Definitive Guide To The Amazon FBA Business Model.

Definitive Guide To The Amazon FBA Business Model.

Okay hey today we're going to talk about the definitive guide to Amazon FBA and specifically how the FBA business model works now there's a lot of misinformation online and a lot of people recording these types of blogs aren't businesspeople they're youtubers or vloggers or something like that and it's just a bit there's a lot of misinformation so disclaimer we'm the founder of Amazon SEO consultant it's a website that helps rank organic products inside the Amazon in our search algorithm itself we've had incredible success and now over to a hundred clients it's one of the reasons why we feel like we can make this blog is because we have had success with the FBM model managing close to 50 million a month in sales now for sellers around the world so we can talk about this because we've seen what works so try not to be drawn in to people who are talking about FBA as if it is a you know get-rich-quick scheme you do have to build a brand especially now because it's very very saturated if you have no capital and you have very little time and this isn't going to work for you so just wanted to make that little disclaimer you can have a look at our site we was an SEO consultant calm have a read around there's some really good resources on there all the hundred percent free again we're not trying to sell you any courses or anything you can learn everything you need to learn for this business model on YouTube on Google on our website.

Then that's it but you do need to build a brand so let's get cracking so obviously everyone's talking about this still but what exactly is FBA so FBA obviously stands for fulfilled by Amazon it's basically their stood for the third party seller inclusion program okay so this was designed to take the logistics hassle out of the equation for sellers originally and then as Amazon grew it became obviously a massive ecommerce platform and now they have so much traffic going directly to Amazon they can charge such high fees for the essentially the FBA fees that they're making a massive profit and now is although they're not the largest company in the world they're actually the most valuable so if you have a look at the article on Forbes and we'll link that below it's actually ranking Amazon first in terms of most viable companies that's mainly due to the fact that although they obviously other we think this trillion dollar company now they have the platform in place to grow exponentially okay so they demand is increasing and obviously their demographics are very good as well they're mainly younger okay the FBA model is aimed at benefiting small and mid-sized Amazon sellers as well as having sort of vendor central for the larger ones who don't want to deal directly with the seller central platform okay so essentially you manufacture source products.

Amazon does everything else from a fulfillment packing picking storage point of view and even kind of pre sell it for you all you need to do is put it on Amazon if you have a very good product you kick start it with a launch process or you use our service and you rank organically if you have a great product you're basically done but of course as we mentioned you do need to build a brand this isn't sort of 2012 14 hours and you do need to actually build a real brand okay so how does Amazon FBA work so we've got this nice little explanation here basically you'll manufacture or yourself you source your products okay you then ship these or air freight or even courier them over to Amazon and if you're not sure what those are please research before starting this process then inside an Amazon warehouse or an amazon fulfillment center your products will sit ok they'll then be labeled by the Amazon team and you'll be given an Aysen ok so this is kind of its Amazon's identification number caramel it's essentially a you know eight nine digit number that tracks every single different item on answer okay and this is super important but we'll come back to it later then your listing will be live okay so that's all good then obviously ideally customers will buy your products Amazon will then fulfill them so basically pick pack and send them to those specific customers Amazon handles their returns.

The customer service to a certain degree you have to handle actual customer service but they all handle the returns in terms of automatically creating the labels for customers and then you get paid in the majority of circumstances okay so that's how it works it's very very simple honestly we don't think anyone who is familiar with digital marketing or even just business in general wouldn't understand this process and as you can see there's a lot of benefits because the manufacturing to Amazon process is very very simple okay if you have a good product development plan and you have a good product with additional benefits and there's benefits of benefits which we'll talk about later this is going to be very very elephant very very effective for you okay so how do you get started on Amazon FBA so first you're going to need an active seller account okay so what you're gonna do is basically go and type in Amazon seller account creation go through that process we'm not gonna bore you with the details but once you have it you'll have to read all their Terms of Service and everything.

You can use the FBA calculator to work out what product if you already have a product in mind will cost you if you're selling it on Amazon and this is really important because you don't want to be shocked by the fees that they're gonna offer you it's gonna be a lot higher than you think if you're selling say a $50 product or a 50-pound product then you're probably going to be looking at an average of between anywhere between ten and twenty pounds or dollars per sale and we know that sounds like a lot but the margins are there still depending on the product you have okay so part two once you have your products ready you need to ship them in to Amazon okay and you actually pay for the shipping but depending on where you're shipping from they have subsidized rates so they have a relationship with ups and you can pay usually about a quarter of the prices if you would have shifted in with a different service provider okay and then this is very very over-generalized here but you manage promote and optimize your listings to clock sales okay so this is Amazon SEO PPC you know external launch processes there are so many we have a few good articles on our blog that talk about this again 100% free don't go paying for this information and then you basically repeat this okay so the toughest part of Amazon at the moment is generating reviews okay if you can crack that and we'm not saying you should buy any go out and buy any reviews if you can crack it using friends and family that aren't traceable back to you then go for it if you have a very good product and you implement any specific launch process you can have something that is basically from stage one all the way through product ideation product development supplier chain shipping logistics all the way through to review generation follow-up customer service in a we have a 13 stage plan in our two internal agency and that's how we've managed to have a VA is overseas running the entire process so managed by one UK team member and in entire VA running a seven-figure business just from that stages now without being too much into the details of that obviously you need to build out the training in the processes in extremely granular detail if this is your first time do everything yourself research as much as possible YouTube is your best and worst friend in as much as you're going to have a lot of misinformation there's a lot of clickbait on YouTube there's a lot of stuff saying FBA is easier AF easy as the problem is it's difficult to get consistent sales okay and you will need house of help to do this.

Okay so you can check out the review of you can check out our review of the finest FBA tools again it's a 12 and word guide where we've reviewed every FBA tool worth knowing about again we're a service provider were not a software provider so this is a hundred percent unbiased as well okay manage a business like a boss because you do need to start automating processes if you're going to scale if you're still doing customer service and you're still doing promotions when you're the founder or CEO of a company unif it's an Amazon company you're going to struggle a long term ok so if you type in Amazon seller tools we believe we come up first for that as well so just google that you should be able to find us so major advantages of FBA now it takes a little start it takes a little to start so this isn't a no capital upfront business model you do need to order inventory and you do need to understand what you're doing when it comes to logistics because if you only have a couple of thousand dollars and you get hit with an import tax or you get hit with an Amazon FBA fee you weren't expecting you need to have that a little bit of excess of only $500 to cover that okay so when you watch these blogs and say okay you can invest $1,000 and make 10k a month it doesn't exist okay.

So please do not fall into that trap okay another advantage is it's cost effective and it's very fast shipping okay so obviously Amazon have Prime if you a Prime member then obviously you get it within a day that's a huge selling point for FBA and it's just honestly you just can't beat them it's incredible okay there's no stocking issues so there's unlimited warehouse space in quotes at reasonable rates now if you don't sell your product within 90 or 180 days you incur something called long-term storage fees now those can kill sellers but realistically you should be turning over inventory faster than that anyway okay so that's just something to be aware of then finally you have a less admin and more peace of mind okay so an amazon automatically handles customer service and returns and refunds okay now this is whirring in and of itself now if someone asks a question directly you will get a notification and you will need to go in and essentially answer that customer's query but if they request a refund unfortunately you don't get to know about it until it's too late which is really frustrating but you can actually follow them up and say hey why why you know why did you want a refund what was wrong with the product and if you do this you're going to avoid negative reviews as well which is one of the major killers of farmers and businesses now obviously there's relatively no growth ceiling if you rank first for all your keywords on Amazon then of course that is relatively as high as you can go but realistically that's an enormous scalability because you can launch thousands of products rank them for all keywords and essentially if your processes were large enough and you didn't do anything wrong and you had great products you could essentially grow to as much as it's it's exponential but you would need to launch new products streamlined process obviously Amazon support is not as good as it used to be annoying me but when you do try and get in touch with them they should point you in the right direction so this is from sales forecasting filing taxes FBA actually has a massive edge because they can pull all the data into one massive excel and when you download that you'll see every little bit of information you send that over to your accountant and you're good to go ok and the prime benefits are huge so obviously amazon has Amazon Prime now this results in better click-through rates higher trust values as a result better conversions.

You've obviously got free two-day and cheap one-day shipping ok in the UK it's free one-day shipping obviously because we're a lot smaller than us customers obviously by box eligibility as well research that if you're selling a product that other people are selling so you're not doing a private-label product you do need to be very careful with things like buy box and legibility pricing and if you get undercut there's not a lot you can do about it okay and as a stat States Prime members spend nearly twice as much as regular members because prime products move faster are usually better rated and typically more visible in the SERPs so it stands for search engine results pages okay access to multi-channel fulfillment so this is a big one so fulfill orders across the board so your website apps are flying easy integration reasonably low fees this is really important because you can connect your say Shopify store to Amazon directly and you can market our Shopify store and it'll look like a normal ecommerce website but it will be connected to FBA now this is really really powerful because your fees will be reduced because Amazon isn't the referral then they're just a fulfillment side of it so they're slightly not and you can also couple it with other marketing channels as well Facebook wenstagram etc etc okay and you can market your Shopify store without sending traffic to Amazon and having to pay slightly higher fees again this is more concerned if you're building a really good product and everything we're talking about today comes back to building a brand to build an incredibly good product and all of these issues are kind of not as large because it all starts with have a good product if you have that the launch process the review process makes everything so much easier okay but obviously FBA isn't all rosy now this is what people are don't really talk about so here are some cons managing inventory can be tough okay so if you do have those long term storage fees you're gonna get hit and your profit margins are really gonna kind of take an impact usually if you are experiencing those you're not doing a launch process right or your product is incorrect and it's a priced well etc so again high level business concepts need to be in place we have an article on business ecommerce KPwes and metrics to follow we would recommend researching that or again have a search in YouTube on e-commerce KPwes and you should be able to find our blog second holiday season bumper okay a bummer sorry Sophie's spiked up.

So you can still outrank them and you can still outsell them in 99% of cases but you do need to build a proper brand and understand that pricing is really important as well so you can actually price higher and make more sales so obviously double the revenue if you have a correct branding strategy in place and this isn't a specific skill set of mine on our teams but we use a third party to do this okay and then the FBA fees explained okay so research this in more detail because it will depend on the type of product that you're selling but the referral fees this is basically where Amazon is the referral channel so if somebody goes to purchases your product you'll pay about 15% of the listing price okay which is pretty high but at the end of the day you know they are the initial channel so that seems fair enough to me storage fees the cost of using Amazon's warehouses higher during the Christmas period but honestly it depends on the size of your product and obviously the weight of it and everything the cost of everything that goes into fulfilling orders so an aka picking packing shipping to the customer that's the fulfillment fees then you've got the subscription fees they're 40 bucks a month for a professional prescription don't go for the individual FBA account and then the variable closing fees so this is depending on what media again it does depend on what you're selling they have an FBA calculator that's really really handy it's semi accurate as well you can just use competitors that have similar shaped and weighted products and you'll get a good estimate okay so for example here if we we are selling a product for 80 bucks a gaming keyboard for example it weighs less than a pound storage volume less than one cubic foot okay we can have we can see that referral fees so it's about $12 referral fee okay about 15 percent storage is 69 cents per month fulfillment 2.41 subscription this would be negligible if you're making a high volume of sales so again we've just used a one dollar because say you were getting started and then closing zero so your net revenue excuse me is 63 90 more likely going to be around 64 90 if we remove the subscription as that's a fixed cost okay so fees has percentage of the listing price about twenty point one percent now if that price was reduced then that listing percentage actually increases because the referral fee isn't going to move so it's going to seem as a higher value the storage is going to stay roughly the same the fulfillment might decrease slightly but we'm sorry the referral fee will move slightly but the other ones gone and it's not going to move by much okay so if you priced it at seven dollars the referral fee is not going to be one okay that's why we'm trying to get out here it's gonna be three four five okay so just remember that if you're selling the lower priced products okay another example let's say a treadmill we've got 300 pounds obviously a really heavy item six cubic feet roughly we're selling it for $600 there were four Elfi about $90 storage about $5 fullfillment crazy amount three hundred and twenty dollars okay so our net revenue around 183 184 and you can see that a massive impact that has on the overall percentage just because this product is very very expensive and very very expensive to fulfill okay so this is when it doesn't really make sense to use fulfillment but what you can do is you can agree rates with Amazon okay just cause it's Amazon doesn't mean they don't want more business so we'm going to remember okay these fulfillment rates are flexible that's all we'm gonna say on FBA it clearly doesn't work for all categories there okay so you really need to be careful if you are slow moving off the shelves if you have seasonal products for example don't get killed by that if you have oversized products remember that when you're doing your profit margin analysis and in other words find products that are trending reasonably cheap fast moving and ideally medium sized and easy to scale now there are other things so for example we do personally target oversized heavy items because we know we can make it work from an operational point of view but if this is your first Prada to avoid long-term storage fees of oversized products which we can tell you are very very high you want to have you know start with something that's a very very little competition very very low order value and just look for something that it's a minimum of 40 orders per month ideally up around 200-300 but don't really go above that because you will struggle just from a competition point of view and then we get on to the markup war okay so just as we saw FBA fees can add up to anywhere between 20 to 70 percent of your listing price so let's take about 33 percent as a reference point if we have marketing cost per sale over 25 percent we was in fees 33 percent miss costs so this could be anything from let's say import tax for example and that leaves us with 32 percent okay so an ideal FBA product will have a 3x or higher markup and you know within that and your you are skating on thin ice especially if you do a lot of marketing a PPC so we like to look for things between the 20 and 50 percent range now depending on the volume obviously if you do in 100k a month at 20% then you're okay but remember things like sales tax remember things like dat okay so we work with a lot of us sellers in the UK and they forget about V 80 is 20 percent so if they have a profit margin of 20 percent exactly then the 100 percent of that is gone because sales tax is on the revenue figure not on the profit figure okay just something to remember so as we mentioned before we we've managed to turn our FBA model into a machine.

We call it a process and but you need to turn it into a lean mean a profit building machine easy way to remember that the way you can do this is have customized products okay and not just generic ones from aliexpress okay so think about Etsy look around at sea for ideas not a lot of people are talking about that and we'm not really sure why so Etsy is a great marketplace we love shopping on there for presents and gifts and also gives me great ideas ok only ever do private label products the other arbitrage method in our opinion is great for cash flow but it's not really scalable as a business model you see the arbitrage businesses and they don't really sell for any multiples okay the e bit - is too low outsourcing manufacturing and sourcing so think big think China if you are have a specialist product that you've got prototypes for in the UK or the US or a Western market and you're paying say ten dollars for a prototype Tamil you will pay a lot more than that for a prototype so if your Pitts bending $10 per unit of production for small unit volumes in China you'll probably get that down to about two three dollars okay so just remember that so remember to think big that's in life pretty much any way and then as we mentioned arbitrage and drop shipping quickening out results fast results but we personally really don't like it it's very unpredictable you don't know what's happening inside amazon's algorithm and yeah i we just wouldn't advise it to me it's not a proper business model and again everything you want to do with Amazon needs to be around building a brand okay and then that's everything so if you'd like to get in touch with us and ask us any questions about our ranking service or just Amazon in general or business feel free to get in touch to me via those emails or the Twitter and then remember FBA is an opportunity still it'll be an opportunity for probably years to come because major brands are still not on there okay find a product that works and you've already won half the battle if you make it even better and you have a review process in place you're pretty much done okay we understand how Amazon works and use reliable tools to stay on top of your FBA business make sure you automate using software where possible learn optimize repeat and put your listings to work through multi faceted Amazon marketing okay if you want to ask us anything feel free to go to Amazon SEO consultant calm okay thanks for listening have a good one.

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