If you are considering starting Amazon FBA, then first and foremost, you are going to want to know if it is profitable. Is this a business opportunity that you should go after and can it bring you a consistent income?
So, is Amazon FBA profitable? Yes, Amazon FBA can and should be profitable. However, this will be entirely dependent on the products you sell, demand, competition, effective cash flow and strategic planning. You will need to thoroughly research and consider all associated costs involved including fba fees, shipping fees, your sellers account subscription and initial sourcing prices.
In this article today, I’d like to share with you my experience so far with FBA having been selling products via the Amazon platform for the past 11 months (start if 2019). I’d also like to provide some information gathered from other Amazon FBA sellers and their general experiences, thoughts and feedback.
I conducted a lot of research before I got started so I am hoping you can leverage this information going forward.
- 1 How To Make A Profit With Amazon FBA
- 2 How Much Profit Can You Expect To Make
- 3 Is Amazon FBA Saturated?
- 4 Has Amazon FBA Been Profitable for Me?
- 5 In Conclusion
How To Make A Profit With Amazon FBA
Like any business, FBA is no different in that it follows general business principles. To make a profit with FBA, your revenue needs to exceed your costs. Nothing revolutionary there.
However what are the costs like on the platform and how do you go about ensuring that you acquire high sale prices for your products?
There are four fundamental components to any successful Amazon FBA business:
They are all intertwined and lean on one another. They also naturally follow on from one another and a lot ot the processes invovled overlap.
They are also applicable whether you sell via the following methods of FBA:
- Private Labeling: buying products from marketplaces like China e.g. Alibaba) and building a brand and product line
- Wholesaling: buying products from manufacturers at scale and getting products cheaper
- Retail Arbitrage: buying products on discount or offer at retail stores.
- Online Arbitrage: buying products on discount or offer online
- Selling Your Own Products
As you can see there are a lot of different ways to sell via FBA, making it a flexible and scalable opportunity. In essence FBA is all about product sourcing and sending those products into an Amazon FBA warehouse.
Research is absolutely crucial to your success. Without adequate research, you will not be able to proceed and move onto the other components.
You will not know what to sell, where to acquire inventory, how much demand and how much competition there is within that product line.
In the worst case scenario, if your research was insufficient you could end up sending large quantities of product inventory to Amazon Warehouses that either fail to sell, are refused entirely or never make it there.
Extreme cases, but it does happen. There are a lot of reports from Amazon FBA sellers who have experienced these issues and the vast majority of the time it was down to insufficient research. In these cases it is of course, impossible to turn a profit.
Conducting effective research is also not restricted to just the niche you enter or the products that you will want to sell. You will need to ensure that there is adequate demand. Are customers looking for the product? Is it being sold by other sellers and in what kind of quantities.
While there are a lot of effective paid research tools out there, these are not necessarily required. The Amazon Sales Rank is a good indicator of what sells and at what speed inventory sells. Products are all ranked from #1 onwards (one being the highest selling item).
Each product fits into a category and each category has their own individual sales ranking scale.
Now depending on the category, the Sales Rank may be preferable or may not. But it does give us a good indicator of what is selling. A good rule of thumb is that a sales ranking of 100,000 and under is selling frequently and would make a good product to sell. The lower the better
For example, here is a product that I am selling in the Books category:
It has a great Sales Rank and so I should be hoping to sell this within the next month or so.
Another essential aspect of the research phase is how much competition is there for the product you are looking to sell. This is applicable to any FBA strategy you pursue (Private Label, Wholesale etc).
If there is high competition for a product than naturally you are likely to sell less. Obviously it depends on demand too, and not all competition is equal.
Can you under price competitors and still return a profit, can you sell a better product than competitors, do your competitors dominate the product line with variations/dozens of reviews etc. These are just some of the questions that will dictate whether you should or shouldn’t enter the market and if you can return a profit.
The best situation is low sourcing fees, high demand, low competition. But other combinations can be profitable too.
Best Products Categories To Sell
Generally, there a number of product categories which are considered ideal to sell. This is particularly true for beginners whereby you may be gated from selling in certain categories, your budget may be lower and sourcing opportunities more limited.
Additionally, these categories tend to have a larger demand than others, the customers who purchase them generally have more disposable income and they are willing to purchase these products more impulsively.
They are also renowned for returning a high profit relative to their cost (which is if course ideal and what you are looking to achieve).
Category #1: Books
Books are limited primarily to Retail/Online Arbitrage FBA’ers but the profit margins can be huge. There are thousands of books that can be picked up, whether new or used, for as little as $1-3. You can sell both on Amazon.
Thrift stores, used book shops, and some retail book outlets can be a great place to source these products.
You can also leverage the Facebook Marketplace to look for books.
Text books are books that command a high value and are always in demand. These are the types of books you should seek out.
Category #2: Baby Products
The baby category is a huge and ever-flourishing niche because of the unique position customers find themselves in. They generally have a higher disposable income, their babies require a lot of different items, and time and convenience is worth paying for.
Babies are also quick growing meaning items so not remain useful or required for long. As the population continues to grow, and so does Amazons eCommerce and retail market share, its an ideal category to go after.
There are thousands of products suitable for this niche, and countless suppliers that you can source products from.
The Baby category is ideal for all FBA models, including private labeling, arbitrage and wholesale.
Category #3: Beauty Products
Makeup, lotions, creams — what these beauty products all have in common is that they are always in high demand. They get used up regularly and often and customers are always looking to get them delivered in time. This is where prime really comes into its own (and it is provided with FBA as standard).
While the profit margins can be very high, consider that these products should be primarily sourced via the arbitrage and wholesale models. Its generally not a good idea to source these products via wholesale marketplaces as you cannot confirm the quality, ingredients nor their safety. They will also be very difficult to get through customs and you will likely encounter issues with shipping and FBA warehouse receival.
Category #4: Electronics
Electronics are another hugely profitable item whereby consumers are always looking for the latest in technology. There are hundreds of mini-sub categories and sub-niches that you can sell in so there is plenty of opportunity to carve out your own niche without much competition. You can also be first to market with a lot of items that you can acquire on online marketplaces if you are considering private labelling.
New devices, models and products are always being released, and they can be beneficial and suitable for different audiences. So, you can find great keywords to target even if you are selling the same product as another competitor.
Again, arbitrage can be a great way to acquire expensive electronic items for less, and then list them on Amazon for a substantial profit. Best Buy is a great place to source.
Category #5: Toys and Games
New toys and games are constantly being released, and for this reason, you will routinely see toys and games discounted at stores and other places online. You’ll also see a lot of toys and games available if you were looking to private label.
Toys and Games also span age ranges, you can seek product opportunities from babies all the way up to the elderly. For individual use or for larger groups.
Paired with a high demand, toys and games are closely associated, recognized and included during the holiday periods. People just love games, and they do so in particular at Christmas.
How Much Profit Can You Expect To Make
With all the above considerations in place, and you are selling the right products at competitive prices, there is no reason in why you should not expect to return a 40-50% profit margin.
This will of course vary from niche to niche, product to product. You may even have some products that exceed this and some that fall way short. At the end of the day this is the target for your entire portfolio and inventory of products. Its an average that can be achieved with careful planning.
While this may sound on the lower side, and lower than you expected, when you consider that retail stores generally strive for a 10-30% profit margin on their inventory, you actually see that this is quite high.
If you were then to consider the interest rate and other possibilities to invest in shares, you will soon see that this figure hugely surpasses them. Its actually far more favorable to ‘invest’ in products than it is elsewhere.
Amazon FBA Costs
Getting to that 40-50% margin will largely depend on your costs. Keeping them as low as possible should be a priority throughout the entire process.
Unfortunately, selling on Amazon is not free and nor is the FBA program. You are expected to pay for their services that you are using.
While FBA fees are often a largely debated topic, and they do get to me from time to time, you need to remember that you are benefiting from their infrastructure, reputation and large-scale exposure. My ‘is Amazon FBA worth it‘ article explores the pros and cons further.
Here are the costs that you will need to take into consideration before you order products, set your pricing and decide to invest in inventory.
There are six main ways that your Amazon FBA fees are calculated:
- Referral fees. These are the fees you pay after you sell a product on Amazon. This will be a percentage of the price the product sold for. While this depends on the category, it is normally around 15% and under.
- Variable closing fees. Certain product categories including books, DVDs, and other media, will cost you a flat rate.
- FBA fees. When you list and send your your products to an Amazon FBA fulfillment center, your products require storing, handling, picking, packing and shipping. Amazon’s fulfillment team will take care of this on your behalf and these fees cover the total costs to do all this work. It includes postage to the customer too. These fees generally work out around 5-10% of your final sales price, and generally work out to be a lot less than if you was to do all of this yourself.
- Individual seller fees. If you have not set up a professional sellers account for the FBA program (advised) you will pay a $1.00 flat fee on all Amazon FBA products that you sell.
- Subscription fees. Alternatively, if you sign up as a professional seller on Amazon, you will pay a fixed rate of $39.99 per month to sell on Amazon. However, all individual fees of $1.00 per item are waived. If you want to sell >40 products per month, you will be better off getting on a sellers account.
- Storage fees. Amazon’s fulfillment centers are massive warehouses that hold stock and inventory. Storage fees are inexpensive, <$1 per year for smaller items. They are there to ensure that you are not sending products in that do not sell and will simply sit there taking up space.
With all these costs considered, you can see how it can affect your profits.
However, as long as you are undertaking the appropriate research, and selling products for several multiples beyond the initial purchase price (4-6x) you will make a positive return on Investment (ROI).
Here is my personal breakdown of fees for my recent payment from FBA. You can see how the fees come out, and the fee vs take-home pay.
So for me, you can see that my total fees are £222 ($285).
I sold, £694 ($892) worth of product within the last two weeks, so my takehome pay is £512 ($658).
A further £329 ($422) is unavailable (moneys held to cover claims or chargebacks from recently sold items – this will become available during the next payment.)
So, as you can see my revenue to cost ratio here is 32%. But this is just on current sold inventory, and I have not sold through my entire stock which will positively effect this ratio.
Is Amazon FBA Saturated?
Naturally, you may be wondering if FBA is saturated. I certainly did!
Amazon FBA is not a new program. It actually was launched in 2006. So nearly 14 years have passed since it became a publicly available service.
in the beginning, it is fair to say that competition was almost non-existent; there was hardly any sellers on the platform and it was easier to either command a higher selling price and make sales altogether. You can target broader keywords and you could command more of the market share.
FBA has however become popular over the last couple of years. So much so that you can end up watching video after video on YouTube all around this business model and why you should get started.
Competition is higher now, there is no doubt about that. There are a lot of products that you should not sell that you could have back in 2006 when FBA was in its infancy.
This is not to say however, that there are not niches and products that you can still profit from.
There will always be new trends, new products launched and great ways to acquire inventory for less.
As long as you conduct your research, source appropriately and cost-effectively, you will be able to turn a profit by selling on Amazon
Has Amazon FBA Been Profitable for Me?
By now you have seen some of my screenshots. You may be wondering if FBA has been profitable for me.
The short answer is yes, yes it has.
I am currently up over £15,000 ($20,000) since I started FBA at the turn of 2018. I am making just over £1000 per month and I am building up my inventory slowly and conservatively.
As such, FBA is currently my side hustle but I fully expect it to become my full-time income source in the upcoming months.
If I could offer one piece of advise, it would be this. Do not start FBA without a firm understanding of how the business model works and a concrete knowledge of what to expect and what you need to do.
FBA is not really the type of opportunity you can start on your own and learn along the way. Unless of course you are willing to take a lot of risks and are willing to lose money in the early stages.
FBA, although simple in execution, is complex and there are a lot of things that can go wrong to prevent you making a profit.
With all the right structures in place, there is no reason why you cannot make consistent profit and a full-time living with FBA. In fact, there are countless examples of Amazon FBA millionaires who have been able to do this.
For me, signing up to the Ultimate Amazon Seller Course was a game-changer. Its one of the most in-depth courses on FBA, covering the entire FBA model. From business set up all the way through to comprehensive research, sourcing, financing and scaling.
I’ve written an in-depth review of the course which you can read by clicking here, which I urge you to read if you want to succeed with FBA.
So back to our original question. Is Amazon FBA profitable? The truth is, it can be.
In fact, its an ideal business opportunity for many, and the statistics and metrics only point to suggest that if you want to sell products online, you should be leveraging Amazon.
Like any business, there are pros and cons, but with Amazon FBA, the pros clearly outweigh the cons.
As long as you understand how the model works, how to manage your costs and how to minimize risk, you will find Amazon FBA to be a profitable model that you can follow for years to come.