What Is Amazon FBA? How Does It Work?

Uncovering the opportunity that lies in Amazon's $300B marketplace. How I got started with Amazon FBA, how it works, and why it's still the best opportunity in ecom.

If you’ve ever gone down the ecom rabbit hole, you’ve most likely been pitched the likes of dropshipping or private label. And don’t get me wrong—I’ve got love for dropshipping and private label. But I’m always shocked that reselling goods with Amazon FBA isn’t mentioned sooner.

In fact, when I started out in ecom, I tried everything other than Amazon with little success. From selling cheap jewelry on Shopify to trying to start my own private label matcha brand, everything I tried was a dud. While some ventures (like my Alibaba-supplied outdoors store) started hot, any hopes I had were usually drowned by a tsunami of advertising costs and not enough sales.

Yes, I know I was the problem. Not the model. But I couldn’t find a way to fix it.

Regardless of the model, I had sworn off ecom entirely. I was tired of investing weeks into product research, website builds, and advertising dollars. All to stare at a zero on the sales dashboard with a hole in my pocket.

Yet, a little less than a year later, as I drove home from my corporate 9-5, I found myself listening to a GaryVee podcast featuring an Amazon seller named Reezy Resells. Reezy was explaining how he resold used books on Amazon. While I didn’t care to sell books, he also explained how other people resold brand name items on Amazon after purchasing from other stores like Target and Walmart.

It sounds silly to say now, but that realization changed everything for me.

I didn’t have to build a brand. I didn’t have to build a website. I didn't even have to buy ads. I could simply list and sell brand names that people were already buying.

That evening I started my journey to over $1M in ecom sales on Amazon.

Within a few months, I was scouring the clearance racks of Target and Walmart like a treasure hunt. I’d buy what I could and immediately ship those items into Amazon’s warehouse using their Fulfillment by Amazon (FBA) program. Within a year, I was reselling over $300k per year. By the next year, December sales alone dwarfed my first 6 months of selling.

The bottom line

I won’t tell that full story now, but the point is this: Amazon FBA provided me with my first taste of consistent success in ecom, with very little investment.

In my opinion, Amazon is the most obvious opportunity in ecom. Its FBA program presents the best effort-to-reward opportunity by far. By leveraging Amazon's vast logistics system and selling to its unmatched customer base, you can build a very profitable online business.

Perhaps more importantly, Amazon offers the ability to make your first ecom sales relatively quickly. And it’s that quick success that keeps you going, snowballing into something even greater.

In this post, we'll explore Amazon FBA and its benefits, highlighting its potential to finally overcome that barrier to success you’ve faced with other ecom models. I’ll break down the various models and tactics to be successful with FBA in another post.

Benefits of Amazon FBA

As mentioned above, the primary allure of Amazon FBA is its incredible money-making potential. Boasting millions of shoppers, Amazon provides an unparalleled platform for sellers to access a staggering number of potential customers. In 2020 alone, third-party sellers sold 3.4 billion products, generating over $300 billion in sales. This clearly demonstrates the massive income opportunity available to Amazon FBA sellers, many of whom make a full-time living from their business.

But the money-making aspect is just one of the numerous benefits of Amazon FBA. By using this program, you'll also enjoy a host of advantages that can boost your sales and simplify your business operations. Here are some of the key benefits:

• Fulfillment and shipping: Amazon takes care of the entire fulfillment and shipping process for you, allowing you to focus on other important aspects of your business.

• Customer service and returns: Amazon handles all customer service inquiries and product returns on your behalf, saving you time and hassle.

• Global selling: Amazon FBA enables you to sell your products to customers worldwide, significantly expanding your reach and sales opportunities.

• Prime eligibility: Your products become eligible for Amazon Prime's free two-day shipping when using FBA, increasing your visibility and sales potential.

Who should consider selling on Amazon?

If you're an e-commerce seller who has struggled with other platforms or had difficulties with online advertising, Amazon FBA is certainly worth considering. The platform's organic traffic, driven by its massive customer base, allows you to generate sales without spending a fortune on advertising. This makes Amazon FBA particularly suitable for:

1. Small e-commerce businesses looking to expand their reach and sales.

2. Aspiring entrepreneurs who want to start a profitable online business with minimal upfront costs.

3. Brick-and-mortar store owners seeking to diversify their revenue streams by venturing into e-commerce.

4. Individuals who have struggled to generate traffic and sales on other online platforms.

By tapping into Amazon's organic traffic and leveraging the various benefits provided by the FBA program, you'll have a competitive advantage that can help you succeed in the ever-growing world of e-commerce.

How Amazon FBA works

Now that you know the benefits of Amazon FBA, let's talk about how it works. Here's a quick overview:

1. Set up your Amazon FBA account: To get started with Amazon FBA, you'll need to create a seller account and enroll in the FBA program.

2. Create product listings: Once your account is set up, you'll need to create product listings for the items you want to sell. This involves providing detailed product information, including product titles, descriptions, and images.

3. Prepare your products for FBA: Before you can send your products to Amazon, you'll need to prepare them for FBA by labeling them and packaging them properly.

4. Ship your products to Amazon: After your products are labeled and packaged, you'll ship them to Amazon's fulfillment centers, where they'll be stored until a customer orders them.

5. Let Amazon do the rest: When an order comes in, Amazon will handle the shipping and delivery of the product to the customer. You'll be able to monitor your inventory and sales through your Amazon FBA account, so you can restock items as they start to run out.

Challenges with Amazon FBA

I won’t sit here and pretend Amazon is a money printer that requires no work. Like any platform, Amazon comes with its own set of challenges. More articles to come on how to address some of these head on. For now, some common challenges include:

1. Account and brand restrictions: Amazon has strict policies and guidelines for sellers, and certain brands may be gated or restricted. This means that new sellers may need to obtain approval before they can list products from these brands. It’s the most frustrating part of being a new FBA seller. But I look at it a lot like leveling up in a video game. It can be a grind but it’s a hell of a lot of fun when you unlock everything. And I’ve already written an article with the cheat codes.

2. Competition: You’ll occasionally run into some pesky sellers that use black hat tactics to try and dominate certain listings. Other times, you’ll have newbies that tank the price on the listing because they’re over leveraged. Again, we’ll talk about how to handle each in a future post.

3. Inventory management: Managing inventory effectively has become a much more important over the past few years. Before COVID, you could kind of slam as much stock as you needed to into Amazon’s warehouses. Nowadays, you need to be careful now to overstock, since Amazon can limit the inventory you send it. Less of a problem for new sellers. But something to keep in mind as you scale.

4. Fees and costs: Everybody gripes about the fees. It’s a thing. Amazon FBA comes with various fees, including referral fees, storage fees, and fulfillment fees. But none of these should be a surprise so frankly I find the complaining silly. You can calculate the exact fees before you make an inventory purchase with basic tools.

Conclusion

Amazon FBA is an incredible opportunity for aspiring entrepreneurs, small businesses, and individuals who have struggled with other e-commerce models. It comes with advantages that other platforms and marketplaces simply can’t offer, including access to Amazon's customer base, the #1 logistics system in the world, and global selling opportunities.

For myself, Amazon FBA showed me success was possible faster than any other platform. Yes, it still takes hard work. But Amazon has this special ability to give you small, quick wins that keep you hungry and motivated. With persistence and dedication, those small wins can snowball into your first big success story.

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