn by not having to deal with the shipments.
- If you sell products from a foreign country (outside the USA or UK), the shipping costs are lower if you sell through FBA and so is the delivery time.
- Being an FBA seller makes you eligible for the prime logo. This means that customers with a prime account can get free shipping by purchasing the product from you. Needless to say that prime products attract way more customers than non-prime.
Products having the Prime logo are generating more sales.
- Products sold through FBA get better rankings in search results because, the orders being fulfilled by Amazon, they can be sure the delivery process runs smoothly. And the delivery performance is an important metric in ranking. If you look through a results page, you'll see that on the first pages you'll only find FBA sellers.
- FBA products are more likely to win the Buy Box over the non-FBA items.
- When customers see “fulfilled by Amazon” their trust level in your product increases. Customers will more likely buy a product if it's delivered by Amazon rather than delivered by someone they know nothing about even if the product has a higher price.
- Fulfillment fees – they refer to the fees you pay for picking up, packing, and shipping
- Monthly storage fees – this is what you pay Amazon to store your items in its warehouse
The total cost of the fees is determined by the weight and dimensions of your boxes.
Other FBA fees you may encounter
- Labeling fee – you can pay Amazon to label the products for you especially if you source products from foreign manufacturers and have the items delivered directly to the Amazon warehouse.
- FBA prep service – you can pay a fee and have Amazon pack and prep the items for you. Also, if you send the items and they are not packed following Amazon's guidelines, you'll be addressed an unplanned prep fee.
- Long-term storage – Amazon will charge you a long-term fee if the items sit in the warehouse for longer than 6 months.
- Returns processing – in the initial fee, basic returns are covered by Amazon, but if the returns need repacking you'll be charged an extra fee.
- Stock removal fee – if you want to remove your inventory from the warehouse, you'll be charged a removal fee for it.
You have to stay on top of any Amazon FBA fee it can occur so you won't end up paying more than you can afford.
Becoming an FBA seller is not just about having the shipping covered up. It's also about benefiting from the other perks like the increased exposure you get through Amazon Prime, easier ranking in search results, and the advantage you get to win the Buy Box.
Understanding the marketing techniques
Starting an Amazon business is not just about uploading your products and wait for the sales to happen. In order to be successful, you'll have to understand what you have to do in order to generate sales. This is the marketing part and you have to learn it.
For your product to be selling, people need to find it first. Great exposure means that your product must show as quickly as possible when a customer searches for something related to your product. If your product shows on the 25th page, nobody will see it hence – no sales. You have to earn your ranking, and in order to earn it, you must know what you have to do.
There are more aspects involved in a good marketing strategy and they are SEO, organic marketing, and paid marketing.
SEO (Search Engine Optimization)
When you conduct a search on Amazon you'll get results related to your search query. For example, if you go to Amazon and search for “wireless headphones” you'll see these results:
The first two results are paid advertisements, and we'll get past them for now. The following products are organic results which means that nobody paid for them to show on the first positions, they earned their place. And nothing is random.
How a product's ranking is decided? Amazon evaluates certain variables of a product's listing and runs an algorithm which decides where every product should rank.
The SEO efforts revolve around two things: relevance and quality.
Relevance – refers to how relevant a product's listing is to the customer's search queries. In order to meet these criteria, you have to lead a keyword research so you find the most used search queries related to your product and to learn where to correctly use those keywords.
Quality – refers to how well a product is performing. Amazon wants customers to buy as much as possible, so the aim is to show the most trustworthy sellers with the best deals. For this, a couple of qualities are taken into consideration:
- Price (product price + shipping fees)
- FBA & Prime (they do better in ranking as Amazon can make sure the shipping will go smoothly)
- Product availability
- Rating & reviews
- Bestseller / Amazon's choice labels
- Bullet points
- Conversion Rate (CR)
There are a couple of things you'll need to do so you increase the visibility of your products organically:
- Gathering positive reviews and ratings
- Keeping a competitive price
- Winning the Buy Box
- Running promotions and discounts
The above are a couple of things you have to do in order to gain the best exposure for your products. There are more techniques to rank higher on Amazon search and you'll have to learn how to handle them.
A successful Amazon business also requires running PPC campaigns as this is the fastest option to make it to the top.
Being a newbie on Amazon, with no reviews, rating, and sales, ranking high in the results will take a little time. Advertisements can be your launch track, helping to generate your first sales.
I know you're not excited to hear an advice which implies to invest money, as you're probably aiming to start an Amazon business with as little money as you can. But some wins can't turn into wins without investing something first. The investment will pay off through the sales you'll make.
Selling on Amazon can become a great source of income when done right and the first step towards success is to know what you're getting into.
The most important things you need to keep in mind before starting an Amazon business:
- You can start testing the waters by registering for a free individual account on Amazon which lets you sell up to 40 items/month
- If you plan on selling more than 40 items/month and/or have Amazon fulfill the orders for you, the professional account is the way to go
- Retail arbitrage and online arbitrage are the easiest business models on Amazon, but they are also a minefield where you need to proceed with caution so you won't get banned
- Selling wholesale products or private label products is way more profitable than arbitrage and it's a sustainable business model
- You'll have to familiarize yourself with the marketing techniques as you can't sell through Amazon and be successful without correctly marketing your products
Selling on Amazon is a learning process and if you're willing to do the work and acquire the information and experience needed, you'll be able to build an Amazon business guaranteed to bring you a steady income.
What struggles do you face with starting an Amazon business? Let us know what other aspects of selling on Amazon do you want us to cover. You can let your comments here, or you can find us on Facebook, Twitter or Pinterest.