How to Start an Amazon Business

30 Jun, 2020

With the right resources, starting a business on Amazon can be fun and exciting. Several users of the platform would attest to amazing potential Amazon offers its sellers. 

What makes it even more interesting is that unlike traditional selling, you do not require a large amount of capital to start selling on Amazon. All you need is time, dedication, and a little capital. In this article, IO Scout will take you through the nitty-gritty of how to start an Amazon business in general and also how to start an Amazon FBA business on a budget.

How Much Does it Cost to Start an Amazon Business? 

Are you interested in starting an Amazon business, but you’re worried about the expenses involved? Great news! The cost is most likely not as high as you think it is. According to our research, starting an Amazon business from scratch costs approximately $3,800. This, of course, includes Amazon fees, product cost, and other essential initial investments.

However, many Amazon sellers start out with $500 or less. Although large companies invest over five figures when starting their new business. This means that the amount you spend starting an Amazon business depends on the seller’s preferences with any of the mentioned amounts extremely capable of achieving success on Amazon. 

How Much Does it Cost to Start Selling on Amazon?

One of the leading platforms for selling on Amazon, analyzed thousands of Amazon online sellers to determine precisely how much they spent when they started their Amazon business. 

  • 17% began with $500 or below,  
  • 12% began with $501 – $1,000,
  • 13% began with $1,001 – $2,500,
  • 17% began with $2,501 – $5,000, and 
  • 22% began with over $10,000.

Does spending more money means finding increased success on Amazon?

Spending more money when starting an Amazon business doesn’t always equate to more success for the Amazon seller. In fact, Amazon sellers who began with less money tend to find success quickly and last longer than Amazon sellers who began with large capitals. 

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How to Start an Amazon FBA Business with Little Money – Steps

Are you unsatisfied with your salary job? Are you passionate about entrepreneurship but have not started due to capital considerations? What if you could start a business conveniently without having to spend so much? You should consider entering the Amazon marketplace as a seller. Unlike many entrepreneurial businesses, starting an Amazon business can cost only $2,000 or even much less.

However, before starting out, it is important to fully understand what Amazon FBA is. 

What is Amazon FBA Business?

A lot of people are aware of Amazon, the biggest online retailer in the US, UK, and major countries in Europe. However, what they aren’t aware of is that when buying an item from Amazon, there is a decent chance that you’re buying from a third-party seller through a service called Amazon FBA.

FBA stands for 'fulfillment by Amazon.' This scheme simply ensures that Amazon takes care of the seller’s full stock. When a customer orders a product, it by-passes the seller entirely and goes directly to the FBA warehouse. There, Amazon picks out the order, ships it, and delivers it to the customer.

Amazon FBA also takes care of most of the customer service – processing customer returns and only forwards the most specific queries to the third-party seller.

Customers slightly or never notice the difference between buying from Amazon directly and buying from a third-party seller selling their products on Amazon using Amazon FBA. Customers get the same delivery options, return policy, and customer service team. They get a service quality that is competitive with the world’s biggest brands.

As an Amazon FBA seller, you don’t need to handle your stock, and the amount of work required to sell 10,000 products is the same required to sell 10. You can also manage a one-person business, selling thousands of products monthly, all remotely from anywhere across the globe. You acquire the stock, get it delivered to your designated Amazon FBA, and focus on getting sales.

However, Amazon charges you for rendering these services. Amazon charges FBA sellers FBA fees to cover for the packaging, shipping, and delivery. These fees are dependent on the size and weight of your product. They also charge a warehousing fee called a storage fee, which depends on how long your products stay in their warehouse.

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Starting an Amazon FBA Business with Little Capital

You can develop a multimillion-dollar asset with a low budget Amazon FBA Business that grants you financial freedom. Here’s a look at what it takes and precisely what it costs.

Research Product Samples

This costs between $100 and $200. Search Amazon’s categories and products to find an existing item with significant sales potential. Focus on products with a Best Sellers Rank 100 – 6,000 in high-level categories. This means they are selling well but are not too competitive. 

Visit supplier marketplaces like Alibaba to find companies that manufacture similar items and order samples. Most of the samples cost $50 – $60, and you wouldn’t require more than three. Most manufacturers also offer customization and implement preferences at no added cost. 

Inventory Management

Your primary cost is with product inventory. This includes the required cost to deliver the product to your customer. Manufacturer’s packaging usually cost around 50 cents per $5 product. If the inventory is from China, you’ll require a freight forwarder to take care of shipping and customs for a fee. Once your order arrives, send them to Amazon FBA, or have the freight service deliver it directly. 

Surveys suggest that Amazon's business owners spend, on average, $1,200 on initial inventory. Though you can start your Amazon FBA business with $500 or less, some products may be pricey or require higher minimum orders. If you begin with approximately $2,500, you can conveniently access almost any option.

Design Your Brand Identity Materials

Although you can sell your item with the manufacturer’s branding, numerous manufacturers allow you to “white label” their items and sell it under your brand name. Create your brand to stand out from the competition. This also offers you the opportunity to develop a business asset that you can decide to sell.

You’ll need to create a logo. Based on your budget, you can contract a freelance logo maker for as little as $5 – $10. You can also obtain higher-quality designs for more. Manufacturers often have generic packaging and can offer to implement your preferences for free. All of these, depending on your choice, can cost between $5 and $800.

Launch Your Marketing

Typically, your upfront marketing can cost you only a few hundred dollars. However, if you seek more aggressive marketing, it might require a higher budget. Usually, Amazon ads are the most profitable, with 20% – 30% conversion rates. It is the recommended start for new Amazon FBA sellers. 

Follow up with Facebook ads, discounted promotion, or coupon offers to drive traffic to your Amazon listing. All these can cost between $200 and $500.

You can set up your Amazon FBA business within one to three months with the dedication to moving swiftly and selling small and light products that don't take long to ship. Furthermore, executing a marketing campaign immediately you launch could potentially produce consistent ROI within six months.

Starting an Amazon Business in 2020 – Steps 

A lot of reports and blogs have offered insights on how lucrative an e-commerce business is (especially being an Amazon seller). However, it is important to note that selling on Amazon is not a get-rich-quick scheme. You will need to put in some hard work to achieve the financial freedom that you desire, which means learning the nitty-gritty of how to start an online Amazon business. Below are some things you need to know about starting an Amazon business.

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How to Source Your Products

We’ve already known that the Amazon website is key to starting an Amazon business; however, there's another global company that's equally important: Alibaba. Alibaba is a Chinese online wholesale marketplace where manufacturers, factories, and distributors worldwide display their products. Most of these factories are happy to work with you to develop your unique item.

Since bursting onto the scene, Alibaba has made it easier for people who are enthusiastic about starting an Amazon FBA business. This has led to Amazon's increased bombardment with white-labeled products directly from Alibaba with an attached brand and significant price markup. You can purchase these products in bulk on Alibaba, customized with your brand name. The cost of this customization may vary depending on the number of wares you are buying and your negotiating skills.  

Furthermore, getting the ideal product to sell and branding needs a great idea. This will require a bit of time and research. This will take us to our next sub-title.

How to Conduct Market Research on Amazon

To gain insights on the best—selling, most profitable, and trending products on Amazon, it is recommended that new and existing sellers deploy market research software solutions like IO Scout. You can also know how these products are currently selling. These are deep search tools for the Amazon marketplace. IO Scout is used in comparing listings to determine how much your competition is selling monthly. You have to be aware that it is paid and requires a subscription.

You can use this research tool to gather data that are useful for identifying a product that sells well but has mediocre reviews. You can also utilize the niche hunter to conduct deeper research on keywords and also discover market gaps for your preferred product.

Getting Your Inventory from third-party sources to Amazon FBA

This is the final step to take when starting an Amazon FBA business. It involves how you move your inventory from the manufacturers to the Amazon FBA warehouses. This can look very complicated on the surface. Each country has its different customs procedures, and Amazon also has some quite complex requirements concerning how they want your products to be delivered.

Fortunately, a plethora of companies helps you handle all the hassle and ensure it’s really easy. These companies are referred to as freight forwarders and customs brokers. Among the top-recommended companies include Flexport, an organization funded by Google. Their transparent price comparison service makes them one of the cheapest services.  

Once you have contracted your freight forwarder (Flexport), the steps become fairly simple:

  • The manufacturers deliver the inventory to the freight forwarder (Flexport).
  • The freight forwarder (Flexport) transports the inventory to your intended country and handles all the taxes and paperwork.
  • The freight forwarder (Flexport) hands the inventory over to the Amazon partnered couriers.
  • Finally, these Amazon partnered couriers book them into the Amazon FBA warehouses.

Well, these are the basic. Now, let's look at the other necessary things to include when considering how to start an Amazon business. They include:

Pricing

As you browse through Alibaba, you would have noticed how cheap factories and manufacturers are selling the wholesale quantities of their goods. However, pricing doesn't just involve subtracting your cost price from your selling price. There are a lot of other expenses to include. Pricing and margin are important aspects of starting an Amazon business. You can’t begin negotiations with a manufacturer until you determine how much margin you require.

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Fortunately, Amazon has a handy calculator called the FBA calculator. This tool can be used to calculate most of the costs. Just identify a product that is identical to yours or input your product’s dimensions. Asides these costs, there are some other ones you need to include manually, such as:

  • The price of the item.
  • The shipping price to the destination country.
  • Customs charges and tax.
  • The delivery cost to the Amazon FBA warehouses.

You can contact your freight forwarder (Flexport) the Alibaba manufacturers to obtain all these costs.

Below is an illustration of pricing:

  • You expected sell price for the item is $16
  • You purchased each item at $4 per item.
  • The shipping expense is $1 per item.
  • Custom charges and tax are at $0.75 per item.
  • Delivery to the Amazon FBA warehouse costs $0.2 per item.
  • The FBA fulfillment fees cost $3.05 per item.
  • The Amazon closing fee is 15% of the sale price, which is equal to $2.4.
  • Your ROI is $4.6 per item.

This is a good margin and provided you can drive sales, this is a good Amazon business. However, due to the mechanisms of the Amazon fees, your perfect product would be:

  • Selling for between $20 and $70.
  • Small and lightweight.
  • Simple with less moving parts.
  • And lastly, a product that people would want to purchase.

Once you fully understand how the pricing margin and Amazon FBA fees work, the next move is to start a conversation with some manufacturers.

Finding a Manufacturer

It is recommended that you contact as many manufacturers as possible. On the Alibaba website, it is quite easy. All you need to do is use the search bar to locate whatever you are searching for, then click the "Contact Supplier" button next to the companies that you find interesting.

When conducting the search, include the word “OEM” at the end of your search. For instance, "tennis racket OEM” — “OEM” stands for “original object manufacture.” This will filter out all the re-sellers and leave you with the factories/manufacturers that produce the items.

You can shoot off identical messages to lots of different manufacturers and factories, then attempt to play them off against each other. These manufacturers/factories are aware of the value of even a new Amazon FBA business and are willing to work with you.

When choosing which manufacturers to work with, it’s difficult to lay down the criteria; however, you will get better with practice. Once you are in contact with them, try to evaluate their English. If their English is really bad, making communication a bit difficult, then it is recommended you seek another factory.

After narrowing down your search to maybe your favorite three or four factories, request that they send you a sample. Some factories will send you a sample for free, some will charge you but will remove the cost off any bulk order you eventually place. A few will require you to pay a full price. Once you have received the samples from a few manufacturers and you’re satisfied, it’s time to go to the next step.

Prototyping and Branding

Now always keep in mind that the idea is not just to re-sell the manufacturers’ products but also to improve and customize them to have your personal touch with your brand image. This process is time-consuming; however, it's worth getting right. If the designs can be professionally created, that could help improve the speed of the process. You can contract a freelancer on Fiverr or Freelancer to assist you.

Alternatively, you can come up with amateur suggestions and request that the manufacturer transform them into products. One of the solutions to a successful Amazon FBA business is reducing your expenses to the lowest level possible. So, ensure to analyze what your best use of money is critical.

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During this branding stage, you need to integrate a barcode. A barcode is a series of numbers that are unique to your item anywhere in the world. It is also referred to as UPC code. You can purchase barcodes from numerous websites like barcodestalks.com. Once you have obtained the perfect prototype, it’s time to get your products manufactured.

Negotiation and Manufacturing

Although a lot of individuals may dislike negotiating, it is a requirement for Alibaba. You can often obtain a 40% – 70% discount.

Although I hate negotiating on Alibaba, it is a requirement. You can often get 40%-70% off the asking price. As it is typical for every customer to negotiate, many factories are beginning to realize that they can get more if they open with their best offer. Whether you are good or not at haggling, you should consider a few things when negotiating with a manufacturer on Alibaba, including: 

  • Minimum Order Requirement.
  • The Price.
  • Lead Time.

When starting, your first order is the most crucial. You can get an amazing deal if your order quantity totals 10,000 items; however, that would be insane for a new item you have not tried to sell yet. What if no one buys it, you’ll be left paying storage fees on 10,000items. You can start with 500 items.

On lead time, occasionally, the factories/manufacturers can take some months to develop your product. As you are just starting your Amazon business, you may be willing to sacrifice a little margin to get your items to Amazon quicker.

If there a few good manufacturer alternatives available to you, you can attempt to play them off against each other to get the best deal. One thing you should note about negotiating is “never burn your bridges.” Your favorite manufacturer may end up disappointing you, which means you will require the services of the second one. Therefore, even if you don't do business with them, endeavor to keep that option open for future deals.

Finally, give them your approval to go-ahead and manufacture your items. Ensure you request that the products are packaged together in identical size cartons. This is important when organizing the products’ final delivery to the FBA warehouse.

Freight Forwarding, Customs and Prep Centers

We have already discussed Flexport and its alternatives. These freight forwarders will undertake most of the work associated with shipping and customs for you. When it comes to your shipping options, you can choose to send your inventory by ship or by plane.

A shipment from China to the USA or the UK usually takes 6-8 weeks. Using a plane, it takes a few days. However, shipping by plane will cost you about five times more. If you want to begin listing and sales immediately, you can fly a small amount of your stock and send the majority by sea. In that way, you can receive some of your stock quicker and sell faster.

Your freight forwarder can deliver straight to the Amazon FBA; however, some people may want to include an additional step and send their inventory to a mid-point warehouse often referred to as prep center. These prep centers are managed by a different company and have added advantages, including: 

  • A cheaper long-term storage fee – The Amazon FBA storage fees can skyrocket rapidly for an inventory that is in their possession for over three months.
  • Quality control – This helps to ensure that nothing gets damaged during transportation.
  • Fulfilled by merchant – They can be used to deliver orders that were placed outside of the Amazon platform or when Amazon has some unpredictable challenges.

For a beginner learning how to start an Amazon business, it isn’t recommended that you use prep centers, most people don’t. This is because the advantages most times don’t seem to outweigh the extra work needed.

Amazon and Amazon FBA

Once your inventory has arrived in your preferred destination country, you will need to transfer it to the Amazon FBA warehouses.

But first, this will require you to sign up for an Amazon account. It is strongly recommended that you already have an Amazon account before you begin manufacturing.

If you are signing up as an "Individual" Amazon seller, it is free for most countries except India. Registering for an Indian Amazon account requires that you have an existing Indian-based business. Register with the country that you are most local with:

  • Amazon USA (includes Canada and Mexico).
  • Amazon UK (includes France, Germany, and Italy).
  • Amazon India (you need an existing Indian-based business before signing up)

Amazon accounts are divided into two – Individual and Professional.

An Individual Account is free; however, you pay an additional fee per product sold. Also, your analytics data is limited. The Professional account charges a monthly fee.

The two account types have access to Amazon FBA. It is recommended that you first sign up for an Individual account and upgrade once your sales reach the threshold where the Professional account becomes is cheaper.

Creating the Listing on Amazon

After you have finished signing up for an account, it’s time to create your listing. Locate the inventory tab from the homepage and click the “Add a Product” button.

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Click "Create a new product listing." Here you can choose your products most relevant category. You are then directed to the details page of your new item. You will find hundreds of fields; however, most of them can be safely ignored as they don't matter. Ensure you fill out the following:

Under “Vital Info”

  • Item Name – this is what customers see when browsing through 
  • Brand Name – for your Amazon FBA business. 
  • Recommended Browse Node.
  • Product ID – this is the unique barcode you purchased when branding the product.

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Under “Offer”

  • Condition.
  • Your Price.
  • Fulfilment Channel =” I want Amazon to dispatch and provide customer service for my items if they sell.”

The fulfillment channel field is important. It is where you notify Amazon that you wish to sign up for an Amazon FBA business and want them to handle your inventory and customer service.

Under “Images”

Images are very vital. Ensure you contract someone to take some professional-looking photos of your product/item.

Under “Description”

This is where you add a summary of your product. Take advantage of it to make your item sound as attractive as possible.

Keywords

Use some alternative words that customers might search for your product. This helps to improve your visibility on the Amazon website.

These are the basic information that you need to provide. Once you have finished filling them out, click “Save and Finish.”

Sending Inventory to Amazon FBA

Provided you chose that you desire Amazon to fulfill your product orders, you will be directed to the “Send/Replenish Inventory” page.

You will be guided by some sets of instructions. You will get to a point where Amazon request you provide more details concerning your product, including weight and proportion. 

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Any item sent to Amazon requires a tag or label unique to the product and shipment ID. This serves as an internal barcode used by Amazon to track and manage inventory. This can either be done by your Freight forwarder, or by paying Amazon to handle it. 

However, freight forwarders are normally a cheaper alternative, but there is not much required here. For them to be able to do it, you have to negotiate an additional fee, then download and send it to the freight forwarder the PDFs of the labels.

Once you have navigated through all the procedures, you will get the opportunity to review and accept the shipment. After this, click “Work on Shipment” to notify Amazon on how the shipment is going to be delivered.

The easiest method is to click “Small Parcel Delivery” and select the "Amazon Partnered Carrier."

Remember how you ensured that all the product cartons sent by the manufacturer were of identical weight and size? This is why.

By choosing the ‘Amazon Partnered Carrier’ (UPS), you will be required to pre-pay for your product delivery based on the quantity and proportions of the cartons to be sent. Amazon will then produce your pre-paid label as a PDF file.

Just send these PDF files to your freight forwarder, who will, in turn, stick them on the boxes and give them to UPS. The next thing you know, your inventory will arrive at Amazon.

Once your inventory reaches Amazon, your Amazon FBA business will go live, and customers can purchase and receive the products without you being notified told about it.

That last sentence isn’t entirely true. If you neglect it, nobody will purchase your item. The last step in knowing how to start an Amazon business is potentially the most difficult. How would you get customers to purchase your products? The answer is marketing.

Marketing

Aggregating the opinions of many professional Amazon sellers, the best way to gain decent sales for your new item on your new Amazon business is to perform a short sharp burst while trying to get as high as possible on the Amazon best-seller rankings. The Amazon algorithm will begin to display your product to users searching on the Amazon website once you attain a high rank. 

When you begin a new Amazon business, you have no reviews and no sales. You don’t also have an Amazon seller ranking. This means that there’s no reason for a customer or Amazon to trust that your product is any good.

Amazon website possesses a secret formula that regulates what is displayed when users search for something. This is secret; however, we can guess how logically it can work. This is referred to as the Amazon Search algorithm.

Assuming I’m the Amazon algorithm, and my job is to determine what we display to users on the website. Imagine a user searches for a tennis racket. How do I select from the hundreds of tennis rackets which ones to display to the user?

Well, the first intuition would be to rank every tennis racket on the Amazon platform by how well they are selling. Place the best-selling item at the top of the list and the worst-selling item at the bottom.

However, this seems a bit simple. What if the best-selling item is only a big brand name with inferior quality, but they're spending much money on the advertising campaign? Customers are still purchasing it, but they're giving it bad reviews.

Therefore, ratings are vital and should be considered too. Maybe I display a better-reviewed tennis racket higher than a tennis racket that has marginally more sales.

But that is also quite simple. So, what about a tennis racket that has only a single review. Even if it is a 5-star rating, I can’t display it higher than a tennis racket with over a hundred 4.9 reviews. Ok, so I measure the rating by the number of reviews.

However, what happens if there’s some modern tennis racket design technology out and the best-selling tennis racket is behind the times? It retains all those good reviews, and it's still the best-seller. It will be quite unfair because the best-seller has been around for a long time that it will take a more modern, better tennis racket years to accumulate a similar number of reviews.

So now, I am taking into consideration momentum. A product that has only been in the market a couple of weeks but has a lot of sales and some good reviews I will display in a high place.

Now we see a clearer picture. We cannot be definitive about the precise mechanism the Amazon algorithm balances these factors; however, we can be certain that it favors more sales, good reviews, lots of reviews, and momentum.

A new product with zero reviews and sales isn’t going to be displayed to anyone. A new product with many sales within the first week and numerous good reviews is going to be displayed to people.

It’s your job as a new Amazon seller to gain as many sales and reviews as possible in the shortest possible time. You require that momentum to start showing up organically on user’s Amazon searches.

Here are the simplest ways to achieve this:

  • Ask all your family and friends to purchase and review your item.
  • Host a competition/giveaway.
  • Send out free samples to amateur and professional reviewers.
  • Pay for advertising.

How to Start an Amazon Business without Handling Products 

This is similar to the Amazon FBA business detailed above. Once you have completed your product research, pricing, branding, negotiating, and manufacturing, it’s then time to ship.

You’ll require a freight forwarder to take care of shipping and customs for a fee. These freight forwarders will undertake most of the work associated with shipping and customs for you. When it comes to your shipping options, you can choose to send your inventory by ship or by plane. Once your order arrives at your destination country, you can have the freight service deliver it directly.

Once your inventory reaches Amazon, your Amazon FBA business will go live, and customers can purchase and receive the products without you being notified told about it. All you need to do is set up some marketing campaign strategies!

Final Thoughts

Creating a successful and profitable Amazon business requires so much learning and waiting — to get feedback from suppliers or get shipments. However, it does not require long workdays. If you can devote an average of an hour or two daily, that is more than enough.

Also, you do not have to become a workaholic propelled by blind passion or have a passion for the item you are selling. All you require is to become consistent and willing to research and chip away monthly until you are successful. You cannot give up when a manufacturer messes up your order or when a customer gives you a bad review. As long as you are in it for the long-term and willing to put in the required work, you already possess what it takes.

FAQ  

How to start an Amazon business with no money?

Create your store as an individual. This allows you any complexities involving a professional seller account. You also get the freedom to skip the monthly fees associated with a professional account.

Now, you have a store. You will need an item to sell. Considering you are starting with no money, this looks like a tasking proposition. You may consider starting by selling your used items that are gathering dust in the house – music, used games, etc.

Once you’ve exhausted your options, consider acting as an affiliate, purchasing products on credit, and paying off the debt with each sale. 

Is starting an Amazon business worth it? 

Starting an Amazon FBA business requires just an hour daily and approximately $3,000. You can generate a multimillion-dollar business that grants you the financial freedom and free time that you desire.

Do I need to have a company to sell on Amazon?

To cut through the chase, No. You don’t require a business license to start selling on Amazon. Most of the products sold on Amazon aren’t federally regulated. These products are mostly consumer products and don’t need government approval.