One particular side hustle has intrigued me for some time – selling on Amazon. I’ve dabbled with eBay and Amazon over the years and enjoyed some mild success with both.
Now that I find myself with some debt to work off I thought I would experiment with Amazon’s other model of selling – Fulfilled By Amazon or FBA.
What is Amazon FBA?
Amazon FBA basically involves sellers boxing up inventory and sending it to Amazon where it stored in an Amazon warehouse and listed for sale on Amazon’s website. If your item is purchased Amazon pulls the product from its warehouse, packages it and ships it directly to the customer.
If the customer is not happy with the item and returns it Amazon handles that side of the business, too. More on returns later.
“Amazon FBA appeals to me as someone who doesn’t enjoy shipping to customers, sending tracking numbers and fielding complaints about products and issuing refunds.”
Amazon FBA fees can be steeper than selling the items on eBay or on Amazon’s marketplace, however this is a case of getting what you pay for.
Benefits of Amazon FBA
- Products you sell are eligible for Amazon Prime FREE Two-Day Shipping, FREE Shipping, and other benefits.
- FBA handles customer service for Amazon.com orders. The Amazon Prime logo appears next to your product listings, letting customers know that Amazon handles packing, delivery, customer service, and return.
- Allows you to focus on finding inventory; not on customer service and shipping to customers
How to Sign Up for Amazon FBA
Signing up for Amazon FBA is fairly simple, especially if you are already an Amazon customer (is there anyone out there not registered at Amazon.com?).
- Determine whether or not you want to register as a professional seller right out of gate. Consider the first month is free ($39.99 per month thereafter). Individual accounts are charged $0.99 per unit on every FBA sale, so if you plan on selling at least 40 units in a month the Professional Seller Account pays for itself.
- Come up with a seller name. Doesn’t have to be anything catchy. When all fails put “Enterprises” behind your intials (i.e. TWEnterprises).
- Have a valid credit card and social security number handy (you’ll need that to complete the W-9 information for tax purposes).
- Have banking information (routing and account number) to register your bank account. Amazon will need this to transfer your sales revenues every couple weeks.
“Individual accounts are charged $0.99 per unit on every FBA sale, so if you plan on selling at least 40 units in a month the Professional Seller Account pays for itself.”
What Supplies Are Needed To Get Started Selling With Amazon FBA?
The good news about selling on Amazon is it can be as robust or simple as you want it to be. I started out fairly small with a couple shipping boxes and some unopened items I rounded up around the house – just as an experiment. Here are the bare-bones supplies needed to get started:
- Shipping boxes (I purchased two or three from Walmart, initially)
- A roll of packing tape
- A pack of cheap printer/copier paper to use for filler/padding
- Startup money to purchase some inventory, or unopened items from around your house
Sending In Your First Box: Tips for Shipping
Sending in that first FBA shipment can be a little nerve-wracking. Before the day comes to ship off your first shipment set up a free account at UPS.com and request a supply of free shipping labels. UPS will drop them off in the next day or two.
How to order free shipping labels from UPS.com:
- Set up an account at UPS.com.
- Visit the Shipping menu and look for “Order Supplies.”
- Click “Labels and Stickers.”
- UPS WorldShip Peel-and-Stick Labels – (2 per Sheet).
Buy boxes in bulk at Home Depot or Staples.
Home Depot usually has the best deal in my area on boxes with Staples being a close second. I like to buy at Staples when they run a deal on purchasing 5 or more (the unit cost of each box is reduced).
Buy cheap printer paper to use as package filler. Amazon FBA doesn’t allow you to pour packing peanuts in your boxes to fill empty space, but they do allow you to use packing paper. I’ve found cheap printer paper gently wadded into balls to be an excellent filler.
Fees: The Good, the Bad and the Ugly
Something to keep in mind when selling using Amazon FBA is that you are going to pay fees for the service (hey, you didn’t think Amazon was going to let you store products in there warehouse for free, did you?).
Here’s a brief summary of the various fees you will encounter when running your Amazon FBA business:
- Amazon referral fee. Amazon’s cut of your selling price. It various by category.
- Pick and Pack fee. Cost to physically retrieve the item, pack it and the packaging material used for the shipment.
- Weight handling fee. Weight-based shipping fee for Fulfillment by Amazon orders. Plasma televisions cost more than video games.
- Inbound shipping fee. The amount it costs to ship your inventory to Amazon’s warehouse. Stick with an Amazon-preferred shipping carrier (UPS) and you will pay less in shipping fees.
- Long term storage fees. If your items stay in the Amazon warehouses longer than 6 months you will have to pay a storage fee. Avoid this by lowering the price on your item to get it to move or submit an order to have it returned to you.
Inventory Placement Services vs Distribution Inventory Placement
When I first started sending inventory to Amazon’s warehouses I was overwhelmed because Amazon often assigned inventory to three or four warehouses all over the country.
This meant I had to split my shipment into three or four boxes, print that many UPS labels and try to keep all of the inventory straight.
I stumbled upon an option to use “Inventory Placement Service.” With this option selected I could dump everything into a single box and send to a single fulfillment center.
This made packing and shipping must easier, but not without a cost. Amazon charged me $0.30 – $0.40 per item for this service. May not sound like much, but it adds up.
“To change the setting for Inventory Placement Option go to Settings –> Fulfillment by Amazon –> Under “Inbound Settings” click Edit and look for the Inventory Placement Option.”
I also experienced significant delays as inventory was reassigned from the single fulfillment center I shipped things to to other warehouses. You have no visibility on this internal transfer – you just wait for your items to become active for sale.
As a cost-saving measure I have returned to the Distributed Inventory Placement (default setting) option and just improved my packing workflow.
A Word About Sales Rank and Price
There are a few things to keep in mind when selecting items to buy for sale on Amazon FBA. How much you pay for an item, its sales rank and its rating are three key factors to consider.
Not everything will be a hit. Selling your inventory on Amazon puts it on one of the largest virtual marketplaces in the world. It might seem like anything will sell, but that’s not quite true.
If something has been collecting dust on the shelf at your local Goodwill chances are it will collect dust in the Amazon warehouses. Look for good deals on things that are in demand.
There is a season for everything. It’s not easy to sell swim goggles in December and Christmas lights in July. However, that isn’t to say someone taking indoor swimming lessons in the winter won’t need goggles, so if the price is right you may be able to sell them,
However, if you score a deal on swimming goggles (as I recently did at TJ Maxx) your best bet is to hold them at home and send in when the weather starts warming up.
Know the top 50 products in your main category. One of my favorite forms of market research is asking my kids what is popular in toys. They always tell me commercials they have seen on television and what’s popular amongst their friends.
“Race to the bottom.” If you find a really good deal on something it makes sense to get it quickly shipped to the Amazon warehouses. Fellow FBA-ers are out there scoring the same deals and sending in their inventory to Amazon.
New sellers, or even veterans with different margin goals than you, often try to undercut others on price to generate a sale and turn their inventory.
Where I Find Inventory?
Everything in the store has potential for selling on Amazon. That might sound like a good thing to new sellers, but it doesn’t take long to realize the overwhelming list of options actually causes paralysis.
I’ll share some of my successes along the way, but keep in mind that your goals may be different than mine (I aim to make $5-$7 on every sale; others won’t look at it for less than $10 profit).
My Top Three Locations for Retail Arbitrage
- Retail stores (Target, TJ Maxx, Best Buy, Walmart). Start with clearance items and then work your way through the sales.
- Thrift Stores (Goodwill). I only buy items in “new” condition and with a decent sales rank.
- Online deal sites (Slickdeals, Woot). Rather than wandering the aisles for hours scanning potential inventory I’ve found online scouting to be pretty profitable. Just remember time is of the essence – if it is posted online many others see it, too, and will soon be your competition.
Returns and Damaged Inventory
One of the most challenging aspects of Amazon FBA is dealing with returns. Amazon has a fairly liberal return policy, which means buyers can buy your product, open it, decide they don’t like it and send it back.
When Amazon receives your product its packaging is usually torn in two and taped together and cannot be returned to the warehouse for resell.
Check for unfillable or stranded inventory once a week. Check your Seller Central account at least once a week for stranded inventory under the “Fix Stranded Inventory” link which appears after clicking “Inventory” menu item from Seller Central.
If warehouse did the damage ask for a refund. It occasionally happens that your item is damaged at the Amazon warehouse.
If you have items listed under the “Fix Stranded Inventory” link click the number link under the “Unfillable” column. If the reason reads “Warehouse Damaged” then I recommend opening a case with Amazon and asking for reimbursement.
You may ultimately get less than you would have if you sold the product, but the different is not paying for shipping to have it returned for inspection.
If customer returns an item as “defective” then submit an order to have it returned to you. In my experience, the item is not likely “defective,” the buyer just didn’t want it. If everything works and the packaging is in good shape you can simply list it and send back with your next batch of inventory.
Day 2 Tools
One doesn’t need much to start selling on Amazon FBA. However, as you begin to turn some profit and are looking to reinvest in tools to make you more efficient you should consider the following tools I have added over the last few months.
- Profit Bandit. I really like this app. It provides some additional details that the native Amazon Seller application does not, including the item’s list price, the current buy box price, links to Camel Camel Camel to review price and sales rank history and the number of FBA sellers and their listing price.
- Inventory Labs. My first month or two of being an Amazon FBA seller I tried to track profit and loss via a Microsoft Excel spreadsheet. Then I built a little MS Access database. Neither option worked well and I spent a ton of time updating them. I’d rather pay for a service like Inventory Labs and spend time sourcing inventory.
- Professional Seller Account. Amazon charges you $1.00 for each item sold via FBA. If you sign up for the Professional Seller account option (currently $39.99) Amazon waives the $1.00 fee. If you plan to sell more than 40 items in a month this a no-brainer.
- Bar code scanner (for home and for mobile). I have a bar code scanner attached to the PC I use to log inventory. I do not have a mobile scanner, but it is next on my list of things to purchase for the business.
Set Your Profit Goal and Price Accordingly
It has taken me nearly six months to figure out a proper strategy for Amazon FBA. I first bought anything under the sun that I thought would sell.
That strategy led to a lot of items sitting on the warehouse shelves and my having to put in several orders to have inventory pulled and mailed back to me.
Walmart or Tiffanys? I shifted my strategy 90 days in and decided I would only look for valuable, popular items at a deep discount on clearance shelves in Target, Best Buy, etc.
I had some success, but this was not easy. Things often wind up on a clearance shelf because they don’t sell. If they don’t sell on Amazon the item’s sales rank will be very low (high number).
So I tried popular things without much price margin and then I tried expensive things with a lot of profit margin thanks to a deeply discounted buy price.
My First Goal – $1,000 in Monthly Profit
If your goal is to make $1,000 a month profit with Amazon FBA you have a couple strategies to employ.
You can sell 200 items with a $5 profit margin, or 100 items with $10 profit margin.
“I can tell you from experience finding items with a $5 profit margin is very doable. It gets more difficult to consistently source products with over a $10 profit margin. “
Choosing a lower profit margin goal means scaling your business will be more difficult. For example, to double your monthly profit you would need to sell 400 items at $5 profit to clear $2,000 (before inbound shipping fees, etc.).
But don’t let that discourage you from this strategy. High turnover and small profit works for Walmart. The key is being efficient and controlling your costs.
Either way, determine your individual product profit goals up front and source items with that goal in mind.