Some people have this common assumption that an Amazon eCommerce business is a lucrative venture. But the notion that you can easily become a millionaire once you start your store may not always be true. Several years back, when only a handful of people used to sell on the platform, this statement could be true. It was fairly easy to start and do business on AMZ back then because of the lack of competition. But nowadays, as an easy means of profitable income, is the Amazon FBA business still profitable? Let’s find out in this article.
Table of Contents
The Amazon FBA Business Dilemma
Today, issues such as oversaturated markets, high expectations of customers, rising expenses, and fulfillment costs make it harder to start an online store. Stiff competition from other eCommerce websites such as eBay can make it difficult to start, grow and run a highly-successful business too.
To succeed, sellers need to have a clear understanding of what their realistic chances for success are. For that to happen, sellers need to have every step pre-planned and executed with accuracy, patience, and excellence.
Amazon delivered a record performance in 2020 with annual revenue up 38% to $386 billion. This is a yearly increase of over $100 billion, which means that the platform is doing fairly well. These figures suggest that an Amazon eCommerce business can still be profitable in 2021. You just need to know how to find the right market and products to target. If you pick the right market and products to sell, you can still make a good amount of money. Starting an Amazon eCommerce business is not a sprint, but a marathon. Slow and steady wins the game in the long run.
Types of Business Models
FBA is a type of fulfillment method offered by Amazon to its third-party sellers. Under this model, sellers simply employ the help of AMZ when it comes to fulfilling their customers’ orders. As an FBA seller, all you need to do is choose what products to sell, buy the products, and send those products to AMZ. Once a customer makes an order, AMZ will handle all the other stuff such as storage, packing, shipping, customer support, and many more.
Before we get lost in all these terminologies, let’s first discuss the different types of business models. Before you even start your first product listing and put up products on Amazon, you should decide what kind of seller you want to be. Below are some of the most common Amazon FBA business models employed by third party-sellers:
Retail Arbitrage
In layman’s terms, retail arbitrage is known as “reselling”. It involves buying products at a hefty, discounted price and reselling them for a reasonable profit margin. Aspiring retail arbitrage sellers need to be resourceful in finding heavily discounted products from local discount stores. If you are not good at finding deals on places such as Walmart and eBay, it can be hard to make a profit.
Wholesale
Wholesalers buy a lot of products in bulk and flip them for a larger share of profits. Because wholesale resellers directly deal with manufacturers, they can make certain arrangements to lower the prices for bulk orders. Compared to retail arbitrage, wholesale selling can net your more profits in the long run. However, you also need a bigger capital since you will be buying thousands of items at once.
Private Label
This is one of the hardest yet most profitable ways of building an FBA business. In private labeling, sellers contact manufacturers to create generic products for them. Once an agreement is made, the manufacturers will create the products for you. They will also add your brand and logo to the products.
For example, a private label seller looks for a bag manufacturer. The seller will order a thousand bags and ask the manufacturer to add the logo and brand name on each bag. Once finished, the seller will then sell these generic bags under their brand. The customers will now associate these products under your logo, name, and branding.
Dropshipping
If you want to sell a lot of goods but don’t want to keep your own inventory, dropshipping is the best option for you. In dropshipping, sellers forward their customers’ orders directly to their manufacturers. When a customer orders a product, the seller forwards the order information to the manufacturer. The manufacturer accepts the order and ships the product straight to the customer. However, the manufacturer will send the product under the seller’s name so as not to confuse the buyer. By doing so, the seller can put a profit on top of the product and still make a sale without having a physical inventory. Most drop shippers import products from manufacturers abroad. You can find these manufacturers on websites such as Aliexpress.
Choosing The Fulfillment For Your Business
Now that you know how to start an Amazon FBA business, the next step is to choose your fulfillment method. Depending on whether you want to spend more time personally handling your orders or not, choosing your fulfillment matters a lot.
There are two options for fulfillment available to third-party sellers. These are:
Fulfillment by Merchant (FBM)
FBM means Fulfilled by Merchant. The seller lists the products on Amazon and also handles all the aspects of fulfillment and storage. FBM sellers have greater control over their shipping rates. They can collect more profits because they purchase in increased volumes and higher discounts. However, they need to work more compared to FBA sellers.
Fulfillment by Amazon (FBA)
FBA means Fulfilled by Amazon. In layman’s terms, it means you sell and market the products on Amazon, then AMZ fulfills and ships them. Bulk products are sent by sellers to AMZ’s fulfillment centers. This is where the employees pick, pack, and ship the products to the customers. AMZ will also handle the post-purchase customer service such as refunds and returns.
How to make the most of your Amazon FBA business?
Amazon FBA is not always an easy option because of the huge influx of third-party sellers competing in the marketplace. Since basically anyone can start listing products on its site, AMZ has attracted a huge selection of vendors to the marketplace. This means you have a lot of competition to worry about.
This single factor should not affect your decision on starting an Amazon FBA Business though. You just have to be fiercely competitive and learn how to optimize your store. Constantly assess your business performance to make a nice profit. That’s how you make your investments work.
Do your research to find a profitable product
Your Amazon FBA business is only as profitable as the product you sell. So, you need to search for winning products that rake in money. Take a look at what best sellers are selling. See what products are selling best. Check out the best profit margins that you can make from these products. Consider the cost of the product and the fees that you need to pay to Amazon. Netting a respectable amount of profit margin is the key to your long-term profitability.
Websites like ZonBase can help you find the best product to sell. With Zonbase, you can access information about the hottest products on Amazon. You can also access other statistics such as cost calculators, competitor sales revenue, and many more. Of course, there is a fee involved in using this service. But considering the features that you can get in return, third-party seller tools such as Zonbase are great investments.
Build your brand
Building your brand is a way of figuring out what exactly your target audiences want. Building your brand requires your marketing decisions to be clear, smart, and always on target. You need to be customer-centric when you become a brand. From the initial stages of product listing to picture selection and product descriptions, you need to always have your customers in mind.
Research on the characteristics of the targeted buyer. Make deep connections with brand influencers and make your brand a representative of the group you are targeting. Over the years, Amazon has favored brand resellers over wholesalers. They want a wholesome and customer-centric environment for their buyers, which is why they favor brands. AMZ even provides amenities such as the Amazon Brand Registry to help protect your brand and customers.
Get sellers Badges on your product listing
When you are buying on Amazon, you might notice some of the little badges above the product picture. Sometimes, these badges come with the words ‘Amazon’s Choice’ or ‘Best Seller’ on them.
If you are a vendor, you need to focus on getting these badges on your product listings. These badges are instant visibility boosters and can increase your conversion rates. They provide a huge boost towards customer retention and attraction. Having a badge can be the difference between making a sale and losing one. Make it a priority to get these badges whenever you can.
Win the Buy Box
In AMZ, the same product can be sold by several sellers. To become a top seller, you should be the one that most customers click and buy the products from. The Buy Box feature is where all of that competition happens.
You can see the Buy Box on the product detail page where you can add items to your shipping cart. When you are a seller who wins the Buy Box, your product gets added to the buyer’s cart. This means that you can make a sale even without the customer landing on your listing page.
Not all of the vendors are eligible to be on the Buy Box though. And according to the way Amazon’s algorithms function, winning the Buy Box requires a lot of factors and indicators. You can work toward increasing your performance on relevant variables such as listing optimization, customer service, and conversion rates. This will help in increasing your chances of winning the Buy Box and edging out your competition.
Join Amazon Marketing Services (AMS)
This is the most important part of product selling and marketing your product. Through AMA, sellers can get their products in front of their buyers based on keywords, product search, and customer satisfaction.
There are a wide variety of marketing options including Sponsored Brands, Products, and displays. Although in our opinion, the best way of advertising on AMZ for a new seller is through Sponsored Products listing.
Don’t make Amazon your competitor
Aside from being the largest online marketplace, Amazon itself owns some of the most popular selling brands like “Amazon Basics” and “Amazon Fresh”. If you want to succeed in this platform, never compete with AMZ itself.
AMZ has the power of data collection and customer demand analysis at its fingertip. It can create any product and create volume sales to exploit the market. There’s always a risk that they will push back the product you are selling and promote their listing. It’s just an accepted fact that you can’t compete with AMZ. When it comes to the economics of scale, product marketing, and product delivery, the house always wins.
Prioritize Customer Experience
Gaining visibility on Amazon is not so easy, so the best way to make sales is to ensure your customers come back. To do this, you should prioritize customer experience and ensure you provide the best service possible. Excellent customer service increase your chances of getting great product reviews and making more sales. So, there’s really no way to get the best out of your Amazon eCommerce business without providing great customer service and getting great product reviews.
Final Word: Is the Amazon FBA Business Still Profitable in 2021?
Most new sellers that enter the market replicate the exact methods and that 99.99% of other sellers do. Because of this, they end up getting fewer profits in a saturated market.
The fact that Amazon owns half of the US e-commerce market should be a game-changer for you. Over a million sellers joined the website in 2020 alone. This should be enough to make you understand that the Amazon FBA business is still profitable today. Yes, it is tough, but what business isn’t? It’s always possible to make your business succeed if you start today.
To edge out your competition, you need marketing skills and methods that the majority of sellers don’t even know about. And using powerful software to help you finish tasks such as product research and listing optimization can be a game-changer.
We at ZonBase can help make the task of selling smooth and easy. ZonBase is the perfect software suite for beginners who would love to build a profitable Amazon FBA business. With over 13+ tools and services, the Zonbase software suite is the hidden ace that you need in your hand.
