Let’s discuss my Amazon FBA Case Study. This summer I had the opportunity to test out Amazon’s FBA. Read on to see my results below.
If you are interested in learning about being an Amazon Affiliate, read my article title Amazon Affiliate for Beginners.
What is Amazon FBA?
Well let me start off by spelling out the FBA acronym. FBA stands for Fulfilled (or Fulfillment) By Amazon. This process is Amazon’s logistical process of tracking, picking, packaging and shipping your products. There are two benefits to this.
First, Amazon leverages this to provide jobs for their employees.
Secondly, Amazon sellers can scale up without increasing their overhead. Amazons FBA do come at a cost but it’s still better than renting a warehouse to store your products, hiring employees to manage and ship the products and of course paying all the taxes of owning and operating a business outside of a home business.
The downside is that Amazon knows which items sell well on the market and will come in to sell the same item undercutting everyone. Well that’s my opinion whether it’s true or not but based on my product research, all the items that are a potential are already being sold by Amazon now or previously.
Either they know which product sells well and they jump in to sell the same products or when they start selling the item in large volume, this will make the item start ranking higher. Either way, I still think Amazon has the edge since they have the data.
Amazon Monthly Fee
So what does Amazon charge? It’s actually free if you just want the standard account but with the standard account, you’ll end up paying an additional fee per item sold. It’s around a dollar extra per item.
If you plan to sell more than 40 items per month, it’s probably best to get the Professional plan at $39.99.
This plan includes the ability to upload shipping templates, new products and product adjustments making it very easy for you to scale.
If you plan on selling multiple items and be serious about your FBA business, then the Professional route is what you need. I was on the Professional plan for a few months while testing out FBA.
I am now on the free account doing drop shipping because I plan to sell higher price items at a lower quantity.
Once I average 40 items per month, I will convert back to the Professional plan to take advantage of the reporting features.
You need Cash Reserve
Before you get started, you will need to have some money to purchase your items. You’ll soon find out that as your products are getting close to being sold out, you’ll need to purchase more items to ship in to Amazon and worst yet, Amazon holds onto your money for at least 2 weeks before they release it to your bank.
During this time, you need to have some cash reserve ready on tap.
If you are selling during the holidays, you’ll notice a higher number of transaction and you’d want to make sure you have the product available to sell. My recommendation is to only spend 2/3 of your budget on products. While supplies run out, you’ll have 1/3 ready to purchase additional products to be shipped into Amazon. You need to have the product on hand especially if you have the “Buy Box”. When this happens, you’ll sell like crazy and you want to continue to replenish your stock when it’s in a selling trend.
Amazon likes to cycle the buy box to other sellers of the same product based on their own algorithm. Make sure to always have the stock on hand so that you continue to get the “Buy Box”. Of course we don’t know the algorithm so it’s hard to determine how one might get that sale boost.
Amazon Buy Box
So what is the Amazon Buy Box?
The Buy Box is the box where the buyer can add the item to their cart. This Buy Box is linked to a predetermined seller and it rotates with other sellers to give them a chance at getting orders. It is unknown how it really works but what we do know is that you’ll most likely get the Buy Box if you are utilizing Amazon FBA and your price is lower than the competition.
You want the Buy Box if you are serious about selling products on Amazon.
Getting the Buy Box will determine if you become successful on Amazon.
I want to note that I’ve seen self fulfilled ordered with lower price who don’t win the Buy Box which suggest that Amazon prefers to give the orders to those who utilizes their FBA program.
What others have discovered is that a product priced at 2% above the Buy Box price may still get the Buy Box. I have not tested this theory but if you have, feel free to leave a comment below!
For all new comers, the payment cycle is 2 weeks. Just because you sold an item doesn’t mean you’ll get the cash right away. For the protection of the buyer, Amazon holds onto the money for 2 weeks which should clear most shipping and issues.
If you plan to sell on Amazon, you should have some cash reserve on the side for bills, replenishing inventory and overhead cost. For seasoned sellers, they may actually get paid daily. However I have yet to meet a person who is paid daily.
Amazon FBA Case Study
For this Amazon FBA case study, I had to find a few products that would sell well on Amazon with a break even point at the very least. I did a quick research and found a pet food product that looked promising.
Characteristics of the Winning Product
Sourcing product takes effort. My recommendation is to source small light weight items to minimize the shipping cost to Amazon. Keep in mind that unsold may have to be shipped back at your cost. Amazon may offer the option to destroy your item instead of shipping it back but it comes with a fee.
Item Selection Breakdown:
- Small Item between 8″ x 6″ x 6″. A little larger or smaller would still be fine. Of course shipping a smaller item would be cheaper.
- Get an item that is light weight. A small item that is heavy will still cost a bit of money to ship.
- Make sure to select a source that will continue to have your product. For long-term success, you’ll need to be able to replenish your stock so make sure that your products will continue to be available for wholesale purchase.
- Order only enough for one month worth of sales. If your items remain in Amazons’ warehouse for over a month, you will be charged a storage fee. As you are starting off, you will want to reduce your overhead cost. Since this may also be a test run on the product you’ve selected, you should only send in enough to sell for the month.
Case Study Product
I’ve spent more than 3 days searching for a product to sell and then circled back to what I am already selling on one of my other websites.
I can tell you that it takes a lot of time to find a product that has not been saturated in the market which will also provide a good profit margin. You’ll almost need to think outside the box or be creative. I’ve seen others create their own products by packaging 2 to 3 closely related items into one package.
For example, you could package a wireless mouse, with a nice mouse pad, cleaning cloth and rechargeable batteries to create a bundle package. You will see this done a lot with Camera gears.
Lets now discuss the product that I have selected.
In my case, I had to purchase my selected item from a distributor to get a discount on the item and the shipping. If you can go straight to the vendor to get it at a even better discount, more power to you.
Make sure the vendor allows their items to be sold on Amazon before you start buying inventory.
You can probably get away with selling it on Amazon for a short period of time. For long-term success, you will need the vendors approval.
On to the products now. I found three products and have listed one below for my example.
Leave a comment below if you would like to know about the other two products and I will write an article on it.
- Pet Food
Choosing the product does take some time so be sure to do some research to ensure you send in a product that will sell.
In my case, I used a chrome extension called Jungle Scout to help me determine some stats on the product. If you’d like to know more about this tool, read my called Jungle Scout for Beginners.
It would be hard to determine this if you don’t have this extension so I recommend you get your extension here: Jungle Scout.
Read our post on Jungle Scout for Beginners.
Product Cost Break Down
So here’s the breakdown of the cost. This is something you need to pay attention to ensure that you are not operating at a lost.
The cost for the Pet Food was $2.60 each. I bought 40 of them for this test. Amazon sell it for $12.85 currently but I sold mine for $11.49 due to competition during that time. Retail for this item is $5.49.
It’s funny how this works but even though a buyer can get it cheaper from their local pet shop or online pet supplier, loyal Amazon customers still prefer to buy it through Amazon. A price check between different retailers will show that this item is cheaper through other websites but those who are loyal to Amazon will buy from Amazon.
Shipping from the distributor to me for 40 pet food totaled $15.05 which means it cost 38 cents each to ship.
From my location to Amazon’s FBA warehouse cost $6.33 which equates to 16 cents shipping for each item.
Amazon FBA Fee totaled $4.91 for each item sold.
So here’s chart detailing the cost of each item.
|Pet Foo Cost||$2.60|
|Ship to Me Fee||$0.38|
|Ship to Amazon Fee||$0.16|
|Amazon FBA Fee||$4.91|
|Total Item Cost||$8.05|
Selling an item for $11.49 with a total cost of $8.05 and a profit of $3.44 comes up to about 30% profit.
In total with 40 items sold, the profit came out to $137.60. This does not account for over head fees.
Here’s a graph of my Amazon account from April to July with 3 different products. The other two products were higher priced items.
Potential Overhead Cost
As you can see, there’s potential when it comes to selling on Amazon but here are some cost to consider.
- Shipping supplies
- Amazon FBA Storage Fee
- Amazon Professional Fee
- Jungle Scout Chrome Extension Initial Cost
- Your time in sourcing Products
Make sure the products you have selected are producing 15+% profit. Price will fluctuate depending on a lot of factors. A good profit margin will ensure you are profitable even if you have to adjust your selling price.
I had to chase the price a bit as it fluctuated from the high 10s to the low 12s. Overall I was still in the green zone after price adjustment.
Purchasing your product with a good discount ensures you the ability to adjust your selling price if needed.
This Amazon FBA case study demonstrate that selling on Amazon can be a great way to make some serious money. It also show that product research is probably the most important piece to becoming successful on Amazon. If you have had some luck or ideas about Amazon FBA, feel free to share it in the comment below.
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