Amazon is a behemoth. It’s the everything store. A place where you can find anything under the sun and buy it on a whim. In fact, in the United States alone, Amazon processes 50 percent of all money spent online. And that number is growing exponentially. Yet, what most people don’t realize is that most of the products sold on Amazon are sold by third-party sellers.
There are hundreds of thousands of these third-party sellers. People just like you and me. The beauty of this is that Amazon does all the heavy lifting. Their FBA program is just that, Fulfilled by Amazon. You sell it, they do everything else for you. But the question that most people ask is how much does it cost to sell on Amazon FBA?
That’s a valid question. Especially if you’re thinking about starting your own Amazon FBA business. Of course, if you go out there and search, you’ll likely find a wide range of answers. They range from the very low to the very high. But if you’re serious about knowing exactly how much it costs to launch your Amazon FBA business, read on.
How Much Money Do You Need To Become An Amazon Seller?
Okay, when you first start out, there’s a lot to consider when selling on Amazon. And you also need to understand that there are a variety of costs involved. Now, if you’re trying to figure out what steps you need to take to start selling on Amazon as a complete beginner, check out this article I wrote.
Okay, so let’s get into it then. How much money does it take to get started? So, to really understand this, we have to break it down into several steps for you. Keep in mind that in order to sell on Amazon, you need to not only have products to sell, but you also have to create what’s called a private label.
A private label is simply your own brand. You find a product from a supplier and you slap your logo and branding on that product. Then, you can sell that product on Amazon. Yes, sounds basic and straightforward. But there are so many more steps than that involved.
Step 1: Setup Your LLC & Tax Information
The first step is actually an optional step. But keep in mind that if you’re serious about selling on Amazon FBA, you need to protect yourself. Not only legally. Also financially. You need to separate your business assets from your personal assets. Of course, you don’t have to do this from day one. But you eventually do need to do this.
To setup an LLC in the United States is rather straightforward. You pick a state (Wyoming for example) and you setup your LLC in that state. An LLC stands for Limited Liability Company. And it does just that. It limits your liability. Wyoming is a good state because there is no sales tax to pay in Wyoming so many people opt for Wyoming.
Find a registered agent and setup the corporation through either BizFilings or LegalZoom or any others. Your choice. But you’ll also need an EIN. That stands for an Employer Identification Number. Essentially that’s your tax number in the US and most other countries have something similar to this so figure out what you need where you’re at and get setup.
You can expect to spend anywhere from $100 to $300 setting up your company in the US. Other countries have different fee structures so check with your local government or ask your accountant.
Step 2: Create Your Amazon Seller Central Account
In order to sell on Amazon, you need an Amazon Seller Central account. The good news is that almost anyone from virtually any country can set this up. The question that most people have is they say, Robert, I don’t live in the United States, can I still sell on Amazon? And the answer to that is a resounding yes.
So, to be able to sell on Amazon, you need to be a resident of one of these countries here and also have an internationally chargeable credit card. That means you can’t just have a debit card without raised numbers. It needs to be a credit card that’s internationally chargeable or a debit card with credit card capabilities. Does that make sense?
Amazon has two types of accounts that you can setup in Amazon Seller Central. The first is a basic account. The basic account allows you to sell up to 40 units at 99 cents each. You don’t want this account. What you want is the professional account. The professional account costs $39.99 per month and allows you to sell unlimited products.
Keep in mind that there is also an Amazon fulfillment fee of roughly 15% of each product sold. But you have to ensure you have a healthy sales velocity otherwise Amazon will charge you warehousing and storage fees. But if your product is moving off the shelves, you won’t have to deal with any of those types of fees.
Step 3: Purchase Your Product Research Tools
One of the keys to success on Amazon is doing product research the right way and finding the right products to sell. And the more time you spend on this step, the more likely you’ll be to succeed. It can seem monotonous to most people. But at the end of the day, you need to figure out what product to sell that will give you a fighting chance.
Now, you can easily go on Amazon and sell anything and still make money. But you need to spend some real cash in the form of marketing to make that happen. But when you’re a beginner, and just starting out, you need to find products that are in high demand but don’t have an insane amount of competition happening.
Keep in mind that one of the biggest challenges people have here is getting reviews and getting sales. Understand that these are hurdles you’ll need to deal with. Selling on Amazon can cost a lot when you factor into account that you need to sell discounted products and run heavy marketing campaigns in order to get reviews and boost your sales velocity.
Most people write to me asking me what product research tools I use. There are several that I use. However, if you’re just starting out then Jungle Scout is probably your best bet. There’s also a Chrome extension available as well. Now, regarding the cost. The price will depend on the number of sales you’re getting.
I know, the pricing is a little strange. But understand that they’re the biggest and the best out there. And you’ve likely heard of them before. Also understand that the pricing is significantly higher if you decide to pay monthly rather than annually. For example, their current price for the main tool and the extension is $69 per month if billed monthly or $49 per month billed annually.
Again, this is only good if you’re doing up to 500 sales per month. How does Jungle Scout know? It makes you connect the tool to your Amazon Seller Central account. So it will know either way. But it is the best tool on the market hands down. I know there are some influencers out there who are promoting other tools, but Jungle Scout is the oldest and the best.
Step 4: Buy Your Products From The Supplier
Okay, next you need to buy the actual products themselves. To do that, you have to do a few steps in tandem. Once you figure out what product you’re going to sell (aka you did your product research already) then you have to actually buy the product. But you can’t really buy the product until you do trademark searches and handle the branding of the product.
Branding? Yep. I’ll get into that. It’s not that complicated so don’t get scared off. At the end of the day, once all the branding and trademark searches etc are done, you won’t have to do it again. After that, it’s just a matter of re-upping on your supply. That’s it. However, be prepared for the hard work and upfront costs. After all, you’re build a real business here!
So where do you source these products from? Alibaba.com of course. But if you speak Mandarin, you can use 1688.com. I’m assuming, however, that you don’t speak Mandarin. So you’ll need to use Alibaba, which is the largest supplier out there. Use caution when sourcing your product. Get multiple quotes from multiple sellers.
How Many Units Should You Order – MOQ
The question that most people ask me is the following. What MOQ (minimum order quantity) should I order? My answer is always the same. Go after 500 to 1000 units at the start. Then you can re-up your supply after that. But in the beginning, you can’t expect to have 200 units on hand and get anywhere fast.
Why? Because you need to invest in your listing by discounting your products and offering coupons. That’s the best way to get people to buy in the beginning. Especially when you have zero to very few reviews. People don’t want to buy products that don’t have loads of reviews because, why should they?
Unless you give them an irresistible offer, it’s going to be hard to score that business. That needs to be clear upfront. So, depending on your initial MOQ, the cost to start selling on Amazon FBA is going to vary. If you order 500 units at $3 per unit, that’s $1,500 in initial inventory. But that’s not your only cost. So keep that in mind.
Step 5: Purchase Your UPC Barcodes Online
Okay, before you can design the labels and other product details, you need to buy a UPC barcode. There are several sites you can use to get cheap barcodes. But if you’re serious, you need to get a GS1 barcode that’s compliant with Amazon. Because, you’ll need to use that barcode to create what’s called an FNSKU.
An FNSKU is unique to Amazon and its ecosystem. That’s how they scan your products in when it arrives at an Amazon warehouse. You’ll need that before you can even get any labeling designed. Go to gs1us.org to get your GS1 barcode and you’ll use that on Amazon to generate your FNSKU to place on your labels and designs.
Also, if you already have products with a UPC barcode, you have to cover them up with your FNSKU. These barcodes start at $250 for the initial fee of up to 10. Plus, there’s a $50 renewal fee when you renew these every year. And if you have multiple variations of your product, say in different sizes or colors, you need one GS1 barcode for each variation!
Step 6: Logo & Branding Your Private Label Products
Okay, as I mentioned, you need to do a few things in parallel to one another. Once you find the right supplier and you’ve negotiated a good rate, you have to do your branding. Grab the specifications for your product and ensure you get your labels and packaging designs setup so that you can send them to the supplier.
Expect to spend some money here. How much? It all depends on who you find and their level of expertise. However, all told, you can expect to spend anywhere from $300 to $500 for an okay designer. If you want pro designs, you’ll easily have to shell out more than $1000. Also, depending on the packaging and labels required, it will run you more or less.
A few places you can find designers are Fiverr, 99designs, Freelancer and Upwork. It all depends on how much money you want to spend. However, the beauty about Freelancer and 99designs is that designers compete for your business.
Step 7: Shipping Products To Amazon Fulfillment Centers
The next major cost you’ll have once everything is created is to actually ship the products to an Amazon fulfillment center. This can actually become a significant cost, sometimes as high as 50% of the price of the product ordered. Of course, this depends on MOQ. If you order less, the percentage of shipping to product cost will be naturally higher.
Before you ship anything, you have to ensure the product is inspected. This should be part of your Purchase Order (P.O.) with the supplier. Inspections are crucial. Never ever send products to an Amazon fulfillment center without the proper inspections. Even if you’ve been doing this for years, you have to be very cautious.
You never know what the manufacturer has going on and they might end up rushing your order on a re-run. And if you’re not having it properly inspected, then you’re going to be out of luck here. There will be little recourse for you to get that money back, especially if you’re not using PayPal with credit cards to pay for the shipping.
Step 8: PPC Marketing Costs On Amazon’s Platform
Once your product reaches Amazon’s fulfillment center, your spending is not over. In fact, it’s just beginning. You have to spend money here in order to get the product in front of people. It doesn’t happen overnight. Plus you really need to get reviews, and that poses one of the biggest challenges to most newbie sellers.
Expect your PPC costs to range from $30 to $50 per day at the outset. It might sound like a lot of money, but it will help you move units and really get your Amazon business off the ground. Of course, this depends on your price-point and margins as well. Make sure you know your total costs and profit margins so that you can determine your acquisition costs.
Amazon calls this the ACOS. Also known as Advertising Cost of Sale. This is a key metric used in measuring the performance of your advertising on Amazon. Here’s what the ACOS is:
ACoS = 100* (Total Ads Spend ÷ Total sales)
Here’s what this means. If you were to spend $50 on advertising and you had $200 in total sales then your ACOS is 25%. In other words, it comes out to 100 * ($50/$200). That equals 25%. So you need to determine whether your ACOS is in the right range. Meaning, if it costs you more than 100% to acquire a customer you are losing money.
Want To Learn More?
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