Amazon is undoubtedly a pioneer of eCommerce and a dominant force providing entrepreneurs with an eCommerce platform to reach millions of customers worldwide. One of the key ingredients to Amazon’s success has been its Fulfilment by Amazon (FBA) service, which has revolutionized the way Amazon sellers operate their businesses. As a result, Amazon’s revenue in 2021 was a whopping $469 billion, and nearly one-quarter (22%) of that revenue is driven by sellers on Amazon.
But as the competition continues to intensify, especially in a booming market like India, the question arises: is Amazon FBA still a profitable venture for those looking to dive into online selling? In this comprehensive guide, we’ll try to find answers to this question and understand if it is still worth selling on Amazon.
What is the meaning of Amazon FBA?
Fulfilment by Amazon is a service wherein sellers send their inventory to Amazon’s fulfilment centres, and the e-commerce giant takes over the responsibility of shipping the products to customers on the seller’s behalf. By opting for Amazon FBA, sellers can free themselves from the logistical hassles associated with product storage, packing, shipping, and customer support. In addition, Amazon FBA provides an unmatched advantage of Amazon’s supply chain by handling returns and customer support, enabling sellers to focus on expanding their product range and growing their business.
The process of availing the Amazon FBA services is quite straightforward. Sellers must create an FBA account, prepare their products according to Amazon’s packaging and labelling guidelines, and ship them to the designated fulfilment centres.
Once Amazon receives the inventory, the products are stored in their warehouses. Then, when a customer places an order, Amazon picks, packs, and ships the product, ensuring swift and efficient delivery.
How Much Do Amazon Sellers Make? Is it too Competitive to Sell on Amazon?
As an aspiring Amazon seller, it’s natural to wonder about the earning potential in this competitive marketplace. The good news is that many sellers are making substantial profits. While the earnings can vary significantly, around 65% of third-party sellers have reported profit margins above 10%, and 32% enjoy margins above 20%. With a well-researched product and effective marketing strategy, you can join the ranks of successful Amazon sellers.
However, there’s no denying that the Amazon marketplace is highly competitive, with nearly 600,000 new sellers signing up each year. This means that while there are more sellers, there’s also a larger market for products. If you conduct thorough product research and identify a niche with potential, you can carve out your space in this thriving market.
Types of Business Models
Retail Arbitrage
Retail arbitrage is an enticing business model for Amazon FBA sellers looking to capitalise on price discrepancies between different marketplaces. In simple terms, retail arbitrage involves buying products at a discounted price from retailers, including online ones, and reselling them on Amazon at a higher price. For example, you might find a product at Walmart for $5, purchase it, and then resell it on Amazon for $20.
Pros
- Retail arbitrage requires a smaller upfront investment compared to other business models.
- Retail arbitrage enables a faster launch, with 33% of sellers starting their businesses in less than one month.
- Retail arbitrage offers the opportunity to expand into other sales methods over time, such as wholesale, private label, dropshipping, or handmade products.
Cons
- Consistently identifying profitable products can take up a lot of time and may involve frequent visits to different retailers or continuous online research.
Wholesaling
Wholesaling on Amazon FBA offers a unique blend of profitability, scalability, and stability that makes it an attractive option for both new and experienced sellers. It involves purchasing bulk quantities of branded products directly from manufacturers or authorized distributors, then reselling them on Amazon using their Fulfillment by Amazon (FBA) service.
Pros
- Selling established brands means there’s already a customer base searching for and purchasing these products, reducing your marketing efforts.
- Wholesaling is relatively easy to get up and running, with many sellers able to launch their businesses in just a few weeks.
- Buying products in bulk at discounted prices allows for higher profit margins on each sale.
- Wholesaling enables you to grow your business by expanding your product range and supplier relationships.
Cons
- There may be multiple sellers offering the same products, leading to price wars and potentially reduced profits.
- Approaching brands to open wholesale accounts can be challenging, particularly if you don’t have a track record of successful sales.
Private Labelling
Private labelling is an increasingly popular business model among eCommerce businesses, offering a unique opportunity to create and grow your own brand while reaping higher profit margins. It involves partnering with manufacturers to create generic products that are customized with your unique branding and logo.
This allows you to sell products under your own brand name on Amazon, leveraging the platform’s Fulfillment by Amazon (FBA) service to handle storage, packaging, shipping, and customer service. With private labelling, you have complete control over your product’s design, marketing, and pricing, making it a popular choice for sellers who want to build a brand from the ground up.
Pros
- With private labelling, you own the brand and have complete control over product design, marketing, and pricing.
- By sourcing products directly from manufacturers, you can obtain lower costs and enjoy higher profit margins compared to other business models like wholesale or retail arbitrage.
- You can tailor your products to meet customer needs and differentiate them from competitors, improving your chances of success in the marketplace.
- As the sole seller of your private label products, you have full control over your product listings, allowing you to employ Amazon’s marketing strategy, optimize images, pricing, and copy as needed.
- As the only seller of your branded products, you’ll always own 100% of the Buy Box, ensuring all sales go to you.
Cons
- Private labelling requires a higher initial investment in product development, manufacturing, and branding compared to other business models.
- There’s always a risk that your private-label product may not resonate with customers, leading to poor sales performance and financial losses.
- The private label market on Amazon is becoming increasingly competitive, making it more challenging to stand out and succeed.
Dropshipping
The dropshipping business has emerged as a popular and efficient business model for Amazon FBA sellers. It is a unique business model where sellers promote products and provide an online storefront without maintaining any physical inventory. When a customer places an order, the seller forwards the order to their supplier (or dropshipper), who then handles the packaging and shipping directly to the customer.
Here’s a step-by-step breakdown of the dropshipping process on Amazon FBA:
- A seller signs an agreement with a dropshipper.
- The customer places an order on the seller’s Amazon store.
- The seller receives the order and sends it to the dropshipper.
- The dropshipper packages and ships the product to the customer.
- The customer receives their order, and the seller earns a profit.
Pros
- Since you don’t store or ship products, dropshipping eliminates the need for storage facilities or shipping infrastructure, reducing overhead costs.
- With no upfront investment in inventory, dropshipping is an accessible option for new businesses or those with limited capital.
- Without the need to purchase inventory, you avoid the risk of unsold products and losses from overstocking.
- Test various products and niches without committing to inventory, allowing you to pivot and adapt quickly in response to market trends.
- Leverage suppliers to accept more orders without increasing inventory or fulfillment responsibilities.
Cons
- Low barriers to entry make dropshipping a highly competitive space, with numerous sellers vying for customer attention.
- Dropshipping can hinder your ability to develop a unique brand identity, as you’re selling generic products that other sellers may offer.
Conclusion: Is Amazon FBA still worth it?
So, you’ve learned about Amazon FBA, and now you’re wondering if it’s still a profitable venture in India. The answer, without a doubt, is a resounding yes. While Amazon FBA is competitive and demands significant effort, the rewards can be enormous for those willing to embrace the challenge. First, however, it’s crucial to approach Amazon FBA with the right mindset, a solid strategy, and a willingness to adapt.
By focusing on the ins and outs of Amazon’s ecosystem and using the best Amazon marketing strategies, you can carve out your niche in the Indian market and beyond. To start with Amazon, here is the complete guide on How to become an Amazon India seller.
FAQs
What percentage of Amazon FBA sellers are profitable?
Around 52% of Amazon FBA sellers achieve profit margins higher than 10%, while 27% enjoy profit margins above 20%. This indicates that nearly 79% of FBA sellers are profitable. However, 14% of sellers report that their businesses are not yet profitable, and 8% are unsure about their profitability status.
Will Amazon FBA be profitable in 2023?
While it’s impossible to predict the exact profitability of Amazon FBA in 2023, the platform has consistently demonstrated potential for success over the years. With dedication, strategic planning, and continuous learning, sellers can still achieve profitability in 2023 by leveraging the advantages offered by the Amazon FBA model.
Can Amazon FBA make you a billionaire?
Amazon FBA alone is unlikely to make you a billionaire. Although it can be a lucrative opportunity for sellers who approach it strategically, becoming a billionaire typically requires multiple streams of income and diversification across various businesses or industries.
Who is the top seller on Amazon?
The top seller on Amazon.in, according to the provided data, is Cocoblu Retail, with 3,692 reviews in the past 30 days, showing a 15% growth, followed by RK World Infocom and Appario Retail Private.
How to calculate profit margins for your Amazon business?
To calculate profit margins for your Amazon business, first, determine your total profit by subtracting all associated costs (manufacturing, shipping, and Amazon fees) from the revenue generated by selling your products. Then, divide this total profit by the number of sold products to find the profit margin per item.
