Fulfillment by Amazon (FBA) is the retail giant's logistics suite for third-party sellers. Those who sign up for FBA select the merchandise they wish to sell and get it to a warehouse, while Amazon handles the storage, inventory, shipping, and customer service. Amazon estimates close to half of third-party (3P) sellers are a part of FBA and says that utilizing the service can reduce shipping costs by 30% and boost sales anywhere from 20-25%.
If you're ready to get your business off the ground, our Amazon FBA get-started guide has all the tips and steps you need to get started and set up an Amazon business account.
How to Start Your Amazon FBA Business
FBA makes it easy for 3P sellers to launch their business quickly and efficiently, and it's a great choice if you want to leverage Amazon's 300 million+ active customers while letting them handle the tedious logistics. But is it a profitable business decision?
How much do Amazon FBA sellers make a year?
Like any business venture, starting an FBA shop comes with risk and uncertainty, but the numbers paint a picture full of potential. In fact, most FBA sellers become profitable in their first year of doing business.
The latest research calculates average income by the month, and it shows that most FBA sellers earn more than $1,000, and over half make more than $5,000.
Operating an FBA shop can be a lucrative business with the right drive and determination. But how do you actually get started? Here are all the steps you'll need to take:
1. Choose a Vendor or Seller Account
When it comes to setting up an Amazon business account, you have two choices: "vendor" or "seller." Vendors must be invited by Amazon to essentially become wholesalers — they supply the products, and Amazon sells them under their brand. Being a seller is open to nearly anyone, and they can market and brand their shop however they wish.
Both vendors and sellers are responsible for getting their items to Amazon warehouses. For vendors, it's out of their hands once the items have arrived. For sellers, they can opt to manage inventory and shipping on their own or choose FBA, where Amazon handles it for them. Essentially, it's the best of both worlds.
Unless you're manufacturing products or plan on having a large-scale business (that can meet the substantial demands of Amazon), a seller account is your best bet. Visit Amazon's Seller Central to sign up for a free account.
2. Create an LLC
One of the most-asked questions when signing up as an FBA 3P seller is:
Do you need an LLC for an Amazon business account?
No, you do not need an LLC, or limited liability company, to sign up for a business account on Seller Central. Any seller, including sole proprietors, can sign up without securing legal business formation.
However, we always recommend starting your business with a legal structure in place, as it offers the greatest protection and reduces liability. While any business structure is accepted, most sellers find an LLC meets their needs. LLCs are cost-effective and easy to obtain, and they instantly make your business more legitimate, trustworthy, and reputable. You can create an LLC through Incfile for $0 + your state fee and start your business immediately.
Whether you have an LLC or another business structure, you'll need to answer questions about it during your registration process. Be prepared with your legal business name and address when signing up.
3. Open a Bank Account
A business bank account is a must for your FBA business. Even if you plan on starting small, it's a key element of a successful FBA shop. Here's why:
- Keeps your personal and business finances separate
- Makes managing those finances and filing taxes much easier
- Helps keep your personal assets protected in the case of legal action
- Can make it easier to seek additional funding, take out loans, and acquire business credit
- Gives your business more legitimacy and offers a professional appearance
Opening a business bank account is an exciting step in launching your FBA business, but it can be overwhelming with all the options out there. We're pleased to offer business banking with our partner, Bank of America, to business owners who want the least hassle and maximum reward.
4. Choose and List Products
Nothing can kill your burgeoning business as quickly as having the wrong products, confusing descriptions, or low-quality photos. Nailing this part is critical to your future FBA success.
If you aren't sure where to begin, take a look at top-selling products on Amazon. There are certain categories that are nearly always profitable, so when in doubt, check them out.
Be sure your listings are in-depth and accurate but also easy to skim. Use bullet points and brief copy to make the listings scannable.
When it comes to images, remember that product photography is both an art and a science — it's not something you can replicate on your smartphone. If your resources allow, look into hiring a professional photographer with experience in shooting products. Otherwise, there are courses you can take and equipment you can purchase to optimize your own photos.
5. Market Your Business
The better you perform as an FBA seller, the more support you'll get from Amazon to promote your business. In the meantime, you'll need to do a lot of the heavy lifting of building your brand. Here are some ways you can market your FBA business:
- Use keywords. Keywords are what buyers are Googling to find the products they need. Make sure you incorporate keywords throughout your product listing and even in the product name.
- Use social media ads to promote your shop or individual products. Conduct market research to identify your ideal buyer and find them on their favorite platform.
- Look for backlinks. Bloggers and Amazon influencers often incorporate product listings into their blogs and social media posts. Connect with them to see if they would consider including a link to your shop or product.
- Purchase a Sponsored Product ad. These will get your product to the top of search results, which gives you an edge over the competition.
- Manage your ratings and reviews. Respond to negative reviews, boost your customer service, and engage with users to ensure they come back. Make sure your listings are honest and accurate to promote better ratings.
Remember that having an FBA shop doesn't stop you from maintaining your own website and marketing outside of Amazon. You can collect emails, send newsletters, and reach out to customers if you find a way to connect away from Amazon.
Amazon FBA Mistakes to Avoid
While using FBA can make the process of becoming an Amazon 3P seller easier, it still takes a lot of effort and planning to avoid missteps. Competition among Amazon sellers is fierce, and price battles can damage your morale and your bottom line. Instead, work ahead to avoid these Amazon FBA mistakes and prevent difficulties before they get a foothold.
Picking the wrong product: If you only go by trends, you might have some early success, but you'll find it soon dries up. Stick with the categories that perform well (see above), and let your customer service and high ratings set you apart from the competition.
Writing sketchy product descriptions: Savvy customers will know if your listings are purposely misleading and quickly jump ship. Make sure all listings are accurate and honest and that they portray the product as it is in real life.
Displaying low-quality photos: As we mentioned previously, bad images can make or break your FBA success. Hire a professional, or, if you can't, invest time and money into learning how to take quality product photos.
Skipping Fulfillment by Amazon: While FBA isn't your only option, it would be unwise to skip it. Yes, you may give up some control, but the profit is well worth it for most businesses. Plus, you'll gain a lot of time and peace of mind while Amazon handles the complicated logistics.
Making pricing errors: You want the best price for your items, but there's no guarantee customers will want to pay that price. Do some research before setting your costs. You don't want to go too low (and instill doubt in buyers that your product is in some way subpar) or too high (and price the product out of most peoples' budgets). Aim for the middle ground, and understand that with Amazon's price matching, you might have to go lower at times to make a sale.
Not seeking reviews: Nearly all online shoppers check reviews before making a purchase, so you want to make sure yours are great. You can't outright ask buyers to leave a review, so ensure your products are listed and photographed well so customers don't get any unpleasant surprises. If you're part of the Amazon Brand Registry, you can sign up for an early reviewer program, and Amazon will seek product reviews on your behalf.
How Much Does It Cost to Start an Amazon FBA?
Now we come to the million-dollar (or more) question: How much will it actually cost you to start an FBA business? And how much does a business account cost with Amazon?
Setting up your account on Seller Central may cost nothing, but you'll soon have to make some choices that will impact how much you spend. The three things you'll need to be aware of when calculating the cost of selling through FBA are:
- The type of seller account you selected
- What category your products fall under
- The size and weight of each unit you're selling
If you plan to sell fewer than 40 items a month, the Individual plan will be the most cost-effective. If you want to grow or sell more, opting for the Professional plan will save you money. You may also want to consider your product choices based on the category referral fees and their size/weight.
Also, keep in mind that FBA storage fees vary by season, so you'll need to be aware of what products you want to keep in your inventory and when. For a complete list of fees, check out Amazon's pricing tiers.
Amazon Seller Stipulations
While almost countless options are available to you, you can't just sell any item or product via FBA. Your products need to meet Amazon’s guidelines to be sold on the platform. Here are some products that don't meet the FBA guidelines:
- Firearms
- Firecrackers
- Alcohol
- Tobacco
- Hazardous items
- Illegal drugs and drug paraphernalia
Some other items aren't exactly no-gos, but they do require approval. Some items may need to meet health and safety standards or avoid copyright infringement. You'll need to do some research and check with Amazon before selling the following:
- Groceries
- Music
- Jewelry
- Video and DVDs
- Watches
Is Selling on Amazon FBA Right for Me?
Is Amazon FBA worth it? Many sellers feel it is absolutely worth it to do Amazon FBA due to the power of the Amazon brand and the relief of not having to worry about the logistics, but your success really depends on how much work you put in.
While FBA fees can add up, if you do your research, choose the right products, and manage your listings properly, you can be one of the many shop owners building a thriving business with FBA. As mentioned before, Amazon says FBA sellers usually see a 20%-25% increase in profits over those who do not opt for FBA.
Start Your Business With Incfile
If you're ready to start an FBA business, get off on the right foot by choosing Incfile to form your Amazon business entity. Our $0 + state fee LLC is perfect for most future FBA sellers. It offers the protection you need and all the benefits of a legal business entity. Plus, at Incfile, we'll take care of all the paperwork so you can stay focused on launching your FBA shop. Join a community of 1 million business owners and entrepreneurs who've been where you are and understand where you want to go.
Take your research to the next level and check out our comprehensive, in-depth guide on starting an Amazon business.
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Wendi Williams
Wendi is a freelance writer based in Indianapolis, IN, with over a decade of experience writing for a variety of industries from healthcare to manufacturing to nonprofit. When she isn't working on solutions for her clients, she can be found spending time with her kids and husband, working in the garden or doing more writing (of the fiction variety).
