What is Amazon FBA and why should I use it?

Amazon fba is famous for their free 2-day shipping through Amazon Prime. It’s one of the main reasons people shop on the marketplace. Free 2-day shipping is now the standard for all online sellers.

Wouldn’t it be great if you could offer free 2-day shipping on the items you sell? Good news, you can!

That’s the reason you use Amazon FBA. With Amazon FBA, you simply ship your items to an Amazon warehouse and they take care of the rest for you. So, if you ship them one box with 25 items you want to sell, Amazon will pick, pack and ship each of those items for you as they are sold.

For many, Amazon FBA is a smart and cost-effective way to ship your items. While you pay a fee for this service, you’re providing customers industry-leading logistics to ensure their package arrives on-time.

Fulfillment by Amazon will most likely be the best option for you to fulfill your products, so let’s walk through how selling on Amazon FBA works.

1. Find a product that you want to sell on Amazon.
2. List the product for sale on Amazon.  At the time you are listing the item you will set the selling price of your item.  We’ll get into more details on this later in the post.
3. Prepare the item to be shipped to a Fulfillment by Amazon warehouse.
4. Box up your items and ship them to the warehouse location that Amazon assigns.  Note: you will be able to box up many different items together.  Your only responsibility is to get the items safely to Amazon’s warehouse.  You don’t have to worry about packaging things up in a manner that will go directly to the end customer.  So if you have 20 copies of a board game you want to sell, you can ship all 20 in the same box to Amazon as long as Amazon has assigned all 20 to go to the same warehouse.

At this point your work is just about done with the product.  Here are the steps that Amazon will take once the items arrive at their warehouses:

1. Verify that you have sent the correct items in the proper condition.
2. Upon verifying the items are correct, Amazon will activate your listings.  This means that your seller name will appear on the applicable product detail page, and your item will be available for sale.
3. Amazon will store the item in their warehouses until a customer orders it.
4. When a customer orders the item, an Amazon team member will ship the item to the customer.
5. Once the item has shipped, Amazon will deposit your share of the sale into your seller account.  Your share is the selling price less Amazon’s fees.  You will receive an email from Amazon every time they ship an order for you.
6. Every 2 weeks you will receive a deposit to your bank account for items that have sold for the prior 2 weeks.

Essentially, you are responsible for finding items to sell and getting them to Amazon.  After that, Amazon takes care of the rest of the process.

What Are the Benefits of Using the Fulfillment by Amazon Program? 

There are a few key benefits to selling on Amazon using the Fulfillment by Amazon program.

The biggest one that impacts Fulfillment by Amazon sellers is the free shipping benefits offered to customers:

The screenshot above takes a look at some of the benefits that shoppers on Amazon have who are a part of the Amazon Prime program.  Amazon is rolling out some additional benefits and now offers, free one day, same day, and 2 hour delivery on certain items in select cities.

When you sell on Amazon using the Fulfillment by Amazon program, your items are available for all of these prime shipping benefits.  That means customers can get Free 2 day shipping on the items that you sell.  The fast shipping times are very appealing for customers, and makes them more likely to purchase an item from you versus a seller whose item is not available for prime shipping.

In addition to the fast shipping, customers also know that items that are shipped via Prime will have the same return policy as items that are sold by Amazon.com themselves.  What this means is that customers can be extremely confident that their items will arrive exactly as described and when expected.  In the unlikely even that their expectations are not met, then they know that Amazon’s customer service will get the issue resolved for them.

The extreme confidence that customers have in the program are 2 major benefits that will help your items to sell faster.  The other key benefit that I will mention is that Amazon does most of the heavy lifting when you use the Fulfillment by Amazon program when selling on Amazon.  You are able to ship items to Amazon in bulk, and they handle getting the items to the individual customers.

What Is the Other Option Besides Selling with Fulfillment by Amazon? 

I mentioned above that there was another option when selling on Amazon that does not require you to use Fulfillment by Amazon.  The other option is to “merchant fulfill” the items you sell on Amazon.  This means that you will keep the items you have for sale at your location and when an order comes in you will ship the item directly to the customer.  There are times when this can make sense, but 99% of the time using Fulfillment by Amazon will be a better option.

Just know that “merchant fulfilling” is an option, but for the remainder of this post, we’ll focus on selling on Amazon using the Fulfillment by Amazon program.

Now that we have an overview of how the process works, we’ll get into the details of how to setup your seller account, how to know how much you will get paid for items that sell, how to find items to sell, how to price your items, how to get your items to Amazon FBA warehouses, and what you can expect once you have items for sale on Amazon.

How Do I Start Selling on Amazon? Step by Step

The first step in how to sell on Amazon is setting up your Amazon seller account.  You can do this by going to sellercentral.amazon.com and clicking the register now button as shown in this screenshot:

 

After clicking the “register now” link you will go through the process of setting up your Amazon account.  Setting up your account should only take a few minutes, and then you will be able to sell products on Amazon.

How to Calculate Amazon Profit: Using the Fulfillment by Amazon Revenue Calculator

If you haven’t yet setup a seller account, then there’s an option that doesn’t require a seller account.  You can view the Fulfillment by Amazon Revenue Calculator and get the fee details on any item.  Here’s a look at an example product:

 

If you go to the Fulfillment by Amazon Revenue calculator, you will be able to search for any item that you are considering selling on Amazon.  You will then enter the price (red arrow), how much it will cost you to ship to Amazon (black arrow), and how much the product costs you (green arrow).  The calculator will display exactly how much you will be charged in fees, and most importantly at the bottom will display exactly how much profit you can expect to make on that item.

I recommend running every single item you sell on Amazon through this calculator or a different tool that serves the same purpose.  With calculators like this available, you should know exactly how much you can expect to profit on every item that you are selling on Amazon.

Now that we have a tool that shows us how the fee structure works when selling on Amazon, we need some items to sell.

Deciding What to Sell on Amazon

The first potential way to find some initial items to sell is by seeing what you have around your home.  A couple of the most common items that might make sense are books or any gifts that you have received and never opened.

The second option is to buy items that are available at low prices at a local retail store.  Generally these items will be on sale or clearance.  The idea is to find items that are selling for less in the retail store than they are selling for on Amazon.  This practice of buying items at low prices in retail stores and then selling them on Amazon is known as retail arbitrage.  Retail arbitrage is one of the best ways to get started selling on Amazon, as the initial investment is low, and it allows you to learn the process.  The experience gained through retail arbitrage can provide extensive knowledge about how selling on Amazon works, which can be applied to other inventory sourcing methods in the future.

I will go over a quick overview of how I’d recommend getting started with retail arbitrage.  To go through this, you will want to setup a seller account so that you can have access to the Amazon Seller App.  This will provide you with the information that you need to see if an item is worth buying to resell.

After you have the app installed, go to a local big box store in your area.  Wal-mart, Target, Home Depot, Toys R Us, Kmart, Walgreens, or any similar store will work.  Once you are in a store, look for a clearance section or aisle similar to this:

This example shows a Walmart clearance aisle.  Once you are in this aisle you want to open the Amazon Seller App, and use your phone’s camera to scan the barcode of the products in the clearance aisle.

After scanning a product, you should see a screen like this:

 

On this screen you want to check for 2 things.  The first is to make sure you are eligible to sell the product on Amazon under the selling eligibility section.  The second is the sales rank shown in the top left hand corner.  On this particular item we can see that the sales rank is 60 in the toys category, which is an exceptionally good rank.  The sales rank is a piece of information that Amazon provides that gives us an idea of how fast an item is currently selling on Amazon.  A full discussion of sales rank is beyond the scope of this post, but it’s important to know the lower the number the better.  For your first few trips, I’d recommend looking for sales ranks that are lower than 250,000.  As you gain more experience you can definitely tweak this, but ranks under this range are a good starting point.

If the app shows that you are eligible to sell the item, and the rank is less than your threshold, then you want to check and see if the item will provide a desirable return on investment.

To do that, click on the arrow on the far right of the app in the “gross proceeds” section.  Once you do that you will see a screen like this:

 

You will be able to enter the selling price, your cost per pound to ship to Amazon (I use $0.50/lb), and how much you can purchase the item for.  In this example, I’m showing that I can buy this item for $10.

At this stage there are 2 quick checks that you want to go through.  The first is to see if the net profit number shown at the bottom is higher than your minimum profit threshold.  Typically I recommend setting this at around $3 per unit.  This means that you won’t buy any items that you will make less than $3 in profit on.  Having a potential net profit of less than $3 per unit does not allow for very much upside and small drop in price can wipe out your profit.

If the item meets your minimum profit threshold, then you will want to calculate a return on investment percentage.  You can do this by dividing the net profit by the cost of the item.  In this case it’s $7.13 divided by $10, so the return on investment percentage is 71.3%.  When you are first getting started selling on Amazon, I recommend looking for items with a return on investment percentage that is higher than 50%.

So this particular item meets all of the criteria for purchasing the item, and should be purchased.  For any item that fits all of the purchasing guidelines, I recommend purchasing up to 6 of the item.  In this example, if there were 6 copies of this game on the shelf for $10 each, then I would buy all 6 of them.

Then it’s time to repeat this process on the next item, and the remainder of the items in clearance section.  When you are first getting started, I recommend scanning as many items as possible.  As you gain more experience you will likely will be able to avoid scanning certain items that don’t appear viable for resale.  When first getting started though, I recommend scanning as many items as possible.

I recommend going through the process of determining if an item is viable for resale in the order mentioned so that you can quickly move on to the next item for any items that don’t fit your buying criteria.  As soon as an item doesn’t fit one of your criteria, move on to the next item.

At this point, you might be wondering what items are actually selling? or what an actual retail arbitrage tip looks like? If that’s the case I have put together a free PDF that shares exactly what a quick sourcing trip to Home Depot looked like for me.  It shares the exact items I purchased, and how selling those items on Amazon made me $114.40 in profit in about an hour of work.  If you want instant access to the download, you can get it by clicking here.

In this section, I went over what I recommend when just getting started selling on Amazon, over time as you gain more experience, there’s definitely room to adjust these guidelines.

How do I price the items I am selling on Amazon? 

Now, that we have some items that we want to sell on Amazon, we need to know how to price them.  When selling on Amazon using the Fulfillment by Amazon program, I recommend pricing at a similar level to the other Fulfillment by Amazon sellers on the listing.

Let’s take a look at an example (click to enlarge):

 

To get to this screen, view all of the available offers for the product.  This can be done by clicking the link that says “used & new (#) from” that will display on just about every product for sale on Amazon.  The # field will be filled in with the number of sellers on that particular listing.

Now for the screenshot above, you can see that I filtered the view for only prime eligible items, and items in new condition.  I recommend filtering the view to match the condition and fulfillment method of the item you are pricing.

For the item in the screenshot above, I recommend pricing between $41 and $41.41 if you are looking for a quick sale.

When pricing your items, I do not recommend pricing below the offers you are competing with.  Pricing below your competition can often start a chain reaction of lowering prices, and can quickly erode margins.  On the more aggressive side, I recommend matching the lowest price of the same fulfillment method.  On the more conservative side, I’d price between $0.01 and 1% higher than the lowest price of the same fulfillment method.

As a bit of a side note, if you are willing to wait awhile for the item to sell, I would price the item between $46.52 and $49.95 in this example.  The reason for this is there are a few different “gaps” in the prices these items are selling for.  Whenever I am pricing an item I will look for significant gaps in price between the offers, and if there’s a decent gap, then many times I will price at the higher end of the spectrum to see if I can make some additional margin on the product I am selling.

Pricing is something that you will definitely get a better feel for as you gain more experience selling on Amazon, but these general guidelines should be a good starting point.