So, you’ve decided to start selling on Amazon. Good for you! Amazon has been the basis by which many people have made their fortunes. It has also been an abject failure for many more. While tons of “guru’s” will tell you that you can get rich in only 4 hours a week. Etc, that is not the case. Selling on Amazon takes an education, drive, and perseverance. From that standpoint, it is no different than any other business. Your dedication will in great part decide your fortunes. We have been selling on Amazon for 3+ years. Our business this year will top $500,000. We have tried many different strategies and failed a lot. We hope to give some insight here to help you avoid some of our pitfalls and learn the basics of selling on Amazon.
There are basically 3 ways that you can sell on Amazon. Retail Arbitrage, Drop Shipping, and Private Label. After almost 4 years selling on Amazon and having tried all of these venues, we have put together this primer as a starting point for you to understand the basics of selling on Amazon, and hopefully to give you a direction in which you can go to find more information and training that will help you to be successful. We are firm believers in investing in training. The Amazon environment- no matter which way you decide to sell- is intricate, ever-changing, and filled with competitors who will play dirty to keep on top of their own little empires. Having the guidance and support of others who have walked in your shoes and having the benefit of the latest trends and processes can be invaluable to you as you get started.
The first step to selling is to set up a Seller Central account with Amazon. You can do this as an Individual Account or as a Professional Account. The Professional Account is worth the $40 per month fee in almost every case. An Individual Account gets charged a $.99 fee on each product sold so if you plan to sell more than 40 items a month… Besides the Professional Account gets you access to a ton of Amazon inventory and financial tools that will help you immensely in tracking your business. You can always start with the Individual and then upgrade if you wish. That way you only pay when you sell something.
When selling on Amazon, you can choose to keep your own inventory and handle shipping yourself out of your home, garage, or office. This is called “Fulfillment By Merchant” (FBM). Depending on your situation, this may be a very good way to maximize per unit profits AND stay in control of customer experience. The other way is to send your inventory to Amazon Fulfillment Centers. This is called “Fulfillment By Amazon” (FBA). FBA gives you a few advantages that FBM does not. First of all, with FBA, Amazon handles order fulfillment, shipping, and customer service. They can really take a load of work off your plate so you can focus on finding new products and ordering more inventory when you are getting low. Boxing up orders in your garage and shipping them out can take a ton of time if you are at all successful. Using FBA also makes your products PRIME eligible automatically so you have access to all of those many PRIME customers. The downside, of course, is that FBA costs you a lot of money. Jeff Bezos and his team are quite adept at finding ways to increase their own portion of your gross profit.
Whenever you look at an Amazon listing for a product, the white box to the right-hand side, with the ORDER button is known as the Buy Box. The Buy Box is owned at any given time by a seller who is selling that particular product. If there are multiple sellers for one product, they must each try to get control of the Buy Box so that the next sale comes out of THEIR own inventory and NOT the inventory of their competitor. A given seller must also be eligible to own the Buy Bos in order to get their share of the sales. With 85+% of all sales going through the Buy Box, it is very important to have strong seller metrics so that you are eligible for the Buy Box.
There are many, many people who do retail arbitrage. The process is basically this: You buy just about anything at a low price and then resell it on Amazon at a higher price. The difference is your profit. If you can find products with little enough competition and high enough demand, RA can be a great money maker. It is also really fun to look for all of those bargains at your local Walmart, CVS, or Target. You can also look for great deals online. There is a great app for your smartphone called Amazon Shopping that will allow you to scan the barcode of any product and instantly see what it is selling for on Amazon.
The difficulty in RA, and why we no longer do it, is competition. Amazon only allows for one listing for a given product UPC code. So if you look at any name brand product on Amazon, you will probably see that there are many, many sellers who found that same deal at Walmart, CVS or Target. All of them are trying to control the Buy Box and therefore get the sale. All of these sellers are trying to make a profit, but there are different ways to go about that. Some sellers will employ a “low price” strategy. Since Amazon wants sales, the lowest price will have a strong chance of getting the BB. This can lead to what is called the “race to the bottom” as sellers each try to go lower than their competition to get the sale, but the overall effect is that the price (and therefore margins) continue to get lower. Other sellers employ a higher price, “wait out” strategy where they will allow the other sellers to sell out at a lower price, and then get the Buy Box with a much better margin.
FBA or PRIME sellers will always have an advantage over FBM sellers in getting the Buy Box. An FBA seller can generally control the BB even if they have a higher price than their FBM competition (within reason).
A Retail arbitrage strategy can be a lot of fun, but it can also be very difficult keeping up with the competition. There is automatic pricing software available that can help reduce this burden, but generally speaking, if you are not adept at utilizing these strategies, you can end up with a lot of money tied up in inventory that is not selling due to high competition. You also have to be careful how you buy a product. I had one very popular brand close my buying account and refused to sell to me because I tried to buy too much product during a sale. Yes, really!
For more information on the Retail Arbitrage strategy, follow this link to The Selling Family . Jessica Larew is a tremendously talented RA strategist and teaches her methodology to others.
Drop Shipping is a strategy in which you sell someone else’s product on Amazon without actually owning the product. When a customer purchases the product on Amazon, you then buy the product from the supplier and have it shipped directly to the customer. There is any number of nuances and strategies around drop shipping that would differ from this, but the idea is the same. The benefits of drop shipping are many. For instance, since you don’t buy anything until it is bought from you, you never have to stock inventory. The costs to start up a drop shipping company are very low. You can sell just about anything so multiple niches are easily reached thereby spreading your reach and limiting issues in a certain niche. There is no warehouse space required and shipping is done by the manufacturer or distributor- not you. This is truly a business you run at arm’s length.
There are also some difficulties to drop shipping. Amazon does have some restrictions that hinder your ability to do just anything with this strategy. Customer service can be a bit difficult as you are at the mercy of a 3rd party when it comes to quality control. For that reason choosing quality, suppliers is of the utmost importance. Competition is generally fierce in drop shipping. Many sellers employ a low price strategy so expect very tight margins. The discussion about the buy box in the previous section applies here as well.
There is an excellent article on drop shipping here .
Also, for more in-depth training, check out these guys at Ecomm Elite and their unique system for employing a sort of a drop shipping/ retail arbitrage strategy.
The Private Label strategy is a completely different animal to Retail Arbitrage or Dropshipping. With PL, you create your own brand and then find manufacturers who will produce products under YOUR brand. As the owner of the brand, you can protect yourself almost completely from competition for the Buy Box. You will own it all of the time. So where others spend their time and focus on getting the box, you will spend more time on marketing your brand/product and working on your page rankings to stay as high as possible. This strategy allows much more control over every aspect of the business as you are in charge from manufacture through the sale.
The downside of a PL strategy is the startup cost. Since your product does not already exist on Amazon, you will need to do all of the work to get it noticed. You will need to do the legwork to find the right product at the right quality at the right price for you to sell. This also means that you will need to produce a good deal of inventory so that you can run marketing campaigns aimed at raising your ranking on the Amazon page for your main keywords. When people search Amazon for “blue widget’s” you want them to immediately see YOUR blue widget. The more people who see your product (sessions) the better. The better the quality of your listing, the more of those people will buy your product (conversion).
This is the strategy that we employ. We now own 2 separate brands and sell in the USA, UK, and Europe. This all did not happen overnight but with education and experience our business has grown and become quite successful.
To learn more about Private Label, please follow this link to our coaches at Northbound Group. In our opinion, these guys are the best in the business. They have a massively supportive facebook group where they will guide you step-by-step through choosing your product and they provide direct feedback on your product listing. We didn’t find these guys until we had already been selling for over a year, we wish we had found them sooner, they had a huge impact on our business! They have been our mentors for quite a good while and really know how to make your Amazon Private Label business cook! They have a 30-day boot camp available or a 90-day coaching course. Both we highly recommend.
There you have it, all the tips and guidance to get you selling on Amazon. Hopefully, this article will assist you in your decision whether to sell on Amazon and if so, how to do it. Please feel free to let us know or reach out if you have questions. Or just let us know what you think in the comments section below.