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They say that it takes money to make money - but on Amazon, how much is that? Ultimately, the amount you’ll have to fork out to establish a seller operation will depend on what your aims are. Obviously, the main aim is to generate some revenue, but is this just a passive side hustle, or are you looking to make this a serious source of income?
Are you just interested in getting something off the ground so you can see how it goes and hopefully make a bit of money, or are you willing to dish out a bit more to make your presence known and maximize your reach?
We break down what kind of costs you can expect for just a base setup and the other costs you may take on if you want to grow quicker.
The bare minimum
If you’re looking to just get started, without the bells and whistles and just what is absolutely necessary to be able to post your products on the site and sell them off, then your costs will essentially amount to seller fees and inventory.
Firstly, you’ll need to pay Amazon a monthly cut for the pleasure of using their platform. There are two options - a personal seller account or a professional seller account. A personal account is for users who only plan on selling 40 units or less - not useful for generating proper revenue, so we’ll assume a professional seller account. Right now, that will amount to a fixed monthly $39.99 plus selling fees.
Inventory
The biggest initial cost, of course, will be the stock itself. What you probably won’t be able to do is order just a small quantity of stock to see how it sells. Most suppliers will have a minimum order quantity that puts a floor on the units you buy, which can potentially lead to a large initial loss if done hastily.
This means that you don’t want to leave the quality up to chance before you put in a big order. Once you’ve done your research and picked the product you want, make sure you first get samples from more than one supplier to make sure the product is what you expect. The good news is that much of the time, at least some of this can be recuperated from the supplier you end up choosing, as they sometimes credit the cost of your sample to your initial purchase with them. Depending on where you’re sourcing from, the minimum order quantities can typically be between 300-500 units, but that can vary.
Barcodes
You’ll also need a fulfillment network stock keeping unit (FNSKU), which is essentially a seller identifier that is placed on any package you ship in the form of a barcode. Amazon will only give you FNSKUs if you have global trade identification numbers (GTIN) for them, which you can get from GS1, the provider that Amazon now requires you to use.
Each variation of every item you sell will need its unique barcode - so if you have the same shirt in two colors, that will be two bar separate codes. If you sell each of those shirts in sleeved or unsleeved versions, each of those will need their barcodes, too, and if you sell each of those versions in multipacks, those packs will also need their own barcodes, etc.
Referral fees
Amazon takes a cut of every item you sell, and how much depends on the product category. Keep this in mind when you’re deciding what it is you want to sell. It roughly breaks down as follows:
Other costs
So you’ve paid enough to get your business on its feet, and now you can actually start selling and, hopefully, generating some revenue. It makes sense if you want to keep a barebones operation in the short term, at least until you know whether or not you can make some real money from it.
If you want to take it to the next level, though, you’re going to have to spend a bit more, starting with the most effective force multiplier of them all:
Advertising
Sponsored Products is Amazon’s most lucrative advertising product because it works. As a new seller trying to move a new product, spending on advertising can mean the difference between a successful launch and asking yourself if it’s all worth it.
The pay-per-click platform will take your listings and put them right in front of buyers - don’t forget that if your listing is not on the first page of a search, your chances of being seen drop dramatically. If you’re not on page 2, you might as well be on page 200.
But how much should you spend on PPC campaigns? Different people will give you different figures, but the general consensus is that around 10% of your revenue should be a good place to start. Don’t get sucked into thinking that being overly frugal is the best course of action here - even a small amount of advertising, well-targeted, can translate into real results.
If you’re just starting, Amazon will give $50 in free clicks as part of their New Seller Incentives if you launch a Sponsored Product campaign within 90 days of making your first ASIN, along with another $50 in credits for coupons, which can be useful for promotions at the time of launch.
If all goes well, eventually you'll be adding Sponsored Brands and Sponsored Display ads into that mix
Storage
If you’re storing your inventory at FBA facilities, you’ll be charged a monthly rate based on how much space your stock takes up. For most of the year, from January to September, it will come out to $0.87 per cubic foot of space. During the high-demand months leading up to Christmas, however (October to December) the rates will nearly triple to $2.40 per cubic foot.
Help from Amazon
Amazon has incentive and support structures in place to help sellers that are in their early stages - these include credits for CPC ads, discounted shipping on Prime, help with some initial reviews, storage, and more.
Firstly, If you put your inventory in an FBA center within 90 days of listing your first ASIN, you’ll get 120 days of free storage for 100 units of stock - or 90 days for 30 oversized units. You’ll also get free liquidation for 180 days for 100 units, or 30 oversized units. You can also benefit from perks using the Amazon Partnered Carrier Program - through which you can get discounted rates for shipping with eligible carriers - and get $100 off inbound shipping if you send inventory to an FBA facility within 90 days of creating your first ASIN, for which you can also get $200 off fulfillment fees for Amazon Global Logistics.
If you do have money to make a big splash and register as a brand owner on Amazon’s Brand Registry, Amazon will give you a 5% bonus on your first $1m in branded sales, up to $50,000 in bonus value. You’ll also get $200 in credits for Amazon Vine, through which you can provide samples of your product to trusted reviewers, giving you a jump on one of the most crucial factors buyers look at when making decisions about purchases.
Incorporation and trademark
Amazon does not require that you set up a limited liability structure like an LLC to become a seller, you’re perfectly free to trade as the sole proprietor, especially if it’s something you’re doing on the side. Eventually, if you want to scale, it may be a good idea to establish an LLC. While it may come with a cost of incorporation - usually between $50-$150 depending on which state you incorporate in - it also comes with several potential benefits:
Chances are you won’t be looking to build a brand right from the beginning, but if you are (or if you hope to begin doing so down the line) then you’ll want to file for a trademark on your name. This will also open the door to getting on Amazon’s Brand Registry and being able to put out A+ content.
High-volume listing
Ideally, you’ll be able to start offloading your stock right away. If, for whatever reason, you end up with a high volume of active listings that have not been sold in a year, Amazon will begin charging a monthly fee of $0.005 per listing. It’s unlikely that this will become a factor, but the good news is the costs will be negligible unless you really have a large number of listings that are not moving.
Refunds
You never want a customer to send something back to begin with, but Amazon will refund you most of the referral fee, minus a refund administration fee that amounts to either $5 or 20% of the referral fee, whichever is smaller.
What if I don’t have a lot of money?
The first thing to know here is that money equals cushion - the less of it you have, the less room you have to make mistakes, which means the less room you have to try different things. Ideally, you want to be able to experiment and see what works and what doesn’t, but if you can’t do that, then one thing becomes absolutely crucial: research.
Before you even begin to set anything up on FBA, take your time going through the internet to find the right product. Is there good arbitrage? Is there demand for it? Is it easy to ship? These are all things you have to consider.
Amazon has tools available - like its revenue calculator - that will help you see how much money you’d be able to make for any particular product, just by inputting its ASIN, SKU or UPC Code across multiple markets. It will also let you manually input the details of your product (dimensions, category, price) to determine a revenue projection, and even let you estimate income from bulk purchases.
When you have a small budget and not a lot of room to maneuver, the main thing is to avoid risk - you want to stick to what you know has a high likelihood of working. This means, for one thing, avoiding seasonal items that don’t have stable demand year-round. Also, the smaller and lighter your packages are, the cheaper they will be to send off - fulfillment fees can range anywhere from $3.22 for small packages under 4 oz in weight, all the way up to oversized packages of over 150lbs, which can incur fulfillment fees of upwards of $150 (the heavier it is, the more expensive it is).
For clothes, it’s slightly more expensive, starting at $3.43 for the smallest and lightest packages, but has the same fees on the heavier end.
A few other things to consider:
Keep an open mind
Don’t limit yourself to what you thought might sell well. Before you put anything in motion, you need to put together a long list of options so that you can narrow them down to the best prospects. What has the best margins? Are there any wholesalers that I can get a great deal from? Are there some great arbitrage opportunities? These are all factors you should keep in mind when compiling your list. No idea is too silly - if it makes money, it’s good.
Choose a good niche
Avoid highly competitive product categories. Sure, you’ll be able to find a wholesaler that will sell to you at a decent price, but if the market is already saturated you’ll find that you’re going to need to spend a lot more money to convince people to buy from you instead of someone else. The same goes for selling big brand products - everyone will be doing it, and on top of that, you’ll be limited by brand rules that can be quite stringent.
Repeat business
Try to stay away from products that are only used once. The more a customer will use - or, more specifically, rebuy - a product, the better. This can be home items, replenishable products like cleaning or hygiene products, or anything else that they will need more of at regular intervals.
Durability
If you’ve ever had a window seat on an airplane and seen how the checked luggage is handled when they put it under the plane, you might be skeptical of how anything that gets to you is handled. You want to minimize the risk of having to refund customers and lose stock because of a fragile product. Make sure whatever you’re selling is sturdy - you’d be surprised how quickly those refunds add up.
Whether you want to get started slowly and work your way up to a position where you can scale, or come out of the gate swinging for the fences, there is a route for you to take. The first option may take quite a bit longer but may be a better fit if you are more risk-averse. If you have a bit more money to spend to begin with, however, you can go for the whole prize.
