Private labeling? Drop shipping? Cathy sees a lot of opportunities in the “FBA business” but doesn’t know where to start. Matthew to the rescue!
Hi Matt, hope you’re well. I’m different from your main readers, and hope I don’t waste your time asking, but I’m a stay-at-home mom of three and would love to make some extra dollars for the family. I just have so little time. From what I read, Amazon and FBA are the two best ways to make money online nowadays. I joined a Facebook group to learn about it but the other members are so experienced that it’s really confusing me. What’s it all about and where do I start? I can’t afford to invest a lot of money and I need to be home-based. I’ve seen a lot of training courses and they promise a lot, but are they for real?
— Cathy from Portland, OR
As a father of three, I know you already have a full-time job. Please don’t worry about my time. We share a common lack of it!
Under the premise that you are busy, you’ll need a fairly slick business model. You’ll need to be focused. You don’t have the luxury of trying everything.
In that context, I’ll try to clear up some of the hype surrounding Amazon “get rich quick” offers, and explain what they are at a root level. I’ll also offer some advice on how to keep things as light-touch as possible. I am going to omit other channels for now and focus on Amazon only. In time you might want to expand into eBay, Newegg, Wish, Walmart and other channels, but they will need to be discussed separately.
As I write this, the kids have invaded my home office. My apologies if I accidentally reference a little Tom and Jerry trivia.
So let’s clear up some basics…
- No, you will not become the next million-dollar success story if you simply adopt Amazon FBA on some items.
- No, Amazon will not help you become a mega-success by selling on their marketplace. They… don’t really care.
- No, there are no major secrets to all this, that you have to learn by paying for a training course.
- Yes, with the right model, infrastructure and focus, you can create a decent side-income with limited time investment. But it’s going to take hard work, and most critically, laser focus.
Some success stories were born from good old hard work. Some were simply the result of sickeningly good luck. (Not that I’m jealous.) But you can’t afford to rely on luck, so you’ll need to settle for hard work right now, and maybe lady luck will chip in later.
I think we can all agree: if it were so easy to build a big sustainable income on Amazon in 3-6 weeks with minimal investment, why would people be “selling” the training of it? Why aren’t they using that spare time to make more money simply doing it? Wouldn’t you? I’m far too selfish to train my competitors, but who knows, maybe they want a challenge? More likely, they have a major element that they aren’t sharing.
So, back to the basics. Next I’ll massively oversimplify two Amazon models we are seeing most often.
Model One: Volume
Let’s imagine a seller called Tom running this model. Tom is selling about as much as he can in terms of volume. His model is focused on drop shipping, or buy-to-order, depending on what you like to call it.
Dropshipping is basically the easiest ecommerce model out there. Very low investment. Low risk too. But… very very low margins. You are selling things you haven’t bought. Sounds fun right? Your job is to list them, and make people buy them.
When you get an order, you send this to the supplier. They ship the order directly to the buyer’s door step. You take the money from the buyer, pay the supplier and keep the change. How lovely is that?
Trouble is… these days, it’s a small amount of change. As you can deduce, the model is so nice and easy that a lot of people are already on it. Some dropshippers work with 5-7 suppliers at once, with tens of thousands of active listings. Most of their stuff never sells, but a dropshipper doesn’t care too much. The cost of keeping a lot of products listed on Amazon is negligible. The stuff that does sell nets Tom peanuts in profit per order, so he needs to sell lots of units in order to pocket any real meaningful cash.
Basically, Tom needs to sell thousands of dollars worth of product, I guess mouse traps in particular, to make any real money from it.
To be successful in this model, you need lots of suppliers. Ideally, suppliers that aren’t selling to six thousand other people like Tom. The types of suppliers you need are the type you’ll not find from googling around. The suppliers you do find from Google likely have hundreds of others trying to sell their stuff online too. You’ll need to spend time finding them Cathy, which means trade shows, networking, cold calling, and showing up at door steps. I doubt this is time you have. It’s not easy networking when the kids want ice cream.
This model is about fighting your fellow resellers for tiny percentages essentially, and can be difficult to scale as a side business. To have any chance, you would need a channel management system and a great deal of feed and listing automation built into the flow. You’ll want this in place so your energy goes towards new products, suppliers and listings, not sustaining what you’ve done so far.
Model Two: Product
Let’s imagine a different seller in this model called Jerry. Jerry isn’t interested in dropshipping. He’s not interested in fighting over loose change with the Toms of this world.
Jerry is focused on finding the right product, which few or no others are selling, or they are doing a bad job of selling.
He has taken time to forge an agreement as a sole distributor of product he believes has a good position to thrive in the market.
Or, he’s contacted a manufacturer and is creating his own brand on the items. This is surprisingly easy to do nowadays, and doesn’t require learning Mandarin or travelling a lot of the time. But this is a topic for another post.
Jerry is focused on a far smaller group of items. He has less product to research, far fewer listings to manage, and less volume needed because he’s got far better margins.
But Jerry has a different concern. He needs to buy stock, warehouse it, pay for Amazon FBA services and make calculated risks around speed of sale. For example, Jerry needs to make sure the stock he buys, cat shaving kits for example, …sells. If Jerry isn’t storing all this product in his living room, and is using FBA, he’ll need to make sure the monthly warehouse costs and costs per shipment are smaller than the margin over time.
Jerry can’t spend 50 dollars a month on warehousing if he’s only selling one a week and making five dollars profit per sale. Jerry needs to sell ten a month just to break even.
Jerry and Tom – let’s summarize
Tom is selling other people’s stuff. He only “buys” something wholesale when he has “sold” it first. He pockets the difference.
Jerry is selling his own stuff. He is trying to build a brand or store for himself, using good-selling product he is warehousing.
Tom is all about volume. He makes a tiny amount per sale, so he needs lots of sales. He needs tools, systems, procedures and automation to keep his model running efficiently, because Tom needs to be constantly looking for more suppliers.
Jerry is focused on the product. He spends time trying to pick the next product he thinks will sell well, based on a gap in what the competition is offering, or because of superior quality. Jerry doesn’t need that many products, but he does need the right products.
Tom has overhead and needs to invest in software, supplier contacts, and listing creation en masse.
Jerry has overhead and needs to invest in product selection, buying, shipping to his living room or a warehouse, and then enough money to buy him time until the product sells. He’ll also need a marketing budget.
Tom and Jerry are both using Amazon to make money as efficiently as they can, but have very different roles in growing their business model.
Let’s talk Amazon FBA a sec
Fulfillment by Amazon is basically a third-party logistics company (3PL) on steroids. A 3PL basically warehouses your stuff for you, and ships it where and when you want it to go, for fees.
Amazon FBA is important on Amazon for one basic reason: Prime. We all love Prime. I love Prime. Do I want my Star Wars adult Lightsaber holster in a week for 15 dollars, or two days (max) for 18? It’s a no-brainer.
Prime is an increasingly important filter that buyers use. It instills trust, so is very important for new sellers and new listings with no reviews. It helps boost visibility, and caters to an increasingly unforgiving buyer mentality of “I want it now, now, now”. We’ve all lost patience.
If you are focusing on Amazon as a selling channel, FBA is increasingly vital to adopt, at least in some capacity. It may not be necessary to put all of your products into FBA, but you’ll need to use it with some of your bestsellers to stay competitive.
Basic take-away: New to Amazon? Buying your own products? Use FBA.
FBA is also increasingly competitive for other channels. In general, if you’re selling on a website and eBay, for example, FBA can be more cost effective at times than storing and shipping from own your living room. The time, effort, shipping fees, boxing, printing, tape, paper, custom service requests and refunds all add up.
So Cathy, are you more interested in Tom’s model? You’ll mainly be overseeing the building of systems and processes, which you then plug into as many suppliers as you can. Systems aside, your main role is networking and trade shows, to find new product. As much as you can.
Or are you more keen to adopt Jerry’s model? Finding some special product, or branding your own? Your energy is far less needed on infrastructure, and far more focused on product selection, marketing and forecasting.
About those courses
All the “Become a millionaire in 11 minutes, just watch this video, follow our 22-step action plan for $19.99 a month and get started today” crap is based on either a Tom or Jerry model at the end of the day. They’ll repackage it, wrap it up, make it sound plug-and-play easy, and promise a free Caribbean island if you order in the next 15 minutes and 38 seconds (and counting). They will offer some of the software tools (which may be their true motivation) or product selection process (which they might manufacture!), all for a limited time of course. You’ll need to act while stock lasts on this limited exclusive one-time offer, that you were so lucky to find at the exact time they were offering it (which is every day) so act now and buy right now and change your life now today forever and become financially free and grow your own business and become immortal and… yeah.
You get the idea. Whichever you were to pick, you’ll still have work. It will just be different work.
None of these “sell on Amazon and make $5,000-$15,000 a month” groups or businesses are offering you something you couldn’t do yourself. We can help too of course (sales plug alert). There are some reputable ones… and some rather outlandish ones. If they promise instant success, they probably are nonsense. If they offer solid training and support, while emphasizing that success will take time and effort, they likely know what they are talking about.
In all honesty, the true key to success on Amazon is finding the right product, and knowing what to do with it online. You need to know how to pick items to resell. Then, you need to know how to market them, use strategies, and play the competition. That’s it. The concept is easy to follow. Most of these entities will summarize a lot of core Amazon best practice, show you how Alibaba works, and show you some strategies on buying based on demand or competition.
How best to pick items for selling on Amazon? That would be a different question, and I’m happy to answer it if someone writes in. There are a lot of useful ways to pick product and avoid guess-work. It’s not a complex scientific study or all that time consuming either. I’ll outline it free. Free, but only for a limited time if you act now.
A limited budget can set you up with either model. You don’t need too much to get started these days.
So, Cathy, you can make money online with small investments. You really can. You might be a big success story one day too. But you’ll need to work at it. You’ll need to do your homework, log the hours and be determined. You’ll need to invest some money. Most critically, you’ll need to be focused.