Over the last year, I’ve experimented with many different online business models on my quest to become truly free and earn a passive income whilst I travel the world.
Today, I’m going to introduce you to my first Fulfilled by Amazon (FBA) experiment!
In this post, you will learn…
- How much I have made so far with FBA
- What is Fulfilled by Amazon (FBA)
- Pros of FBA
- Cons of FBA
- My tips for success with FBA
- FBA vs Drop shipping
My first experience with FBA
In early 2017, I noticed that I was repeatedly selling the SAME items through my Amazon affiliate account… I knew that I would continue to sell large amounts of these particular items as I was already ranking on the front page of Google for content about these products.
I figured that this was an exciting opportunity – If I could design and manufacture my own version of these products and get them on Amazon, I could redirect the traffic from my blog to MY products and make some real money rather than just 4% on an affiliate sale.
FBA is a GREAT way to make more money out of your existing amazon affiliate sales – assuming you are selling a decent quantity of the same products month after month.
I teamed up for a joint venture with my friend DJ and together we designed and launched Active Roots.
Active Roots is a travel gear company built on a drop shipping model – we sell hammocks, towels, security belts and other products popular with backpackers and hikers. 10% of all sales goes towards the Elephant Conservation Centre in Laos – something we’re stoked to be a part of.
Active Roots products are manufactured in China and shipped in bulk to an Amazon warehouse where they are stored, packaged and shipped to customers (Amazon charge for these services) – this is known as Fulfilled by Amazon (FBA).
As well as this, we also sell Active Roots products directly through our Shopify store – I’ll talk more about this later.
It took us a while to figure out the Fulfilled by Amazon (FBA) model as there are lots of moving parts when you’re setting up but once you have it down – it requires very little work to keep sales rolling.
Right now, Active Roots brings in a passive income of between $4000 and $7000 a month. Of this, about 35% is profit. Our profit margins vary as we sell several different products but on average we make $7.50 profit per sale.
So far this year, we’ve sold over 2000 items for a total of just over $40,000. This made us a profit of around $15,000.
The screenshot below shows our total sales of Active Roots products on Amazon for the year to date.
It took time to get this venture off the ground and to really get sales cranking but we’re now close to selling 300+ items a month and sales continue to grow.
When me and DJ first started looking into drop shipping, we immediately came across a pretty large challenge – would we sell our items on Amazon and let Amazon handle all the logistics, customer support and warehousing or would we ship items directly from suppliers to our customers?
Since neither DJ nor myself wanted to be customer support, we opted to follow the Fulfilled by Amazon model. We didn’t want our customers to have to deal with long delivery times or shoddy packaging so Amazon was the obvious choice.
What is fulfilled by Amazon (FBA)
Fulfilled by Amazon is when you ship your products to an Amazon warehouse. You then list your products on Amazon itself and as your products are sold, Amazon handles packaging and shipping to your customers. If there are returns, Amazon handles those too.
Once you have your products actually on Amazon, you really don’t have to do anything apart from try to drive traffic to your product listings.
↑ Pros of FBA
- Fast and reliable – Amazon process and ship orders at lightning speed
- You don’t have to deal with customers, shipping or warehousing
- Amazon converts well (traffic to sales = conversion) as it’s a platform everybody knows and trusts
↓ Cons of FBA
- You pay for storage of your products – if they don’t sell, this gets very expensive
- If you don’t sell your items within 6 months, Amazon charges a higher per-month storage rate
- The backend of Amazon provides really limited data on where traffic and sales are coming from
- There is a lot of competition
What I learnt from my first FBA venture
→It’s expensive: Amazon charges HEFTY fees and competition amongst retailers is fierce – if you are trying to rank on Amazon itself, you will face a steep and expensive uphill battle.
→ Competing in Amazon search results is all about price: Unless you are selling a truly special product, price is the only thing to set you apart from hundreds of other retailers selling identical items – price wars are common.
→ Avoid price wars: I advise not trying to compete in Amazon search results – instead focus on driving traffic to your landing pages through SEO or Facebook ads.
→ Targeted traffic converts: If you can drive traffic through SEO or Facebook ads to your product listings, it WILL work – even if you are not the cheapest or even the best product available on Amazon. Buyers searching for your product keywords are READY to buy, if you can capture them and throw them at your product landing page, you have a good chance of seeing a conversion.
→ If you have small margins, you have to shift a lot of product: I fucked up in this venture. I chose items that were cheap to make and cheap to sell. The problem is, I just can’t make enough on a sale of these kinds of items to make it worth my time. If you only have a margin of 35% on a product, you need to sell literally thousands and thousands of them to make it work. Instead, I should have chosen much more expensive items – where I can make $100 + per sale – and settled on higher margins, lower sales. It’s easier to sell twenty high value items a month than it is to sell two hundred low value items – there is also usually MUCH more competition with low value items because the barrier to entry is low.
→ To get the best prices, you have to actually GO to China: I know for a fact that some of our competitors are producing identical products to us and are sourcing them for less. This is because we did not actually go to China – we instead sourced our suppliers through Alibaba, and trust me; that leaves you wide open to getting fucked. If you’re serious about setting up an FBA venture, you should go to China to forge proper relationships with your suppliers.
→ Some products are seasonal: Just because you had a great month in July, that doesn’t mean you can expect to see the same numbers in August – Did you know that there is a hammocking season? I didn’t until recently but it turns out there totally is and there are peak times of the year when people are searching for certain products – this can make it difficult to estimate how much inventory you need.
→ Running out of inventory is a crime: This happened to us twice. When you run out of inventory, it can take as long as a month to restock from China – every day that you are out of stock, you are leaving money on the table. We probably lost out on at least $8000 of sales this year when we were out of stock. However, you have to be careful – if you have TOO MUCH stock this will eat into your margins as Amazon will charge you for every day they are warehousing your products.
→ Amazon are out to crush the little guy: Amazon has access to INSANE amounts of data and they use that data to work out what product to release next in their ‘Amazon Basics’ range – as soon as Amazon releases it’s own version of a product, all other retailers trying to sell that product are doomed – they cannot compete on price or brand trust and recognition. Even worse, Amazon manipulates search results so that the Amazon Basics version of the product always appears at the top.
→ Amazon FBA is hard: If I didn’t have a secret weapon – the ability to drive traffic through SEO – we would not have been successful in this venture.
How I used SEO to sell my products on Amazon
Luckily, we had a secret weapon when it came to driving traffic… The Broke Backpacker and my network of travel blogging allies.
Competing in Amazon search results against other retailers was never part of our plan.
Instead, we focussed on identifying every other outdoor or travel blog who had content that could feature our products. We then reached out to all of these people and bribed them to link directly to our listings on Amazon – this meant that we had a steady flow of reliable traffic to our product listings.
Because we were able to capture relevant Google traffic across multiple sites ranking for keywords related to our products, and then throw that traffic at our product landing pages, we have had some success.
If we had been unable to do that, I honestly do not know how the hell we would have shifted these products… We DID experiment with Facebook ads, Amazon ads and with paying influencers to promote our products on Instagram but we saw marginal results.
Over 95% of our sales come through SEO… We rank in first or second position for all major keywords related to our products and have recruited many of the other sites also ranking for these keywords to help drive traffic to our landing pages on Amazon.
The case for other drop shipping models
OK, this is a massive topic and I’m just going to scratch the surface right now. I am however working on a huge drop shipping guide which will explore all of this in greater detail so stay tuned for that.
The main advantage of using FBA to get your products to your customers is that Amazon is a huge platform that everybody trusts and Amazon can handle all of the logistics and packaging for you. Amazon delivers your products quickly and efficiently to your customers.
The main disadvantage of using FBA is that Amazon take a percentage of the sale, charges for warehousing, charges for packaging and charges for delivery… This quickly adds up and squeezes profit margins.
But what if you were to sell your products on a different platform?
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Selling products on your own website
Whilst FBA is an exciting and profitable business, you can make significantly more if you handle warehousing and logistics yourself – this does of course mean you have to sell on a platform other than Amazon. We are currently experimenting with this by selling items directly through our Shopify store.
Let’s break it down.
The advantage of selling on your own website is that your expenses will be significantly less – you don’t have to pay Amazon anything.
The disadvantage of selling on your own website is that it is unlikely to convert as well as Amazon – people are used to Amazon and don’t think twice about purchasing something on there.
The biggest difference between using FBA and selling products on your own website is that you will now have to figure out how to get your products to your customers.
There are three ways to get products to your customers…
1. Have stock in place at a local distribution centre who will handle warehousing, packaging and delivery
2. Have stock in place at your house and handle everything yourself or with the help of an employee
3. Have the supplier in China ship the product directly to the customer – this is complex and has many moving parts but is the way to make the most money.
I am currently working on a mammoth guide to drop shipping which will arm you with the info you need to understand the pros and cons of each of these methods and plan out your own drop shipping venture.
FBA take-away points
- FBA is a logical choice if you are already selling lots of the same item on Amazon every month.
- If you’re serious about launching an FBA venture, go to China to get the best prices.
- Don’t run out of stock, but don’t overstock – it’ll eat into your margins
- FBA squeezes profit margins.
- Think about how you will drive traffic to your products on Amazon – this is your biggest challenge.
- You have to EITHER sell a TON of cheap items or make decent margin on fewer sales – don’t be in the middle making low margin on low sales volume.
- Selling on your own website offers lower conversion rates but healthier profit margins
- Amazon are out to crush the little guy – beware!