What Is “Fulfillment by Amazon”? How You Can Start an Amazon FBA Business Today.

What Is “Fulfillment by Amazon”? How You Can Start an Amazon FBA Business Today.

Amazon app on a smartphone screen

Are you ready to start an LLC and need ways to get your product out in front of eyeballs and make some sales?

You could go the route of creating your own website, warehousing the product, running some form of advertising, tracking your inventory, picking and packaging the orders and shipping them out the door to your customers. And don’t forget about running customer service for those who have questions or problems with their order.

You’re probably wiping the sweat from your brow just thinking about all of that work. That’s where the Amazon FBA service can be a lifesaver for you and your business. Amazon can simplify the process and take much of the work off of your plate.

Unsure if Amazon is the right place to sell your products? There are over 300 million active Amazon customers, with 90 million Prime subscribers in the U.S. alone. That’s a lot of potential customers and sales.

What Is Amazon FBA?

Amazon FBA is “Fulfillment by Amazon.” It’s a platform for sellers to list their products on Amazon and sell directly from the website. The entire fulfillment side of your business is taken care of for you. This means you ship your products to Amazon and they inventory them and place them in their warehouse. When someone purchases your product from Amazon, they pick the order, package it, slap on the shipping label and send it on its way to the customer — all without you lifting a finger.

How Does Fulfillment by Amazon Work?

Not everyone will qualify to operate an Amazon FBA business. There are specific requirements that need to be met before Amazon allows you to list your product(s) for sale. We will touch on that shortly, but first, let’s go over what the process of using Fulfillment by Amazon looks like.

  1. Sign up to be an Amazon seller. The first thing you need to do is create an Amazon seller account. You will need to provide a business email address or Amazon customer account, a credit card, a business bank account to receive your profits, your government ID, your tax information and your phone number.
  2. Create product listings. The next step is to create your product listings and insert all of your product information. (Much more on sourcing and pricing your products will be covered below.)
  3. Once approved, send your products to Amazon fulfillment center(s). Once you get approved and are ready to start selling your products through Fulfillment by Amazon, you will prepare and package your products to ship out to a fulfillment center. Amazon has very specific guidelines and requirements for doing so, which will be provided to you when your Amazon FBA account is approved.
  4. When your products are received, they are put into Amazon’s warehouse inventory. Upon receipt of your products, Amazon will scan the labels you attached to your packages and put them into their warehouse inventory. This will allow you to check your inventory online at any point.
  5. Market and promote your products, which creates conversion on Amazon.com. Amazon will not handle the marketing and advertising of your business. In order to make sales, you will need to focus on running ads, promoting products via social media and leveraging your website content and copy to drive sales over to your listings on Amazon.
  6. Amazon picks the order and ships it out the door. Once an order is placed for your products, the Amazon FBA automated process continues by picking, packing and shipping your products out to the customer on your behalf. As an added benefit, Amazon also handles the customer service, such as questions, concerns and returns. You’re entirely hands-off from all of it.
  7. Track your inventory levels online and ship replenishment as needed. At any point, you can go on Amazon and check your inventory. If you see you are getting low, you can replenish your inventory and send out another package to have Amazon put into their warehouse inventory.

Incfile has a downloadable “Guide to Starting an Amazon Business” that can walk you through the steps of becoming an Amazon seller.

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Amazon FBA Fees

Amazon charges fees for the FBA service. Depending on the margins of the products you sell, you could be in the red when all is said and done. The smaller your margins, the more the fees are going to eat into your profits. It is recommended to have some healthy margins if you are considering Amazon FBA.

Some of the common FBA fees include:

  • Fulfillment fees
  • Monthly inventory storage fees
  • Long-term storage fees
  • Removal order fees
  • Returns processing fees
  • Unplanned service fees

To understand how these fees can affect your profit, let’s say you have a product that costs you $1. You list it on your Amazon FBA for $6. Not bad, right? You think you’re making $5 with each sale. Wrong. You’ll be dinged $0.90 for a category referral fee and then $2.50 for an FBA fee, leaving you with a $1.60 margin. Not as exciting, right? The fees can eat up a good chunk of your margins. Therefore, you need to be extremely picky when choosing the products you want to sell and how much you want to sell them for.

What Types of Items Can Be Sold Via Amazon FBA?

Amazon requires physical products for sale through the FBA program. If you sell electronic products (such as e-books) or services, they will not qualify.

Your products also need to meet Amazon’s guidelines. Items such as firearms, firecrackers, alcohol, tobacco, hazardous items and illegal drugs and paraphernalia are prohibited. Amazon has a full list of restricted products. There are also certain products that require approval first, such as grocery food items, music, jewelry, video and DVDs, and watches. It is recommended to view these lists before purchasing any inventory to ensure what you are buying can be sold via Amazon FBA.

Don’t forget to do some market research before deciding on what product(s) to sell. Look at the competition. What kind of quality are their products? What are their costs? What are they selling their products for? How can you differentiate your business from theirs and convince consumers that your brand/product is better? Who is your ideal customer and demographic?

How to Source or Create Products

Sourcing and creating products to sell on Amazon generally fall into two different avenues.

If you don’t want to create your own product idea, you can source products from others and resell them. This is called reselling or retail arbitrage. Where can you source such products for consideration?

You can find products at a discounted price at:

  • eBay
  • Craigslist
  • Garage sales
  • Dollar stores
  • Wholesalers
  • Stores holding sales
  • Alibaba

All these options provide you with heavily discounted prices where you can purchase items in bulk (possibly even at a deeper discount) and then sell them on Amazon. Some of the most popular product categories for resellers on Amazon include: home & kitchen; toys & games; books; health; household & baby; and kitchen & dining.

Getting a product manufactured is another route to take. Manufacturers in the United States or overseas can provide you with products that you can private label and sell. This involves branding the product with your own business name and logo.

Overseas sourcing is generally going to be much less expensive than products sourced from the U.S. Alibaba and AliExpress are two of the most common websites to find manufacturers.

Alibaba is the overseas version of Amazon and does a huge volume of sales on an annual basis. AliExpress differs slightly in that it is a website/app where you can source products you want to sell (and privately label). Many businesses start by sourcing inventory from these two places overseas and even have them ship the product directly to the Amazon FBA warehouses.

business owner packaging for Amazon FBA

Pricing your Amazon FBA Products

So many variables go into providing a price for your products. You have to factor in all of the fees, monthly seller costs, landed costs, etc.

One common method is to research who sells the same products that you do. From there, find the lowest price of all the sellers and increase your price by 1.5 percent above that price. For example, if a competitor sells a product for $100, you would sell yours for $101.50.

It’s not always the best plan to be the lowest price in the store. Some people believe the cheapest products will be lower quality than other products in the category. Being in a race to the bottom is not a plan that will provide longevity with your business, so you want to price your products accordingly. If you want to automate your Amazon FBA pricing strategies, look into common repricing tools.

If you want to know what your potential revenue could be when selling through Amazon FBA, check out their Fulfillment by Amazon Revenue Calculator.

Create an Official Business Entity with Incfile Before Starting Your Amazon FBA Business

Before you start your FBA journey, make your business official by starting a business entity using Incfile. Depending on how you want to grow and scale your business, we can file and form an LLC, an S Corp or a C Corp on your behalf for $0 + state fee. We can take all the work off your shoulders so you can focus on beginning your Fulfilment by Amazon business and watching the sales roll in.