Most of my friends have no idea what I do for a living. If you read this blog, you know much better than they do.
The general assumption of what I do is based on what I did early on: sold random products on Amazon.
Now, I do much more than sell on Amazon (it is barely part of my business model anymore). I now make software and create content (free and paid).
But, I find myself explaining what Amazon FBA is over and over. I felt like it was worth putting it down on paper.
Here is Amazon FBA in as few words as I can keep it to without missing anything critical. I have included a lot of links to additional articles that expand on each key point.
44% of Amazon’s sales come from 3rd party sellers. Amazon uses 3rd party sellers to ensure they have any imaginable product a customer could want.
Fulfillment By Amazon (FBA)
Amazon has a program called Fulfillment’s by Amazon (FBA) that allows 3rd party sellers to send inventory to their warehouses where then shipped to customers when it is ordered. This is the most powerful aspect of selling on Amazon.
There are various fees for selling on Amazon and using the FBA program. Sellers calculate these fees into their buying decisions.
Most sellers start with a process called “retail arbitrage,” in which they go into stores with their smartphones and scan the barcodes of products to compare the store price to Amazon’s current list price. This process is straight forward. Scan any item, see if you can sell it and then see if there is any profit after fees and costs of goods.
There are a lot of tools for finding products to sell on Amazon that make the process possible. Some are paid, some are free.
There are “gated” brands and categories that sellers must be approved to sell in. New sellers generally sell products like toys, household items and simple electronics.
You can have a massive inventory heavy business without needing a massive warehouse of your own or a large staff. Sellers pay storage fees based on how much inventory they have in warehouses and if it is oversized or not.
It is possible to do the process completely remotely with Online Arbitrage and the help of 3rd party prep and ship companies. It is possible to run an Amazon FBA business without ever seeing your products by using online arbitrage and 3rd party prep companies.
The goal is to build capital and profit via economies of scale. This means as you have more money to spend on inventory, you can take lower margins but still earn more money each month.
Amazon helps with returns and customer support. Sellers can communicate with buyers but they can also hand over most of their customer support to Amazon.
There are multiple ways to get products other than arbitrage. In addition to arbitrage (retail and online) Amazon sellers can sell their own products (often called private labeling) or negotiate deals directly with suppliers (wholesaling). These methods are viewed as more scalable.
Ok, that’s Amazon FBA in as few words as possible.
Check out the articles below if you want to gain a better understanding of selling on Amazon and be sure to join my free Facebook group FBA Today!