Amazon is gating more brands than ever, which means less opportunity for retail arbitrage sellers. We’re testing this out for ourselves.Mar 09, 2021 Seller Labs
The Amazon FBA Business: Is it Enough in 2021?Ashley Kochans
Several years ago, Amazon FBA businesses were the quick shortcut to being a millionaire and moving to the Bahamas. Everyone and their mother had online business because starting an Amazon business was a profitable means of easy income.
In 2021, that just isn’t true. Now, the market is oversaturated with private brands or scam artists trying to make a buck. Prime customers’ expectations have only increased, along with shipping costs, fulfillment fees, and the other expenses of running an Amazon FBA business.
US trade wars with China haven’t helped. With the world’s most affordable manufacturing, China used to be the best place to source products for FBA. Now, many sellers are turning manufacturers in the United States and facing higher prices as a result.
CHAPTER I What Types of Amazon FBA Business Exist?
Amazon FBA is selling on Amazon — except Amazon takes care of the details. You send your products to Amazon, they handle inventory fulfillment, customer support, return processing, and more.
There are three main types of FBA selling: private label, retail arbitrage, and wholesale. Let’s take a look at each.
Private labelers choose the products they sell with Amazon FBA. After a fair bit of market research, they contact the manufacturers with their product ideas to supply their products in bulk.
Private label sellers create their own brand on Amazon. They build a storefront, custom product listings, social media, etc. This brand-building process can often be the hardest part, but it is well worth the time and effort.
Retail arbitrage is the practice of buying discounted products at retail stores and then reselling them for a profit. In retail arbitrage, you don’t need to create a unique brand because you’re reselling other brands’ products.
In recent years, Amazon has cracked down on sellers who don’t have explicit permission to sell branded products. This left many sellers to wonder – is retail arbitrage a dying art? We answer that question in more detail in our article.
Similar to retail arbitrage, wholesale sellers buy branded products without needing to create their own private label. The difference is that wholesalers buy products in bulk, so they usually negotiate rates with manufacturers directly.
In addition, wholesalers do not need to create new product listings, they simply add their offer to an existing product listing. Wholesale is a great way to start selling on Amazon, if you have connections with suppliers you trust.
What About Dropshipping?
Amazon Dropshipping is similar to Amazon FBA, except that sellers don’t house any inventory in Amazon fulfillment centers. In fact, dropshippers don’t even order goods until a customer places an order. Then, the supplier will fulfill the product and send it to the customer on behalf of the dropshipper.
If you have a trustworthy and affordable manufacturer, dropshipping is a very lucrative alternative to an Amazon FBA business. With dropshipping, you only buy what you sell, and the supplier ships your products, so you can avoid FBA fees.
CHAPTER II Starting an Amazon FBA Business
If you’re already an Amazon seller, you’re familiar with the terms Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA). What you may not realize is that you don’t have to choose between the two exclusively!
Many merchants with Professional seller accounts use the different fulfillment methods simultaneously. FBM and FBA each offer unique benefits. Here’s a run down of the pros to both.
Fulfilled by Merchant
FBM sellers control the customer experience from start to finish. They can access their inventory at any time, and they choose how to fulfill products.
FBM generally costs less for bigger items because Amazon’s fees are based on the size of the item.
Seller-Fulfilled Prime allows FBM sellers to access Prime without paying FBA fees.
FBM sellers can display the Prime badge as long as they have a Professional Plan.
If you’re willing to shop around, FBM sellers can access lower shipping costs by fulfilling outside of Amazon.
Fulfilled by Amazon
Amazon takes care of customer service and shipping. Because Amazon ships your products, what you lose in control, you gain in convenience.
FBA is a better fit for low-priced, small items where shipping costs may cut into margins.
The Buy Box almost always goes to an FBA Seller.
Conversions are generally higher from FBA sellers because of brand loyalty.
Amazon fulfillment simplifies shipping, leaving you more free time to grow your business.
Before you commit to either fulfillment method, you should understand the costs associated with each. The fees for FBA are notoriously complicated and vary based on parcel size, product categories, etc. Read up on all the types of Amazon seller fees for more information.
Make the Most of An Amazon FBA Business
Because of the huge influx of third party sellers to the Amazon marketplace, FBA just isn’t what it used to be. In order to stay competitive and be profitable, you need to optimize your performance. Use these 7 tips to be the best seller you can be.
1. Leverage FBA’s Shipping Programs
First of all, there are a couple special programs that are only available to Amazon FBA sellers. Take advantage of the following programs if they apply to your business.
- Small and Light
- Subscribe and Save
- FBA Pan-EU
- FBA Export
- Frustration-Free Packaging
- Multi-channel Fulfillment
2. Get the Buy Box
Possibly the biggest advantage of FBA is the likelihood that you’ll win the Buy Box. To oversimplify, you can get the Buy Box by being a top-notch seller, and offering the best price.
How exactly do you win the Buy Box in practice? Well, we wrote the guide on it.
3. Secure a Badge On Your Product Listing
There are a couple badges that provide an instant boost in visibility. You’ll want to get one of these badges to get more traffic, and therefore, conversions.
|Amazon’s Choice||Best Seller|
|Amazon’s Choice is keyword-based.||The Best Seller Badge is sales-based.|
|A product will receive an Amazon’s Choice badge for a particular search term when it has sold the most products on that search term’s results page.||A product will receive the Best Seller Badge in a particular category when it has sold the most products in that category.|
|Products with Amazon’s Choice will match with customers’ queries in voice search.||Best sellers perform well in search and are also highly visible to shoppers who browse.|
4. Apply for Reimbursement & Avoid Unnecessary Fees
Amazon handles millions of shipments each day — mistakes are bound to happen. Human error varies from miscalculated weight fees to product returns that were never received.
If you catch one of these mistakes, you’re eligible for FBA reimbursement, so check your account regularly for opportunities. While you’re in the nitty gritty, look for chances to optimize your inventory management as a whole.
Amazon will regularly apply fees for things like long-term storage. If you pay attention, you can avoid these unnecessary costs. Remember, you’re in the business of selling products, not storing them.
5. Don’t Sell Against the Brand
Amazon isn’t just the world’s largest online marketplace, it also owns several private labels. In addition to household names like Amazon Fresh and Amazon Basics, Amazon owns products under various names.
If you plan on selling a product that is a direct competitor to Amazon, don’t.
Keep an eye out when Amazon is in a niche you’d like to compete in. Amazon is known for pushing out competitors with lower prices and manipulated rankings.
In fact, Amazon recently came under fire for antitrust investigations in Europe. Whether it’s legal or not, you vs. Amazon is not a battle you’re going to win.
6. Build a Brand
Amazon has favored brands over resellers for a couple years now. In fact, registered brand owners are eligible for special privileges with Amazon Brand Registry.
Building a brand means researching your buyer persona(s), making relationships with influencers, developing a brand voice, etc. Don’t skimp on this step in the beginning. Having a well-defined brand statement will make your future marketing decisions a whole lot clearer.
For example, our partners at 5Strands know exactly what their target audience expects of them. Their water test kit helps keep families’ pets and children safe from Blue Green Algae. Their brand loves animals, and that decision helps them optimize their product listings and photos!
7. Use Amazon Marketing Services (AMS)
If you’re new to advertising on Amazon, get started on Sponsored Products. If you’re already an expert, then read our full guide on the best Amazon Marketing Strategy.
CHAPTER III Is Amazon FBA a Viable Business Option in 2021?
There is a lot of evidence that Amazon is a profitable company. Last year, Amazon surpassed $1 trillion in market value. A single share of Amazon stock costs more than $3,000. The company owns half of the U.S. eCommerce market. Impressive statistics.
What these dazzling numbers don’t tell you is whether you can make a profit on Amazon. This year, over a million sellers joined Amazon. Globally, the platform hosts 9.7 million sellers.
Diversification will set your FBA business apart from the million other sellers on the marketplace.
In March 2020, sellers got the FBA rug pulled out from under them. Overnight, Amazon announced that it would prioritize essential goods only. We all learned the value of diverse revenue streams after that.
Relying on one means of fulfillment, or even one platform, simply isn’t enough to succeed in 2021. The overwhelming majority of shoppers expect to see a uniform shopping experience across multiple platforms.
An Amazon FBA business is an amazing addition to your seller toolkit, but it shouldn’t be your only tool. If you’re not also selling on your own website, social media channels, and brick and mortar locations, you’re leaving money on the table.
Stay Up to Date on All Things Amazon and eCommerce