How much money do you actually need to start your Amazon FBA Business?
Fulfillment by Amazon has become such a popular business model within the last few years due to many reasons. Amazon is the largest e-commerce market in the world and brings over 20.6 million shoppers a day, which is absolutely crazy. FBA is a passive source of income that requires very little legwork being that all shipping, packing, and returns are handled by Amazon for a small fee. Also, Amazon is extremely appealing to first time entrepreneurs because you can enter the market with a very small investment. On average, new FBA sellers spend $2,000-$4,000 launching a new product; which in comparison to traditional business is very little. Today we will discuss how much money you need for your first product, what additional costs you could incur, and additional costs that may appear as your business grows.
Small Investments, Big Gains
Amazon FBA is one of the few ways to start a business with very little capital. Most new sellers invest $2,000 to $4,000 in their first product. You can spend more or less depending on how quickly you want your business to grow but in general, it’s a very low investment amount. The best thing about FBA is that the majority of costs are incurred at the time the product is bought by a customer. So initially you are expected to pay for your product and any customization or packaging. You are also expected to pay for shipping your product to the Amazon warehouse. And that is it for initial costs, crazy right! The rest of your costs are at the time of purchase; so when a customer purchases your product is when the FBA fees and storage costs are deducted from your total earnings. This cost structure makes it even easier for new sellers to join the Amazon market because there is not a huge barrier to enter the market.
So what costs do I need to account for?
Initial Costs:
- Product Manufacturing: The cost of your product, any customization, and labour. This cost will be the bulk of your initial cost.
- Packaging/Additional Customization: Packaging, adding product inserts, adding logos, barcodes; these are all costs that customize your product and add value to your product.
- Inspection: A one-time fee of inspecting the product for any malfunctions or defective products. This will help lower chances of negative reviews due to defects and ensure that you are getting the product quality you agreed upon.
- Shipping to Amazon Warehouse: Hire a freight forwarder or have your manufacture ship your product to Amazon warehouses. The cost differs based on the transportation method. Shipping your product by air is a more expensive option but much quicker; while sea shipping is much cheaper but takes longer.
- Product Photography: Don’t skip this whatever you do! Photos make or break the success of your business and this if a very affordable way for you to increase sales. Simply ship a unit to the photographer and they will send back photographs. You can find a great photographer through Fiverr or ask your manufacturer if they know of any product photographers in their area.
- $40 Amazon Seller Membership: Monthly fee you pay to Amazon to list your product on the website.
Like I mentioned earlier, initially, you only need to pay for your product, your monthly Amazon Seller membership, and getting your product to Amazon’s warehouses. This is going to be the largest investment in your FBA business. Your product costs can be negotiated with your supplier but a general rule is that you are required to pay 30% of the total cost in order for the manufacturer to start production of your product, then you pay the final 70% at the time of completion. I recommend that before you pay the final 70%, you hire an inspector and make sure your product is up to par with what you actually ordered. An inspection costs roughly $100-$200 and can be completed in just a few hours. This will help minimize risk and make sure your product is up to par with what you agreed upon. After you’ve completed inspection and payment, next you want to hire a freight forwarder or have your supplier put together a shipping plan for you. These are all of the initial costs you will need to account for at the beginning of your FBA product launch.
Estimate Costs with Egrow
It’s extremely important to make sure you are aware of all costs before agreeing to a product. Egrow is your one-stop-shop for figuring out costs and making sure your product will be profitable. By using Egrow’s Chrome Extension, you can get a quick overview of costs and profit margin in seconds. With the Live Product Scanner, you can see how much your competitors pay in FBA fees and how much their margins will be after. Of course, you are going to need to reach out to suppliers and negotiate on product pricing to see if the profit margins are high enough, but this is the best way to account for your costs and make sure this product is profitable for you.
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