You might be reading this article off the back of all the success stories there seem to be online right now detailing the ways people have leveraged Amazon FBA for their business. That will inevitably lead you to the question: Why do successful entrepreneurs use Amazon FBA for their e-commerce business? What do they see in Amazon FBA that made them jump at the opportunity?
Those are two very good, and very important questions whose answers have far-flung consequences that we’ll discuss in this article.
For the average person who wants to put a foot in the e-commerce industry, there are a lot of key characteristics of the Amazon marketplace and their FBA program that make them a natural starting point for any budding entrepreneur.
Let’s look at them more closely.
What do successful people see in Amazon FBA?
Take a load off your business with Amazon Fulfillment
Whether they run an online or physical store, one marshy swamp that many small businesses run into and get bogged down is is that of fulfillment and the customer service that goes with it.
Unfortunately, it’s also one of the business processes that most newcomers to the game tend to overlook and fail to plan for. If you don’t have a system in place to take care of the growing need to deliver items to your customers, it could drag your whole business down with it. Or, at the very least, stop you from expanding or focusing on improving your business indefinitely.
In most Amazon FBA success stories, people always hammer on the fact that Amazon FBA helped them jump this hurdle. At some point, almost all of them faced an inability to cope with the growing amount of orders their products received.
For every single order you receive, you need to:
- Have some form of inventory management.
- Package and prepare the item for shipping.
- Use some kind of courier or delivery service.
- Keep responding to customers’ queries regarding how long their order will take, where it is now, etc.
- Repeat all the steps again if customers are unhappy and want a refund, exchange or just want to return the product.
If you are still in the beginning stages of your business, chances are you only have a few staff or partners helping you.
Joseph Jaconi, the co-founder of Tech Armor, relates how he and his partner used to carry boxes of items to the post office, handwrite letters, and even lick stamps by themselves. This completely handicapped them when it came to focusing on their brand and building their business. In the end, they solved their problem by employing Amazon FBA.
Literally, the only thing you need to do regarding the fulfillment of your products when you use Amazon FBA is to ship the products to Amazon and do some light prep work. Amazon even provides full instructions and the labels!
Highly competitive shipping rates
Amazon has built a huge fulfillment network throughout their years as an online marketplace. They can reach almost anywhere, especially in the U.S., at extremely competitive rates. Usually, they’re only beaten by niche delivery services that specialize in deliveries for oddly-shaped or heavy items.
They have streamlined their fulfillment centers and warehouses for speed. Increased repeatability allows them to do this.
As of January 2017, Amazon has over 200 facilities that include fulfillment centers, sorting centers, fresh pantry storages, etc. This means that you can usually find a fulfillment center close by to deliver your products to so you don’t have to worry about long distance rates.
Amazon also has a list of Partnered Carrier Options that have discounts for their Amazon FBA sellers. These are just too hard to beat.
On top of all this, the way that Amazon has structured their shipping rates mean that sometimes you don’t even pay for shipping. They charge the customer for shipping, credit your account with this amount, and then use that money to cover the shipping costs. This means that in most cases the shipping costs are almost negligible or non-existent.
In short, you get access to comprehensive retail tools without having to spend any extra cash, time or effort into sourcing a new system and with zero need for training.
Inventory management tools
If your retail business grows large enough, you will definitely need to invest in some kind of digital inventory management and sales reporting tools. And no, we don’t mean handmade Excel spreadsheets!
Luckily, if you are an Amazon seller, you already have access to comprehensive tools that provide you with these capabilities. If you use Amazon FBA, it just makes them that much more handy and powerful. The best thing is that they come at no extra cost. Once you create your seller account, they will be there waiting for you in your Seller Central dashboard.
These tools can even integrate into many other platforms so that you can use them to handle your own store’s business data in the same place.
A huge customer base
If you have done any research on running an online store, you’ve probably found that others struggle to drive traffic to their site. Unless you are already a recognizable brand that is prominent in people’s minds, chances are you will need to do a lot of extra work to start getting attention.
That’s one of the main reasons behind today’s explosion in the SEO (search engine optimization) industry. The internet is saturated with information and competing websites. You can’t simply put your website out there and expect consumers to find you. This drives many businesses to pour endless amounts of money into their SEO.
One huge benefit of using a big online marketplace is that they already have millions of visitors. When it comes to this, few sites can stake a claim as big as Amazon.
The statistics say it all
In the first quarter of 2016, Amazon reported 310 million active accounts on their site. By now, it’s probably exceeded the entire U.S. population (328 million). That’s hardly surprising as we all know how Amazon has become synonymous with online shopping. Amazon Prime members make up almost a third of this customer base. We will look at them separately next.
It’s estimated that almost half of online shoppers go directly to Amazon before checking any other site for a certain product. In 2015, more than half of the people surveyed stated they make most of their purchases on Amazon.
All this means that Amazon has a huge 33% market share in the U.S. e-commerce industry.
With all these people already shopping on Amazon, you would do yourself (and your business) a huge disservice by not taking advantage of this platform to drive up your sales. Most successful entrepreneurs recognize this and sell on Amazon in tandem with their own online store.
Access to Amazon Prime members
This one is such a big bonus of being an Amazon FBA seller that it deserves a whole section just for itself. What makes Prime customers so special?
Prime subscribers pay $10.99 per month (or $131.88 per year) for free and fast delivery of anything they buy. Whenever you pay for a service, you tend to make sure that you get the mileage out of it. Amazon’s Prime member statistics back this up, showing just how successful this program is.
Prime members spend almost double what non-Prime Amazon customers spend annually. Prime members spend around $1,300 while others spend around $700. On top of that, there are an estimated 90 million Prime subscribers as of September 2017. This number grew from 63 million in little over a year. It’s estimated that up to 38% of American households have at least one Prime subscriber.
From these numbers, you can conclude that Prime subscribers alone spent over $1 billion in the last year and they are only growing.
Because they pay for this service, Prime subscribers tend to be very loyal Amazon buyers. Some (maybe even most) don’t bother checking other sites if they find a product on Amazon. In most cases, the free and fast delivery more than makes up for any differences in cost on another site.
Now, wouldn’t you want a customer base like that for your business?
Finally, Prime-eligible items get preferences in search results and show up first. This means consumers are more likely to view and buy those items.
To become eligible for Amazon Prime, you need to use Amazon FBA, and you must make the cut in terms of your seller rating. This is to ensure that Prime subscribers are only exposed to the best sellers.
Common pitfalls that successful sellers avoid
Knowing what not to do is sometimes just as important as knowing what to do. With that in mind, we want to point out some of the common pitfalls that successful entrepreneurs avoid (or quickly learn to avoid).
Competing with Amazon
Make no mistake, Amazon is also just another business in it to make money. The fact that Amazon has made their marketplace available to 3rd party sellers as well as their FBA platform is another smart way for them to make a profit by scalping seller fees.
As such, Amazon also sells products on their own marketplace. Don’t forget that Amazon itself started out as an online bookstore and sold books on its own. Now, it sells other products as well. These products either sell very well, have high demand or are Amazon-created such as their line of e-readers.
Like any good business, Amazon takes advantage of the fact that they are best placed to provide these products at the best prices, with good search result rankings, and excellent customer care. Anyone would be very hard-pressed to compete with Amazon themselves. Try and avoid this by finding out which products Amazon sells and not relying on them too heavily.
Selling too much or selling too little.
What? How can you possibly sell too much as a retailer? That’s the whole point, right? While we can’t completely argue with you, there are some special considerations when working on the Amazon and Amazon FBA platform that you should take into account.
For one, Amazon bases its search results, and to an extent, who wins the “Buy Box,” on algorithms that take the seller’s performance into account. One of the most critical factors in this algorithm is how reliably you keep stock available. Not having your item in stock will have negative results for you.
In the same breath, you get penalty fees if your items sit in the Amazon warehouse for too long without selling. This is to ensure that Amazon keeps warehousing space for sellers who are actively trying to sell their products instead of letting them just sit there and collect dust.
Together, this means that you need to very carefully manage your inventory and be ready to send new orders (or stop them) when the time is right. This also calls for some research on sales volumes during different times.
Not being proactive
Although we believe that Amazon and Amazon FBA offer some amazing opportunities for everyday people to gain financial freedom and start a successful business, it’s not quite as easy as just listing a few products and then sitting back as the money flows in.
We already mentioned how you should carefully manage your inventory. This extends to keeping tabs on when is a good time to sell and when is a slow time of year.
As an e-commerce entrepreneur, you must always be on the lookout for new opportunities. Don’t be afraid to branch out into something new when the time comes, reinvest your earnings, and leave something if there is no longer a future in it.
Flexibility and adaptability might just be the best qualities you can have for this industry. It doesn’t always come naturally for everyone and in that case, you will need to foster it from the beginning.
Follow the example of successful entrepreneurs and get started with Amazon FBA!
We hope that this article has made the benefits of the Amazon FBA platform clearer to you and inspired you to start your own Amazon FBA journey. Join the league of successful entrepreneurs with your own e-commerce business. Check out the Seller’s Playbook blog for more informative articles on everything related to e-commerce, selling on Amazon, and leveraging Amazon FBA to boost your business.