Picture by: raymondclarkeimages
The purpose of this article is to explain to you how FBA works without any bullshit.
There are so many different ways to make money out there and Fulfilment by Amazon (FBA) is definitely one of them. Although, I am still in the early stages, I can see that the potential is HUGE. Before you get too excited or think that it is another online scam; let me be clear: It is a lot of EFFING work. Your success depends on your ability to analyze and choose what products to buy. Before getting ahead of ourselves, let me explain how it works first.
Let’s assume you have already found the products that you want to sell. Normally, if you had an online store, you would need to advertise, sell, package, label, and ship everything by yourself one by one. With FBA, it is the complete opposite. The costumer ships the product to you! HAHA. I am totally joking, sorry. It is the opposite, actually. You put your product in boxes, send it to Amazon warehouses, and then wait for your products to sell.
Let me explain it with an example: Little Bear, goes to the super market and finds Barbie dolls at amazing prices, let’s say $5.00/each. He can resell them on Amazon for $31.99/each. Little Bear buys 20.
It is very easy to get excited and assume the profit will be $539.80 (20 units x ($31.99-$5.00)). However, you have to calculate the cost also.
Firstly, 20 Barbie dolls at $5.00/each will cost $100.00. Secondly, you will have to put labels on each unit, box the units, and then ship it to Amazon. Little Bear will put his products in big boxes and ship them together (not individually… I will explain this later.)
It is going to cost Little Bear around $20.00 to ship his products to Amazon.
Amazon will take around 30% or $9.60 for each unit, which will cost $192.00 once all 20 Barbie dolls are sold.
Two boxes will cost Little Bear around $3.00.
Labels will cost Little Bear another $2.00.
Total Cost = $100 + $20 + $192.00 + $3.00 + $2.00
= $ 317.00
Total Revenue = $639.80 (calculated as 20 Units for $31.99/each)
Total Profit = $322.80 (calculated as Total Revenue minus expenses)
Here is the thing, Little Bear does not pay the Amazon fee unless his product sells. What this means is his initial investment is the total amount he is prepaying (the 20 units of Barbie dolls, boxes, labels, and shipping, which costs a total of $125.00)
The Total Profit of $322.80 compared to the initial investment of $125.00 is an increase of 158.24% of Little Bear’s initial investment. Now imagine if he had more units and products. You might be thinking that this imaginary scenario is too good to be true but what if I told you that I did not make it up and that Little Bear was actually me!
With an initial investment of 20 Barbie dolls, boxes, labels, and shipping and Amazon`s share of 30%, I was able to walk away with $322.80. Do that again and boom, $645.60 in your pocket. Again? Bam, $968.4! Keep going? You are now walking away with $1291.20. Of course we have to take into consideration time and mistakes along the way that may cost you.
In my experience, if you are reselling items that are well ranked and not privately labelled, you will not have to spend a dime on advertising. Amazon makes money when you sell, so it will be to their benefit that your products sell. You are now, my friend, in a business partnership with Amazon.
Once Amazon receives your shipments, they will package it and ship it to the costumers in single units. You will not have to pay for shipping because the 30% cut that I mentioned earlier covers everything.
If you have any questions please write a comment below. My next article will be on START UP COST.
Follow me on twitter /juliio101