Chances are, your name is not Jeff Bezos.
So if you aren’t him, or an Amazon stock holder, how can you generate passive income from the world’s largest eCommerce platform?
(For the record, passive income is cash flow generated by an asset without continued work or effort from you as the asset owner, like rent from a rental house or dividends from stock.)
The answer – Fulfillment By Amazon, or FBA for short. Amazon FBA a fulfillment solution that enables individual entrepreneurs to build retail empires without ever touching inventory.
Sounds pretty good right?
To understand how this works, we need to understand what Amazon is, and how small- and mid-sized businesses use it to build their brands.
TL;DR – We’ll talk about how you can make money with Amazon FBA and discuss my own personal experience.
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What Kind Of Company Is Amazon, Anyway?
“I bought it from Amazon.”
You’ve heard it a million times and probably said it just as many.
After all, according to PYMNTS, 51.2% of all 2020 digital retail sales occurred thanks to the eCom giant.
But when we say “I bought it from Amazon,” it’s usually simply not true.
When you “buy from Amazon,” you are usually buying from a small business. Or at least, a smaller business than the online bookseller that ballooned into a Goliath store, making its founder the richest man in the world!
See, Amazon.com isn’t an online store. It’s an online marketplace. Sounds like a distinction without a difference?
Think of Amazon.com like a brick-and-mortar shopping mall. Yes, you got those new shoes “at the mall,” but you actually bought them from Nordstrom, Aldo, or Foot Locker. Those brands pay rent to the mall to place themselves somewhere people come to shop.
Similarly, Amazon.com is the real estate where people come to shop. Private retailers can open a “store” on Amazon.com and sell their products. Amazon collects a monthly fee or a cut of their sales – whichever is larger. The retailers get the advantage of listing their products on the website where everyone and their mother comes looking for products to buy.
Of course, Amazon sells its own private-label products on its own platform (“Amazon Basics”). Its “Prime” membership program is a massive revenue source. It’s also an Oscar- and Emmy-winning film and TV production and distribution company, and the largest Cloud services provider. A whopping 33% of the internet is built on Amazon Web Services (AWS) Cloud infrastructure.
Not bad for a one-time bookseller.
How Can An Amazon FBA Store Create Passive Income?
Yes you can set up an online store on Amazon, even if your name isn’t Jeff Bezos.
I’ve even done it myself – twice!
Is this really passive income, though?
After all, every time someone makes a purchase, you have to package it and ship it. If your store takes off, packaging and shipping your orders could become a full-time job, right?
Hardly “passive income.”
Hold your horses! This is where Fulfillment By Amazon (FBA) enters the picture. For retail newcomers, making sure that a buyer gets what they purchased is called “fulfillment.”
FBA is a fulfillment solution. Fulfillment solutions existed before Amazon, but FBA is designed specifically for Amazon sellers. FBA maintains huge warehouses with large staff numbers to inventory, process, and ship products all over the world.
Thats certainly more than us mere mortals can achieve ourselves!
If you decide to use FBA, here’s how the process will work:
- You order your inventory from the manufacturer or wholesaler.
- Instead of shipping the inventory to you, inventory ships directly to an FBA fulfillment center.
- When someone places an order on your Amazon store, the fulfillment process automatically activates. Employees at the FBA fulfillment center package and ship the purchase directly to the buyer.
Eventually, the steps in this process can be delegated to employees, enabling you to remove your own effort from this process and enjoy passive income.
Of course, FBA entitles Amazon to a bigger cut of the purchase price. However you have the advantage of never having to touch inventory. You also don’t have to rent a warehouse or turn your home into one. You can run your store from a laptop or smartphone, anywhere in the world.
Amazon FBA also unlocks the ability to sell your own products with “prime delivery”. Over 90% of buyers will always opt for this service! Utilizing prime delivery therefore unlocks huge potential for you to make money with Amazon FBA.
What Are The Requirements Of Amazon FBA?
If nothing else, FBA is a logistical marvel – over 300 million individual products, each one tracked at every checkpoint, meticulously labeled to correlate the right product with the right seller and strict quality control.
To keep the eCom engine running, Amazon certainly runs a tight ship.
To take advantage of FBA, Amazon sellers must adhere to strict inventory requirements, which can be found here. You will need to follow safe packaging requirements, shipping label requirements, bar code requirements, shipping and routing requirements, and more.
If you want to remove yourself as a key player in the process and turn your Amazon store into a source of passive income, you will need to make sure that your manufacturer or wholesaler adheres to these requirements, including proper labeling, suffocation warnings on plastic packing bags, etc. If your inventory arrives at the FBA warehouse missing a label or improperly packaged, Amazon may refuse to handle it and your inventory could get stuck in limbo, unsellable, indefinitely.
Stick the rules and you’ll be fine!
What Are The Advantages?
Passive Income
Whether online or brick-and-mortar, owning a retail store is only “passive income” if you don’t have to stock your own shelves or sit behind your own cash register.
In addition to providing the cash register, FBA Amazon arms your store with an army of employees to stock shelves and do the “dirty work” for you.
Less Expensive
Sure, FBA is an extra expense. Amazon charges users inventory storage fees, shipping fees, inventory removal fees… basically everything. Believe me, it all adds up and will initially take you by surprise. However, FBA fees are still lower than other fulfillment services … but only for Amazon sales.
You can use your FBA inventory to fulfill orders outside of Amazon.com, but then you owe stiff product-removal fees. If you sell products through channels other than Amazon.com, you might want a separate fulfillment solution for those sales.
What Are The Disadvantages?
Strict Requirements
As mentioned above, Amazon maintains strict quality control over the shipment, packaging, and labeling of all products stored and fulfilled by FBA. If your wholesaler or manufacturer makes a mistake – wrong label, non-compliant packaging, etc. -your inventory could get held up for weeks, resulting in lost sales and unhappy customers.
High Investment
Creating an Amazon FBA store is not the kind of business you can start with a shoestring budget. You will almost certainly need to lay down money for inventory and pay-per-click marketing from Amazon (i.e. more of your money in Amazon’s pocket). The costs can quickly mount.
No Guarantee of Sales
FBA makes it possible to generate passive income through Amazon … but it isn’t a slam dunk. Otherwise, everyone would do it. Making sales on Amazon takes more than throwing up a listing and shipping products to fulfillment centers.
Succeeding as an Amazon seller requires thoughtful product development, professional product photos, strategic copywriting for the listing description, smart packaging, and possibly expensive ad campaigns or giveaways to attract those crucial first sales and reviews.
If your product does take off, you need to meticulously manage your inventory. If your FBA inventory depletes completely, your listing gets penalized on the Amazon search algorithm, and there goes your passive income.
Honest Tips - How To Actually Make Money With Amazon FBA
As you (our readers) have come to expect from us… we always offer our own honest take.
Firstly, a bit of background. I’ve personally bought, grown and ultimately sold Amazon FBA businesses. They take a lot of upfront time investment to get started!
Any of these online marketing “gurus” telling you Amazon FBA is a get rich quick scheme are wrong (or lying?). Perhaps in Amazon’s earlier days, when competition was low, you could have walked straight in with any old product. This isn’t the case anymore unfortunately. If you don’t have some time to invest early on, consider another side-hustle.
That being said, there are still huge sums of money to be made on Amazon. Furthermore, if you set it up correctly, the income can certainly be “semi-passive”.
We personally know several people making 5-6 figures a month using Amazon FBA. One of them even brags that he hasn’t personally logged into his account in several months and still makes these vast sums. Full disclosure, he uses a Virtual Assistant… someone keeping the business going when he’s busy (on the golf course).
Here’s our experienced must-do tips if you want to actually make money with Amazon FBA – including essential resources.
Getting Started On Amazon FBA
Before we make money with Amazon FBA, we need to choose a product type.
There are many different product strategies to choose from:
- Private Label: Create your very own product branding. Example: instead of selling another brand’s water bottle, have the manufacturer print your logo/brand on there. We highly recommend this option – more profitable, more potential for growth.
- Retail Arbitrage: Find cheap deals on discount products in store/online. Resell them on amazon.
- Wholesale: Purchasing products directly from the manufacturer in bulk, selling them for a profit.
- Dropshipping: Buy a discount deal directly from the manufacturer/retailer. They send items straight to the customer.
- Bespoke/Homemade: Making your own items to sell online.
You've Chosen Private Label - Now What?
- Research Your Product – Jungle Scout should be mandatory!
- Source Your Product – Alibaba.com is the best place for this.
- List Your Product On Amazon – Sign up and walk through the steps (or have someone on Fiverr do this).
- Promote Your Product – Using Amazon PPC (more on this in another article)
- Manage Your Sales – reply to customers, check your stock etc – or employ a virtual assistant.
Essential Points
Delegate the smaller tasks early! Do NOT waste your own valuable time trying to make logos, packaging etc. Delegate to someone else with the appropriate skills. Fiverr is your friend!
Choose a product that sells, not one that you want to sell. If you found a gap in the market but it’s for something dull and unexciting. Who cares! The exciting part is having your own product and making money.
Spend lots of time on product research. Nothing else will matter if you have chosen the wrong product. Overly saturated markets or products that Amazon won’t approve will fail no matter how much work you do.
Stalk the competition. When you find your product… checkout your competitors. Look at their listing, their images, the product itself… and then blow them out of the water. If your listing is better in every way, you’re much more likely to make traction.
Conclusion And Alternatives
Don’t let the hype fool you – opening a successful store on Amazon.com is a big undertaking. Successful stores put significant effort into building a brand and bringing something new to the marketplace, not just cashing in on what is already popular.
But for those with the drive to make it work, Fulfillment By Amazon (FBA) is a key tool to turn a successful Amazon store into a source of passive income for the owner.
If you have any more questions on how to make money with Amazon FBA (or anything else) – drop me an email.
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