If you're considering starting an online business, launching products on Amazon through its Fulfillment By Amazon (FBA) program likely comes to mind.
The appeal is obvious - instant access to hundreds of millions of customers on the world's largest e-commerce marketplace.
I have seven years of experience selling on Amazon in the U.S. and Europe and I have seen how intensifying competition and policy changes have led many to ask: is selling on Amazon FBA still worth it?
The short answer is yes - Amazon's growth shows no signs of slowing down. But, succeeding as a seller in 2023 and beyond requires adapting to stand out in the crowded marketplace.
This guide examines the current opportunities and challenges of selling on Amazon FBA. You'll learn:
- Key stats on Amazon's growth and seller profitability
- Factors to consider when evaluating selling on Amazon
- Tips for launching and optimizing a profitable FBA business
- Steps to get started selling on Amazon FBA in 2023
The State of Selling on Amazon in 2023
Despite increasing competition among its sellers, Amazon's growth trajectory keeps reaching new heights.
Amazon's Continued Growth
Amazon accounts for:
- 38% of U.S. online retail sales
- ~10% of all U.S. retail sales when factoring in brick-and-mortar stores
In other words, Amazon has an enormous share of the retail pie, with no signs of slowing.
Its Prime membership base recently surpassed 200 million globally. And Amazon keeps finding new frontiers like cloud computing, digital advertising, streaming media, and brick-and-mortar retail to supplement its core e-commerce business.
So, while adding more sellers creates more competition on Amazon, the overall "pie" that those sellers divide up keeps expanding exponentially.
Seller Profitability Remains High
Despite headlines about Amazon getting oversaturated with sellers, most sellers continue earning solid profits:
- 89% of sellers were profitable in 2022
- 55% of sellers earn profit margins above 15%
- 73% of sellers achieve profit margins over 10%
Clearly, profitability remains attainable for Amazon sellers who adapt to changes in the marketplace.
Product Launches Do Happen Quickly
You no longer need huge amounts of capital or months of preparation before launching products on Amazon. The barrier to entry is lower than ever:
- 63% of sellers turned a profit within a year of selling on Amazon
- More than half of sellers (58%) launch on Amazon with $5,000 or less
- 25% of sellers got started with less than $1,000
In short, selling on Amazon FBA remains a viable path to generate income. However, the strategies required to be successful have evolved.
Factors to Consider for Selling on Amazon FBA
Selling on Amazon comes with upfront costs and ongoing fees. And the intense competition means product research is more important than ever.
If you understand these key factors, you can determine if selling on Amazon FBA matches your goals, abilities, and budget.
Startup and Ongoing Costs
Amazon charges fees to sellers using its fulfillment and selling platform:
- Selling plan. Choose between the Individual plan ($0.99 fee per item sold) or the Professional plan ($39.99/month).
- Referral fees. Amazon takes 6-45% of a product's sale price as a commission. On average, the referral fee is 15%.
- Fulfillment fees. Fees for storing, picking, and shipping products based on factors like size, weight, and category.
- Inventory storage fees. For storing products longer than 181 days in Amazon's warehouses.
- Other fees. Smaller fees like prep or unplanned service fees may apply in specific cases.
To launch on Amazon FBA, plan for:
- $500 - $5,000 for initial inventory, supplies, product customization, etc. Most sellers (58%) start with less than $5K.
- $1,000 - $2,000 extra cushion for product research, Amazon fees, and unexpected costs.
Manage your capital wisely, as every dollar counts when launching on Amazon. Use profit margin calculators like Jungle Scout's FBA Revenue Calculator to budget effectively.
How much time does it take to start selling on Amazon FBA? With the proper preparation, sellers can launch a product in 3-6 months or less:
- 25% of sellers launch within three months
- 23% get up and running in under six weeks
After launching, most sellers spend, according to Jungle Scout:
- 10-20 hours per week managing and growing their Amazon business
- 14% spend 30-40 hours per week
- 53% spend under 10 hours per week using FBA services
Use tools that automate repetitive tasks so you can focus your energy on high-impact activities like product research, branding, marketing, and new product development.
Competition Among Sellers
With over 2 million active sellers on Amazon, consumers have more choices than ever. To stand out, avoid oversaturated niches and differentiate your brand and products.
Rather than competing purely on price, build loyalty by solving customers' problems better than alternatives. Identify "gaps" in the market and innovate products to meet unmet needs.
Evolving Amazon Policies
Amazon frequently updates its policies around account suspensions, return rates, storage limits, etc. Keep up to date on changes that affect you as a seller.
While you don't have control over policy, you can adapt your product mix and inventory management to minimize disruptions. For example, reduce storage costs by ordering leaner inventory more frequently.
Tips to Succeed Selling on Amazon FBA
Follow these tips to overcome challenges and build a thriving, future-proof Amazon business:
Choose Products Strategically
Avoid oversaturated markets and instead identify growing product categories where demand exceeds supply. Use tools like Jungle Scout's Product Database to analyze niches.
Target products priced at $35 or higher. The sweet spot is $35-$100 per unit. Higher price points allow room for healthy profit margins after Amazon fees.
Differentiate Through Innovation
Rather than selling commodity products, introduce improvements that make your product stand out. For example:
- Enhance features - Add adjustable temperature controls to a basic pillow
- Integrate technology - Design a pillow with sleep-tracking sensors
- Improve materials - Use more breathable, organic materials in clothing
Work with suppliers and freelancers to add uniqueness. An improvement budget of $1,000-$2,000 can go a long way to differentiate commodity products.
Focus on Brand Building
Rather than competing on price alone, build an emotional connection with customers through branding. Leverage the power of social media and influencer marketing to tell your brand's story.
Capitalize on External Traffic
While Amazon itself drives sales, doubling down on external channels like social media, SEO, and paid ads will fuel growth. Use cross-channel analytics to optimize your efforts.
Automate with Amazon Seller Tools
How to Get Started Selling on Amazon FBA
Follow these steps to launch your first product on Amazon FBA:
1. Register as an Amazon Seller
Create an Amazon seller account to get started. You can always upgrade to a Pro account later.
2. Find a Profitable Product Idea
Use Amazon's product research tools to find gaps in the market. Validate demand for a product idea before sourcing inventory.
3. Source Inventory
Secure an inventory source like a wholesaler or manufacturer. Start small with a test order of 50-100 units.
4. Prepare Shipments for FBA
Label products for FBA fulfillment. Ship to Amazon warehouses using their discount shipping.
5. List Your Product on Amazon
Create a compelling listing with optimized SEO details and enticing photos. Enroll in FBA when creating the listing.
6. Drive External Traffic to Listings
Run promotions and ads to increase visibility. Reinvest early profits into growing the business faster.
7. Scale Your Amazon Business
Once profitable, expand your catalog, increase inventory, and accelerate sales using Amazon's tools and services.
The fear of oversaturation on Amazon is understandable. But sellers who adapt and differentiate continue thriving in 2023 and beyond.
Rather than competing on rock bottom prices, focus on branding, innovation, and solving customer pain points better than competitors. By combining Amazon's unmatched infrastructure with smart branding and promotion, your Amazon FBA business can gain an unstoppable edge.
Is Amazon FBA Worth the Effort for You? [Key Questions to Ask]
Selling on Amazon FBA offers immense opportunity. But before diving in, consider these key questions to determine if they match your goals and abilities.
Do you enjoy researching product opportunities?
Mastering product research is crucial for Amazon sellers. If analyzing data to spot trends sounds exciting, you'll thrive. If not, consider partnering with someone who enjoys this process.
Are you willing to invest upfront time and money?
Any business takes commitment. Expect to invest $2,000-$5,000 initially and be hands-on during launch. If that seems daunting, consider Amazon FBM or another side hustle.
Can you handle the workload during the launch?
Launching a product takes dedication. If your schedule is packed, consider waiting until you can devote 15-20 focused hours per week.
How will you differentiate your brand?
Standing out from the competition is a must. If you have creative product or marketing ideas, selling on Amazon could be a great fit.
Are you comfortable with Amazon's dependence?
Amazon FBA businesses operate at the whim of Amazon's policy changes. If the lack of control seems concerning, diversify with other sales channels.
Do you have a budget to reinvest and scale?
Profitability takes reinvesting early profits into more inventory and advertising. If money is extremely tight, consider a business model requiring less upfront capital.
Can you automate systems and outsource tasks?
Automation and outsourcing are key for managing high order volume. If this seems overwhelming, consider waiting to ensure you have bandwidth.
Selling on Amazon FBA holds tremendous potential, but it also takes dedication and hard work. Weigh both the opportunities and commitment required and determine if taking the plunge is the right move for this stage of your entrepreneurial journey.
5 Common Mistakes to Avoid When Starting Amazon FBA
Many sellers sabotage their Amazon businesses from day one by making simple but devastating mistakes. Avoid these common pitfalls when launching your FBA company:
1. Picking the Wrong Niche
Rushing into oversaturated niches like phone accessories or fitness products often leads to failure. Vet opportunities thoroughly and fill unmet consumer needs.
2. Investing Too Little Upfront
Launching an Amazon business on a shoestring budget often backfires. Save enough to purchase respectable inventory, tools, advertising, etc.
3. Not Checking Profitability
Blindly buying inventory without validating profit potential can sink sellers. Use profit calculators to model different product pricing scenarios.
4. Skipping Brand Building
Focusing solely on Amazon optimization misses big opportunities. Build an emotional connection with customers through smart branding.
5. Avoiding External Traffic
Relying only on Amazon search traffic caps growth. Double down on social media, SEO, paid ads, and other channels.
Avoid rookie mistakes and set your business up for success from day one.
The Bottom Line – Is Selling on Amazon FBA Worth it in 2023?
I have every reason to believe that Amazon FBA remains a highly viable model for starting an online business. Amazon continues to dominate e-commerce, and small sellers can absolutely carve out a profitable niche.
However, the strategies required to succeed have evolved significantly in recent years. Standing out now requires differentiation through innovation, excellent branding, diversified traffic sources, and stellar customer service.
The barriers to entry are lower than ever. With just $2,000-$5,000, you can launch and validate a product on Amazon. But dedication through the launch phase is crucial to push through to consistent profitability.
While selling on Amazon FBA is more challenging than 5+ years ago, the opportunities arguably outweigh the struggles for those willing to adapt and put in the effort.
Does selling on Amazon FBA match your entrepreneurial goals and abilities? Weigh the pros, cons, and tips outlined above.
If you methodically build your business on a solid foundation, Amazon FBA can provide an unparalleled platform to reach hundreds of millions of customers and build a thriving brand.