In terms of market share, the largest eCommerce platform in the world is undoubtedly Amazon. With over 857 billion dollars in market capitalization (in contrast to its closest competitor at 233 billion), the marketplace giant remains to be one of the most visible—and therefore, most profitable—places to sell anything online.
However, simply being on Amazon doesn’t guarantee sales or profits. There are over 30,000 Storefronts with over 2.5 million different products in the United States alone, which means one thing: competition. Sellers will have to gauge if the effort that they’ll put in will be enough to reach the 180 different countries that Amazon caters to: and more importantly, whether the investment is worth the payoff.
Online retail is profitable: projections look at retail eCommerce sales booming to 8.1 trillion by 2026. But given all that, is Amazon FBA still worth the investment in 2023? And if it is, how can you make the most out of it?
This guide can hopefully help you answer all these questions and more.
First, it’s important to prevent yourself from making a mistake that many people who want to get into online retail end up committing: not understanding the difference between sales and profit.
While exact definitions may differ depending on your goals, the rough idea to follow is:
Plenty of Amazon FBA sellers often end up with the mindset of thinking that sales (or revenue) are all that matters when the truth is far from the case. While sales can be very important to your business growth, it’s equally important to know that they aren’t everything. We’ll discuss the importance of sales vs. profit a little bit later.
But for now, the important thing to remember is that profit, not sales, decides how “worth it” your Amazon FBA business will be.
To get started, it’s important to know about the potential sales you can get from selling on Amazon. Here are some quick statistics about Amazon sellers that you should know, straight from Amazon itself:
All this paints a very simple picture: selling on Amazon can be extremely profitable. However, it can be especially profitable for Amazon FBA sellers, as Amazon sellers themselves were able to generate an average of 200,00 dollars in annual revenue.
While the numbers discussed above paint a promising picture, it’s important to understand the composition that makes them possible. Amazon FBA isn’t the only way you can set up a business on Amazon (dropshipping is also a profitable business model) but it has some key considerations as to how it works.
Once you understand what makes Amazon FBA so successful, you can leverage these considerations to make sure that your own FBA business model grows and excels to meet your stated goals, whether that’s growth or profit.
Here are several reasons why becoming an Amazon FBA seller can generate considerable profit:
The first thing that gives you an advantage in selling on Amazon is that you’re pushing your products to a highly visible marketplace. Amazon is a household name, with the capability to reach, advertise, and ship to any household that knows about it.
In fact, this visibility is the key to why so many FBA sellers succeed on Amazon. They can already benefit from the present infrastructure, networking, brand history, and fulfillment options just by becoming a seller on the platform. No need to build anything yourself—just bring the product, and Amazon will do the rest.
While your goal would obviously be to promote your own brand/products long-term, there are significant benefits to selling under the Amazon banner. Aside from the visibility, there’s also the benefit of increased customer trust. Your potential and existing customers don’t need to worry about the logistics or handling of their products; Amazon prides itself on doing those things without too much trouble.
In addition, Amazon has a vested interest in getting brands to succeed on their platform. The more you sell, the better it will be for Amazon itself. It’s a relationship that relies on mutual growth, which can provide a certain measure of stability to anyone looking to start an online business.
We’ve talked about this in other posts, but the best reason to become an Amazon FBA seller is that you effectively get rid of any concerns about fulfillment. This leaves you free to focus on other important things about your business. Fulfillment is a key step in online retail (and one that many retailers can easily mess up) and having Amazon itself take care of this step is a huge load off your business concerns.
Amazon has the fulfillment centers, staff, networking, equipment, and everything else needed to bring your products from their warehouses straight to your customer’s doorstep. You don’t need to partner with any third-party shippers or go through the hassle of shipping your products yourself. Simply hand over your inventory to Amazon, and they’ll take care of the rest.
A lot of time, effort, and money goes into fulfillment—and businesses won’t always have the time to spare for what’s needed. Unfortunately, skipping out on the quality of your fulfillment is a guaranteed step toward disaster. This often leads to a cost vs. quality debate on fulfillment: how far can a business go for either before conceding quality and service?
But by becoming an Amazon FBA seller, these issues are no longer something you have to worry about. Not only does this prevent you from spending any more money on fulfillment concerns, but it also saves you money in the long term by not having to worry about upgrades to your infrastructure if your business grows, or your product experiences more demand.
A “hidden cost” that online retailers often fail to account for is how much time and money is wasted if their business doesn’t run smoothly. Often, fulfillment is the biggest of these time and resource sinks, demanding much more than businesses are often prepared to spend in terms of return on investment.
Amazon FBA sellers don’t need to deal with this: all they need is to ship their products to Amazon’s warehouses and let their fulfillment centers take care of the rest. This frees up their time and resources to concentrate on other equally important aspects of maintaining and growing an FBA business, like optimizing listings or product research.
Overall, the reason why becoming an Amazon FBA seller can be so profitable is because of convenience. Amazon sellers skip many of the growing pains that other businesses may have when launching their business or their products, avoid many of the headaches with fulfillment, and enjoy the benefits of having a globally recognized brand behind their products.
It’s basically online retailing made far easier. However, the question remains: how much work is needed to make it profitable?
Now is a good time to go back to the earlier tangent of sales vs. profit, or specifically, why profits and not sales should be the focus of Amazon sellers.
The reason behind this is simple: expenses matter.
Getting started on Amazon can be easy, convenient, and profitable, but it’s not a venture that comes without costs. There are seller fees, advertising fees, supplier fees, inventory fees, and all other costs that you accrue when you partner with Amazon as a seller. Admittedly, this is one of the primary concerns that most people have when considering how worthwhile it is to be an Amazon FBA seller: whether the expenses will outweigh any potential income you may get.
Every product on Amazon goes through a product cycle—the series of stages that characterizes how well a product performs on the platform. Understanding this cycle is important to setting expectations for what your profits will be like.
These stages are:
The important thing to note here is that in these stages of growth, the only time that your product may be considered profitable is in one stage: around its maturity.
What does this imply?
Product maturity is the most profitable part of the product cycle because it’s the stage where you’ve found your rhythm with your sales. Your listing on Amazon is optimized, your advertisement campaigns have paid off, and you’re getting plenty of good reviews. Generally, profits here are on an upswing.
However, before you get to this stage, it’s not only possible that your profits will be in the negative—but highly likely, even if you reach high sales earlier than you expected.
The important thing to remember is that in these situations, being in the red is not necessarily a bad thing. Recouping your initial investment into a product can take a while, especially given how competitive Amazon is. Adding to the fees you’d pay to use Amazon’s FBA service, it’s not unreasonable to think that you may be investing far more into becoming an Amazon FBA seller than what you’re getting in return.
But the key to becoming an Amazon FBA seller and getting a profit is patience. Don’t expect to see profit right away, even if you’re experiencing record sales. Most businesses that succeed on Amazon don’t become profitable overnight. While that certainly happens, it’s not a guarantee from the moment you put up a listing.
Sales may be the initial push that your Amazon FBA business needs to break even, but profits will only come after putting in the effort and time needed to grow your business. This effort is what makes your FBA business model worth it—and gives it the foundations needed to succeed long term.
It’s also important to consider your own business goals whenever you decide to become an Amazon FBA seller and revise your expectations and strategy accordingly. But if you’re simply asking about the possibility of getting a profit by becoming an Amazon FBA seller, the answer is a definite “yes”.
If becoming an Amazon FBA seller is profitable, how can you maximize your profits? One good thing about looking to maximize your profits on Amazon is that the platform itself has put in plenty of work supporting the growth of businesses on its platform. With a little work, it’s possible to succeed with all the information that Amazon itself already provides you.
But for more general tips you can follow, here are a few that we’d recommend:
Amazon FBA sellers already have a straightforward business model to follow, but for the best possible profitability, you’ll need some tools. Fortunately, there are plenty of solutions that you can consider to improve your FBA selling capabilities.
If you just want a quick overview of how your chosen product can potentially perform on Amazon, Amazon Seller Central has a simple FBA revenue calculator that you can input to check its profitability. It’s accessible from Amazon Seller Central, and you can even use it without a seller account.
This is a simple tool, but it’s a great way to conduct simple market research if you want to launch a new product on Amazon. There’s not much in the way of added features and other extra information, but it’s enough to give you an idea of how profitable a potential product may be.
The best reason to use this tool is if you want to do research without investing in external tools or paying much for other features that you may not want. However, the limits of the data available on Amazon’s FBA Revenue Calculator might not make it the best fit for intense research.
Threecolts is a comprehensive marketplace management platform that can help you optimize your Amazon FBA business. Choose from a fully customizable loadout of different applications, with a variety of features that can make both managing and growing your FBA business much easier.
Some key applications on the Threecolts platform that can help Amazon FBA sellers include SellerBench (for inventory and profit recovery), FeedbackWhiz (for review automation), and FW Profit Analytics (for FBM/FBA profit/loss margins). These applications help you gain a greater insight into how your business is doing, as well as provide actionable data to improve your operations.
Using Threecolts is an amazing option for FBA sellers that need a comprehensive overview of multiple facets of their FBA business. This can help you gain a competitive advantage over other sellers on Amazon, both with marketing your products and picking the most profitable options you can sell.
Another platform you can consider is JungleScout. One of the leading tools for keyword research, it’s primarily used to help connect you with suppliers and find reliable products to sell—all crucial for starting out any Amazon FBA business.
JungleScout can also help you promote your Amazon products and find high-performance niches for the most profitable products. It requires a fair amount of time and research, but JungleScout automates many of the manual searches that you would’ve normally done for product research.
What makes JungleScout extremely helpful for Amazon FBA sellers is that it can help manage overall costs. Since it also accounts for FBA fees and other possible costs, you can calculate profit margins with greater accuracy. This will also help you lower the overhead costs of acquiring products, even when negotiating with suppliers.
Amazon FBA is still a potentially profitable business model for any entrepreneur to consider in 2023. But like all businesses, the opportunity for profit (and therefore, worth) only comes after a healthy dose of hard work and patience. Fortunately, there are plenty of tools available that can make this process much easier. If you’re looking for something that can help you understand the ins and outs of fulfillment—not just on Amazon— try TacticalArbitrage today.