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How to Start an Amazon Business

Ecommerce is rapidly growing in popularity, with 80 percent of
Americans
regularly purchasing something online. These trends
look set to continue, with revenue from ecommerce
websites growing over 20 percent year on year.

It’s a lucrative space, and there’s money to be made. If you want to get into the
world of ecommerce and selling online, you have a few choices.

  • If you’re a traditional, “brick and mortar” store, you can start up
    an ecommerce website
  • You could build your own ecommerce store from scratch
  • You can take advantage of marketplaces on existing
    ecommerce websites such as Amazon and Etsy

Of course, the dominant player in the ecommerce space is Amazon — it’s
among the world’s largest ecommerce websites, and it provides some
massive opportunities for sellers. As an Amazon business, you can offer your
products for sale through Amazon to gain access to their enormous reach,
technology and marketplace.

Ecommerce is rapidly growing in popularity, with 80 percent of Americans regularly purchasing something online. These trends look set to continue, with revenue from ecommerce websites growing over 20 percent year on year. It’s a lucrative space, and there’s money to be made. If you want to get into the world of ecommerce and selling online, you have a few choices.

  • If you’re a traditional, “brick and mortar” store, you can start up an ecommerce website
  • You could build your own ecommerce store from scratch
  • You can take advantage of marketplaces on existing ecommerce websites such as Amazon and Etsy

Of course, the dominant player in the ecommerce space is Amazon — it’s among the world’s largest ecommerce websites, and it provides some massive opportunities for sellers. As an Amazon business, you can offer your products for sale through Amazon to gain access to their enormous reach, technology and marketplace.

You might think selling on Amazon is easy; they do a good job of setting up sellers for success. Despite this, there are potential pitfalls to selling on Amazon, so we’ve put together this complete guide to tell you exactly how to maximize your chances of creating a thriving Amazon business. We’ll cover:

  • Understanding the world of Amazon businesses and what it takes to be an Amazon seller
  • Questions you should ask to see if you’re ready to start an Amazon business
  • The best legal structure for your new organization
  • The various rules and regulations you will need to follow
  • Information on taxes and finances for your Amazon business
  • Hiring employees, marketing and administration
  • Resources for your Amazon business
  • And much more

Understanding the World of the Amazon Business

So, what exactly is an Amazon seller? Simply put, they are people and companies who source goods and then sell them on Amazon at a profit. There are two main kinds of Amazon businesses:

"Sold by Amazon" Sellers

Sellers who source, procure, store and ship the goods themselves including taking care of customer service and returns. They only use Amazon to list their products, get exposure, sell them and take payment. These are known as “Sold by Amazon” sellers.

Amazon FBA Sellers

Sellers who source and procure products themselves but then send them to an Amazon warehouse for storage, sale, payment and shipping. Amazon handles all customer service and returns. These are known as “Fulfilled by Amazon (FBA)” sellers

Key Amazon Business and Background Data and Statistics

Why would you choose to sell through Amazon? Here are some of their astonishing statistics:

$136B

Amazon.com's revenue in 2016

300M

Number of people shops on Amazon.com

100K

Amazon sellers had sales of $100K or more in 2016

  • 80% of Amazon U.S. users purchase from the website at least once a month
  • 77% of Amazon sellers sell on multiple channels (ebay, their own ecommerce store, etc.)
  • Nearly 80% of Amazon sellers use “Fulfilled by Amazon”
  • 49% of Amazon sellers sell less than $100,000 of product through Amazon a year
  • 36% sell between $100,000 and $1,000,000 of products a year through Amazon
  • 15% sell more than $1,000,000 of products a year through Amazon

Understand Your Amazon Business Market

If you want to be successful on Amazon, finding the right products and buyers is absolutely essential. Due to the success of the platform, there is a vast amount of competition across almost every niche and product. The biggest factors that will decide your success are choosing the right product, understanding the demand for that product and selling it at a profit.

What Your Amazon Business Customers Are Looking For

People who buy on Amazon are motivated to purchase in a few different ways:

Price

Amazon is famously known for its competitive prices, so much so that people often compare prices in traditional stores with what Amazon is charging. You need to keenly price your items.

Quality

Customers expect high-quality items that do what you say they will. Even if items are inexpensive, customers do not expect the quality to be “cheap.”

Speed

Customers want their items quickly. If you’re using FBA, Amazon will take care of that for you. If you’re shipping out yourself, you will need to have fast and reliable logistics and distribution.

Reviews

Reviews are the lifeblood of ranking your products on the marketplace. Good reviews are essential for getting your products seen and creating trust with other buyers.

Questions to Ask Before You Start an Amazon Business

Is Amazon Business Entrepreneurship For You?

Although Amazon does resolve many of the issues facing an ecommerce startup (marketing, acquiring sales, managing distribution, etc.), that doesn't make running an Amazon business easy. You must be able to deal with significant competition, be acutely aware of the state of the marketplace, deal with Amazon’s regulations and policies and be a master administrator.

The profit margins are also likely to be razor-thin. You need to create, buy inventory, manage and maintain a successful business on small profit margins and against a very competitive landscape. But, if you can make it, the upsides are huge. If your product really gets traction, you could make your way into the upper ranks of sellers who make more than $1,000,000 a year on the platform.

What Are the Main Skills, Expertise and Experience to Be a Successful Amazon Entrepreneur?

Being a successful Amazon business owner requires a diverse set of skills:

Strong research abilities

So you can find the right suppliers, products and customers

Good math skills

So you can work out profit margins, cash flow and foreign currency exchange

Excellent forecasting abilities

So you can understand trends in the market and ensure you have enough stock and inventory

Powerful attention to detail

So you can examine top sellers, product specifications and supplier requirements

Great flexibility

So you can adapt to changing requirements and customer needs

Good marketing skills

Since often basics such as headline writing, copywriting and call-to-actions can make or break your Amazon listing

What Are the Main Challenges for an Amazon Seller Entrepreneur?

Here are the main issues an Amazon seller entrepreneur is likely to face:

  • Running a Successful Business With Thin Profit Margins: The Amazon seller space is very competitive. A combination of price pressure, foreign exchange rates and customer expectations means you need to take care of all your business costs from constantly pressurized profit margins. It’s essential to have a deep understanding of the numbers so you can pay all your business costs from those margins.
  • Cash Flow and Inventory Management: Because of these thin profit margins you have to judge cash flow very carefully and balance your cash on hand versus money you have coming in and having enough inventory to meet customer demand. You will also need to bear in mind lead times on getting products from your suppliers and build this into your seasonal demand cycles.
  • Dealing with Competition: Competition is ever-present in the Amazon selling space. You need to keep a constant eye on other sellers, look at their product offering and prices. You will need to tweak your stock levels and selling prices so you rank properly.
  • Marketing and Promotion: Although you will get exposure on Amazon’s marketplace, you also need to market yourself. That could be via buying ads on Amazon itself, social media marketing, going through an affiliate or some other means. The right mix of marketing will make a big difference to your success.

What Does a Day in the Life of a Amazon Seller Entrepreneur Look Like?

Here’s what you can expect in an average day:

  • Reviewing sales from the previous day, week and month to see what products are doing well
  • Looking at your current inventory and stock levels and planning for future sales
  • Making orders with your suppliers and arranging for payment
  • Exploring new opportunities for products and expanding into a different marketplace
  • Calculating profit margins and selling prices to ensure you can pay all your business expenses
  • Dealing with any requests or issues flagged by Amazon
  • And much more
Check out our additional guidance in understanding if an Amazon business is the right choice for you. If this blog post, we'll help you analyze if your Amazon business idea is a good one, conduct market research and build a business plan.

Choose the Right Business Structure and Register Your Amazon Business

Now that you have all the background information for your Amazon seller business, it’s time to make it into a reality. That starts by choosing the right structure or “legal entity” for your business. In the U.S., there are four main business structures. They are:

Sole Proprietorship

This is the "default" business
structure and is what your
business will be if you decide
not to create a more formal
structure. We don't
recommend this type of
business as it doesn't give
you the legal protections you need.

Limited Liability
Company or LLC

The most common type of business entity. An LLC is fast, simple and inexpensive to setup and maintain. It protects your personal finances and assets and is a great way to start your real estate

Series LLC

This is a special type of LLC entity that's only available in certain states. It allows you to create "mini" LLCs, each with their own limited liability and separate assets, under the umbrella of a master LLC.

S Corporation

This is a more complex type of
business and isn't generally
recommended for smaller
organization.

C Corporation

These are the largest and most
complex types of businesses
and are far more than the
average entrepreneur or
business owner will need.

For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide. If you've still got questions, we've answered them to help you choose the right business structure.

In most cases our recommendation would be to create an LLC, We've got a complete guide to everything you need to do and we can set one up for your Amazon Seller business. LLC formation dose vary from state to state, but we've got you covered, wherever you are.

Setup & Maintain Your Amazon Business

Once you've legally created your Amazon business you’ll need to get some other things in place.

Business Location

Where are you going to run your business? Will you work from home, get an office, use a shared working space or something else? In most cases, unless you are planning to store products, it’s best to start an Amazon business from your home.

Permits & Licenses

Running an Amazon business could come with certain rules, regulations and legalities you need to be aware of. Incfile can conduct a Business License Research package for you, or you can take the time to do the research yourself.

Finances & Taxes

What kind of bank account will you get? And how will you pay your business taxes? These are all important things to consider so your Amazon business stays in the green. Check out our quick guide to finances and taxes for Amazon Sellers

Equipment

What equipment do you need to manage your Amazon business? Make sure you understand exactly what you need to spend, so you can write it off against business expenses. In most cases, you won’t need any specialized equipment or supplies unless you are planning to ship products yourself.

Processes

What business processes are you going to use to run your business efficiently and effectively? You will need efficient processes for managing inventory, dealing with suppliers, ordering stock, looking at competitors and completing market research.

Software

Is there software that can help you manage and market your business? There are dozens of software applications designed specifically to help Amazon sellers. Here aresome greatstarting points.

Employees

Do you need to hire employees to help you out? This may change as your business grows, but try to think ahead about what sort of experts you may need.

Business Maintenance

Most states require businesses to file an Annual Report report once a year. You will also be expected to pay estimated taxes on what you plan to earn in the current business year. And, your federal, state, regional and city business licenses and permits may need to be renewed on a regular basis, typically once a year.

Our Start a Business Checklist will also help you get your Amazon business going in the best possible way.

Conclusion

Starting an Amazon business can be both very challenging and very rewarding. Find the right niche, source great products and sell them at a profit and you have the makings of a successful business. Eventually, you could be among the 15 percent who sell more than $1,000,000 worth of products every year.

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