How to Start an Amazon Business: Tips for Beginners

A black Samsung phone displaying the Amazon logo.

Amazon is a global leading marketplace that has more than 2.5 million members actively selling. Each month, Amazon sees 210 million unique visitors searching for products to buy. The giant e-commerce store’s global scope and reach can help a variety of businesses; whether they are wanting to expand or they are just starting.

A recent report by Statista shows that 53% of Amazon’s sales came from third-party sellers. New sellers to Amazon will find it easy to set up shop, as well as user-friendly product listings and tools. While Amazon makes it easy for new sellers to sign-up, there are many factors to consider before creating your Amazon business.

Selling on Amazon

When you are ready to sell your goods on Amazon, you will have two fulfillment options: You can either fulfill orders using Amazon or you can fulfill orders yourself. Deciding between the two can be challenging, but there are some key differences, as well as some advantages and disadvantages.

Fulfillment By Amazon (FBA) Business

Fulfillment by Amazon allows you to ship your products from a manufacturer or supplier to an Amazon fulfillment center. This center manages to ship and returns to customers while the seller pays Amazon for storage and fulfillment fees for each product sold. Fulfillment by Amazon has many benefits including:

  • 2-day Amazon Prime Shipping
  • Customer service and returns are managed by Amazon
  • Shipping costs are included in the fees
  • Products are sent to Amazon from the supplier
  • You have access to multi-channel if you have an eBay or Shopify store

However, there are also disadvantages to this fulfillment strategy, including:

  • Difficulty in keeping track of inventory
  • An increase in returns due to Amazon’s easy return policy
  • Storage and fulfillment fees
  • Sellers have to pack and label products individually to ship to fulfillment centers

Fulfillment by Merchant (FBM) Business

If you wish to have more control over your inventory and business processes, you can still manage your order fulfillment with a Fulfillment by Merchant Business. Advantages of this fulfillment strategy are:

  • More hands-on with inventory
  • Fewer fees than FBA
  • Larger profit margins on each purchase
  • Sellers could be eligible for Prime delivery benefits

The disadvantages are relative to the scale of your business and your ability to invest in an order fulfillment software to keep track of everything. Challenges and potential drawbacks may include:

  • Higher overhead due to storage fees, fulfillment costs, and shipping expenses
  • The added responsibility of fulfilling orders yourself
  • Sellers may have to cut prices to be more competitive
  • You could be missing out on Amazon Prime Members if you don’t have 2-day shipping

None of these drawbacks are permanent. Most can be mitigated by scale and investment in the right resources and systems to keep up with orders and the competition.

Vending on Amazon

A vendor relationship with Amazon is when a manufacturer or distributor sells wholesale products directly to Amazon. This process is similar to conventional relationships with brick and mortar stores. In this case, Amazon is the vendor’s customer. Once Amazon has bought products, they are held in an Amazon Fulfillment Center and ownership of the products passes to Amazon.

To become an Amazon Vendor, sellers must receive an invitation from the retail team. You could reach out to Vendor Managers directly, but there is no guarantee that this approach will work. You must attract Amazon’s attention with a growing brand.

If you wish to become a vendor, you can benefit from perks like:

  • An increase in advertising and marketing opportunities
  • Access to certain programs, like Prime Now
  • The ability to manage promotions

However, there are some disadvantages, including:

  • Less control over pricing
  • Complex fulfillment requirements
  • Slower payment terms
  • A vending account is more expensive

If you are a larger business that already benefits from being a vendor, you might find that investing in a manufacturing automation software can be helpful. Automation allows you to create work orders, bills of materials and other items to increase efficiency. Finding software that easily integrates with Amazon could help you bypass the disadvantages of being an Amazon Vendor.

How Much Does it Cost to Sell On Amazon?

Many factors determine the cost of selling on Amazon. What you choose to sell, how you sell it, fulfillment strategies, and finding suppliers are all monetary considerations when it comes to starting a business on Amazon. These factors will create a realistic idea of expenses.

Set-Up Costs

There are various costs to set up on Amazon, including:

  • Universal Product Code (UPC) and Barcode set up: Amazon requires all products to include UPCs and Barcodes as part of the listing. These must be purchased through providers.
  • Business logo and product shots: These will help sell your items and show customers you are legitimate. You can either pay a professional to create product shots or shoot them yourself.
  • Optimizing and advertising: You can utilize Amazon’s advertising tools to help get your products in front of a bigger audience. There are many options to choose from, like targeting certain keywords or reaching people who are not on Amazon.
  • Buying samples of products: Invest in samples so you can gauge customer interest without taking a big financial hit.
  • Integrating an inventory management platform: Creating a digital inventory management system allows you to track inventory, create sales orders, or track assets all in one place. This can help save time and money in the long run of your Amazon business.

Amazon Seller Fees

  • Individual Selling Plan: A seller who plans on selling less than 40 products a month will be charged $0.99 per item plus referral fees. Upgrading to a Professional Selling Plan will cost you $39.99/month, but won’t charge per item.
  • Amazon referral fee: Amazon will take a percentage of your total item price after a sale. The percentage depends on the product category.
  • Closing fee: This fee applies to media products only, like books, and costs $1.35 per item. This fee ensures Amazon will make a profit on low-priced items.
  • Amazon commission: Amazon will charge a commission fee for all items sold. It varies based on location, however, Amazon provides a breakdown of commission for sellers once they sign up.

Fulfillment Costs

As stated above, there are many advantages and disadvantages to using Amazon Fulfillment Center. One factor to keep in mind is the different fees, including:

  • Storing, packaging, and weight-handling fees: These fees cover the entire shipping process, including shipping costs. These fees depend on the weight of your shipment and range from $2-$5. Oversized packages are more expensive, ranging from $8-$140.
  • Monthly storage fees: Storage fees depend on the size of the unit and the time of year. January through September, standard units are $0.69/cubic foot while oversized units are $0.48/cubic foot. October through December, standard units are $2.40/cubic foot while oversized units are $1.20 per cubic foot.

Whether you are a business that is already established or a business that is just starting, Amazon Marketplace can help you reach bigger audiences and help you sell more products. By utilizing Amazon’s many features, sellers can expand their business with the right strategies.

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