10 Steps To Selling Using Amazon FBA (Fulfillment By Amazon)
So you want to sell on Amazon, and join the e-commerce revolution, awesome! However, just be warned… if you are going to jump into having Amazon fulfill and ship your own products, there are some real risks and fairly significant costs to get started. In my experience, Amazon FBA may in fact be best suited for those with at least some drop-shipping or e-commerce selling experience already. Many Asian manufactureres are also listing directly on Amazon now (some say as many as half the larger sellers), and so margins are being squeezed on many high turnover products. If you are expecting 50% to 100% margins, think again… 20% to 30% is average these days. And, if you do list a product, know that with Amazon, you don’t own your product listing, and others can come along and undercut your price in order to win the coveted “Buy Box” (the default product that gets purchased when someone hits “Add to Cart” button).
If you are still game to learn more and have a bit of cash to invest, below is a quick and very high-level primer of the basic steps to get started. To illustrate, I’m using an actual live drybag kit product that I ordered from China and imported into Canada. I’ll make basic assumptions that you are also wanting to order from China to Canada as I did using Amazon FBA (Fullfillment By Amazon) for the sake of simplicity, but the same idea could be applied for importing to the US or elsewhere.
But before you start, here are 3 things you will need;.
- $500 to $2,500 cash to place a minimum order typically, plus $ for shipping duty, exchange, taxes, FBA fees and ads
- Patience, since Amazon’s Sellers Center is not exactly intuitive, so stick with it and read their guides!
- Perseverance for updating products, ad maintenance, customer service, marketing & quality control
OK, so if you are still with me, here are 10 steps to get a listing online and selling on Amazon FBA;
Step 1: Choose A Product
Probably the single most important part of this process. Here are some parameters that you may wish to start with:
a) Retail Between $50 and $200 – You will need enough margin to pay for FBA fees, shipping, duty, taxes and COGS
b) The 1/4 Rule – My rule is 1/4 cost is the product in China (US$ with FOB), 1/4 is import duties/taxes, 1/4 is Amazon FBA fees, and remaining 1/4 is profit. So, a $100 retail product, would give you a 25% margin
c) Lightweight and Small is Best – Since Air Courier can be super expensive if you want it within 10 days to North America
d) Seasonal Isn’t Ideal – If you are just starting out with one product it should be not seasonal (e.g. winter only)
e) Simple is Better – Try and avoid products with multiple sizes (such as apparel), dangerous goods (anything with a battery) or electronics that could have a high return percentage
f) Low Competition – Less than 3 established competitors with fewer than 50 reviews in Canada (or 500 in US), with none of them name brands or offshore
g) High Sales – Estimated sales volume of over 100 sales per month at least (assume on average 1% to 5% to of buyers leave a review) so multiply the number of reviews by 30 or so to estimate monthly sales (yes, this is just a rough estimate, but so are JungleScout and Chrome FBA Calculator numbers, just estimates)
h) Decent Margin – Multiply your cost of goods sold (COGS) by 4 and see if that is a competitive/reasonable retail price
i) Use A Tool! – Try JungleScout or get a Chrome FBA Calculator for Amazon extension to choose products
TIP: Bundling a few smaller products with a larger one like in the drybag kit allows you to add perceived value to your products, and differentiate yourself from the competition. It also allows you to increase your margin, and provide the ability to do more paid advertising via Amazon, Facebook etc.
Step 2: Run The Numbers!
This is a critical next step before you even think about pulling the trigger on buying some products. Know that in general, your cost of goods sold will about triple by the time you get it landed in Canada or the US. For example, my $8 US drybags cost just over $30 CDN once landed. Here’s an example breakdown with explanations. Note Freight On Board (FOB) means the cost of the product delivered to from the factory to the closest sea or airport in China:
Assume 300 drybag kit minimum order quantity (MOQ) at 1 kg gets you this cost below;
$8 US ==> 20L Drybag Kit: Cost of goods in US in China FOB (Freight On Board), Weight 1 kg
$7 US ==> shipping per item (DHL Air Courier FOB Shanghai to Brampton, Ontario Canada)
$0.56 US ==> import duty per item (8% on Sporting Goods into Canada)
$19.45 CDN ==> (1.25 CDN to US $)
$2.52 CDN ==> 13% HST (Harmonized Sales Tax in Ontario)
$21.97 CDN ==> CDN TOTAL COG (Cost of Goods)
$6.75 CDN ==> Based on $45 CDN Retail Price (15% goes to Amazon for Marketing etc)
$4.95 CDN ==> Pick and pack fees ($4 for 1st 500 grams, plus $0.95)
$0.40 CDN ==> Pick and pack weight surcharge ($0.40 per each additional 500 grams)
$12.10 CDN ==> TOTAL AMAZON FEES
$34.07 CDN TOTAL COST
$45 CDN RETAIL PRICE (32% Markup)
Step 3: Choose A Supplier
So for the purposes of simplicity, I’m going to assume you do like most and use Alibaba.com to source items from Asia. Here are some things to consider when talking to a manufacturer.
- Ask them if they already sell on Amazon, and if yes, move on, you will never be able to compete
- Always get a sample shipped to you to inspect. Yes, it will cost you $100+ in shipping, but it’s worth it, and you can use it for photography as well (and add your logo digitally too if needed)
- Be sure you are dealing with a Manufacturer and not a Trading Company (it will say in the Company Description)
- Ensure your manufacturer has been in business at least 3 to 5 years ideally
- Take note of their location, eg Shanghai, Ningbo etc have sea and airports right there which is good
- Be sure they are Gold Suppliers and provide Trade Assurance. Google this if you don’t know what it means.
- Note how responsive to buyer inquiries they are in their listing on Alibaba – 80% or better is best
- Ask them what brands they already work with, and get some photos of similar branded products so you can analyze competition
Step 4: Get A Sample
This is a very important step to ensure that you get a quality item that meets your expectations, and your customers. Yes, paying for a sample may cost you $50 to $100 Cdn after shipping, but it is worth it. It also builds trust with your supplier and shows that you are serious about selling, and not a tire kicker! The other reason you will want a sample is for taking photos of your own. Those will include shots which will have a white background (most image editors have a “magic wand” tool or similar to allow you to highlight and delete background colour. Also, once you see a sample, you may ask for minor modifications to the product to make it unique. Just know that you will need to order a MOQ for logoing and modifications, since this requires more time/effort by the manufacturer and they need to make sure it is worth it for them.
You will find that many manufacturers can smell a “rookie” a mile away, and will stop responding to endless long-winded emails or requests until you actually order something. Remember, often English is not their first language, so be brief, use basic English words and get to the point with your inquiries. Basically what I ask most manufacturers are only some basic questions. I find the best responses come when I simple introduce myself and only ask 3 or 4 simple questions:
“Hello, I am selling water sports items in Canada. I would like to know your minimum order quantity (MOQ) for the 20 Liter drybag with back-pack straps. What is your production lead time? Can you apply my logo? I will be interested in getting a sample please.”
Step 5: Place Your Order Using Trade Assurance
Typically manufacturers require 30% down as a deposit to start production. Then, once production is complete, they will ask for the remaining 70% and then ship the product. Be sure to use Trade Assurance when ordering via Alibaba, since this gives you the ability to be refunded if your order criteria are not met. Though, if you go with a manufacturer that has been in business for over 5 years, is a Gold supplier, and a 80% response rate, chances are you will be OK. You may also want to use Paypal for ordering samples or smaller orders since they provide very good buyer insurance.
Step 6: Set Up Your Amazon Listings
It is a good idea to setup your Amazon seller account right away and start getting familiar with their interface. It’s not exactly intuitive from the start, but they do provide an excellent sellers forum and help guides along the way for specific tasks. While you are waiting for your item to be produced, there are various things you should be doing, such as;
- Buying UPC (Universal Product Codes) codes which are required by Amazon for each SKU (individual item) and to set up ASIN (Amazon Seller Identification Numbers). You can buy them at http://www.gs1ca.org or other 3rd party vendors.
- Once you have set up your UPC/ASINs, you should setup your product listings in the Sellers Central area menu “Inventory”. Click on “Manage FBA Inventory” here and create your product listings, upload photos, add keywords. This is very important to do properly, so go to Youtube or the Amazon Help area if you are stuck.
Step 7: Create Product and Carton Labels
- You will need to send your supplier 2 kinds of labels: individual product labels, and carton/box labels. Before you can generate those, you will need to go to Inventory / Manage FBA Shipments and create first product labels. Be sure to read up more on special warnings that also need to be applied to polybagged items for “Choking Warnings” or specific product warnings depending on the category.
TIP: Your listings will appear “Inactive” until you receive inventory shipments. You can always see what they will look live by going to the Inventory menu, checking the box next to your product, and switching the Action pull-down menu for your product to “Fulfilled by Merchant” vs “Fulfilled by Amazon”. This will make your product “live” and orders will need to be fulfilled by you, vs via Amazon FBA.
Step 8: Get Reviews
It is absolutely critical that you start to generate reviews as soon as possible on your listings. It is possible to contact customers after they order through the Amazon Sellers area. The best approach is to follow up on delivery of your products, ask if any questions and then ask for a review once received. You do however have to be careful to avoid any form of incentivization of reviews, which Amazon strictly forbids. Note, if you give 25% or more coupon discounts to customers, Amazon may nullify any reviews. Many other tactics are available to do this via JumpSend and other 3rd party e-mail vendors.
Step 9: Advertise Your Listings
There are four ways within the Amazon Sellers area that you can promote your listings. Typically, you will only be able to start with 2 of these;
- Pay-per-click campaigns – Start with automatic keyword bids on your products
- Coupons – Create a noticeable yellow coupon tag, by giving out coupons. This is also ideal for tracking the conversions from 3rd party advertising, such as Facebook Ads (Amazon does not allow pixels to sales)
- If you create your own brand, and have trademarked it (words or logo or both) then you are eligible to register your brand with Amazon to get an enhance listing description and include a “brand story” as well as other options
Step 10: Maintenance
Once your listings are live, there are many things to do on a daily or at least weekly basis. Firstly, although Amazon does manage custom service requests, often customers will ask questions relating to your product, which you must respond to. There are also items such as managing your pay-per-click Campaign promotions on Amazon, where after 2 weeks of Automatic keyword bidding, it is best to switch to manual bidding where you get more control over continuing and pricing your highest converting keywords. A common pricing strategy is also to price very close to your net cost for the first week or two to help boost your best sellers rank (BSR). You also need to manage reordering to avoid going out of stock, and managing any refunds for quality control issues. Also, testing different product categories for your listing is helpful to see if drybags sell better in the kayak or canoe categories for example. You can also request bank transfer disbursements from Amazon in order to get paid for your confirmed/delivered sales orders.
Amazon FBA can be an exciting new channel for you to experiment with if you are already comfortable with e-commerce. However, there are many other more low risk alternatives, such as drop-shipping (where you carry no inventory, and buy products at a discount, only when you sell them and receive payment in advance). If you have a brand, and have your own inventory, you may want to start as an Amazon Merchant without the FBA fulfillment service to get a flavour of how Amazon works. Remember, Amazon takes 15% marketing fee right off the top of your sale price, and so there is a cost to selling on the #1 ecommerce site in Canada or the US! 🙂
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