This is the second article in our series about Amazon. Now that you have a background on Amazon’s fulfillfment program, its time to dive in and figure out how it works. (if you are looking for the first article you can find it here Amazon FBA, Part 1)
You have to have a system
The whole purpose of using FBA(fulfillment by Amazon) is to create a system. You do not need to be busier, what you need is something that makes your life easier right? So you have to think of FBA as a system, a way to list your products and have Amazon fulfill them (send them out) automatically. This makes your normal eccomerce site more efficient. So where do you start? With your own eccomerce site. Look at your site and decide which products that you inventory that you can send to Amazon. You have to have your hands on this product to make it work the best. Dropshipping does not work the best in this scenario, what you want is product that you either create or that you obtain from a vendor or supplier. Imported products are especially good for this case.
Product Choices
I love products that are small and here is why. I do the best on Amazon when I can put a hundred of something into a box, ship to Amazon and have them store it and sell it. These are called case quantities and it works best. You pay the shipping to FBA, but they do give you a discount rate on that. By having many items in a box, you break down the shipping cost per unit, which means the more in the box, the less cost per unit to ship it to FBA.
So back to the starting point. You will need to be an Amazon Merchant. To do that means you have to pay to be a merchant, which costs about $40 per month. This is where a lot of people bail out, but it is an opportunity that you should not dismiss because of the cost. Amazon takes that monthly cost and subtracts it from your sales revenue when they pay you. They will pay you every two weeks for the sales of your items. So it hurts a little at first but you have to think of it as the cost of doing business.
Once you join you can begin to sell your products on Amazon, this is a huge benefit since they are the 900 pound gorilla in the room. You can tap into the power of Amazons bottomless marketing budget to promote your goods. This is where you can pull away from your competitors. So what does that cost you? 15% of the total sale. You can pretty much use this figure for most of your calculations and get a good idea of your profit per item.
Profit margins
I do not sell anything on Amazon unless I can make a 15% return. That may not sound like much, but its my bottom number. My average number is much higher, generally in the 30% to 40% range. But 15% is my minimum. I look at it like an investment, where can you get a 15% return in todays market?
So right off the bat, you need a 30% return when you buy your products. That means you have to be able to buy or produce your product with room for 30%. If a particular product does not meet this scenario, pick another product.
What you will need
There are some things you will need for your system, if you have an online store, you will already know this.
- Good quality images of the product
- product description (unique content is best if the product is not listed yet)
- Retail price
- UPC number
Amazon basically walks you through the process of listing the product, but you must have these three items in your computer to get started, it makes it smooth. Right off the bat when you add the product to Amazon, it will ask you to search for the product. A lot of times, the product you may want to sell may already be being sold, that is good. You can click “Sell Yours” You can also search for the product via UPC code.
Once you have the product listed, you can choose to Amazon fulfill it, which means you send them the inventory. The site walks you through this and I will not spend a lot of time on this procedure. However here is a video (not ours) that shows you a good overview.
When your item is sold, Amazon packs it, and ships it to the customer. You get an email notifying you of the sale. The beauty of this is that you did not have to touch the product to make the sale. The only time you touched it was when you sent it to Amazon initially. This is why case quantities are good, it cuts down the time you spend touching the product.
So what is the advantage?
- You can sell products that do not sell that well on your own site, you will be amazed at what sells well and fast.
- Customers can use their Amazon Prime membership to save on shipping.
- People trust Amazon, that trust factor is huge
- You can brand yourself through selling on Amazon, however you will not gain any link love or promotion from amazon.
- You can increase your volume of product going out.
Stay tuned for our next article on Fulfillment. If you liked this article please retweet it or Google Plus it!
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Thanks!
There are a couple of other costs sellers should keep in mind when using FBA:
1. Order Handling charge – $1
2. Pick / Pack charge – Generally $1 per item
3. Weight charge – $0.37 / pound
So about $2.50 – $3 per item for items up to about 2 pounds.