Amazon FBA is one of the hottest opportunities around at the moment, offering return on investments unmatched by many other business or investment opportunities.
But with great reward always comes risk… right?
Just imagine, a business that you can grow at your own pace…
…operate remotely and possibly rake in a virtually passive income…
…all whilst one of the largest companies on the planet manage shipments, customer queries and warehouse logistics.
Sounds too good to be true, right!!??
This possibility would have seem far-fetched even just a short few years ago, yet that is exactly what you get when deciding to operate an business built with Amazon FBA.
But unlike many business opportunities, FBA has an extremely low-level of risk… but only when you know how to manage this risk effectively.
In today’s post, I’m going to delve into what the real risks are in running an FBA business, and the potential rewards on offer should you get your strategy on point.
Ready? Let’s start…
The Risks? (Arbitrage)
Are you frightened of losing your money whilst playing the FBA game?
How much of a risk is it really when buying items and selling them on Amazon?
What’s the worst that can happen?
As part of learning FBA, there will be times when you buy products that don’t go your way…
…and at some point you will sell them to get your money back (liquidation.)
But in the grand scheme of things, the wins will ALWAYS outweigh the loses, and if you look at the averages rather than individual products you should be making a consistent profit.
And remember, the more you learn, the better you will become at make the right decisions when sourcing items to sell on Amz.
You should look at Amazon like this:
If you were to put £1000 into a savings account in the bank, what would you expect your return in interest to be in a month or two?
The answer is very little. Perhaps even ZERO!
However you would be able to get it back when you wanted to, so you feel safe in the fact that although you may not increase the amount in the bank, you can withdraw it any time we want.
Let’s compare this to Amazon.
You’re putting money into your FBA business in a similar way…
…will Amazon steal the money from you? No.
Will it be safe? Yes!
What happens if you want it back… can you get it? Yes!
You certainly won’t lose it all.
But most importantly which one will return you the most interest/profit?
If you try this AMZ for 3/6 months, but decided it wasn’t for you, what would you have lost?
It’s not like investing in stocks and shares where the risks of losing investment money is a lot higher.
Consider that when your buying a branded product to sell on Amazon with a normal sell price £30 that been reduced by 50% to £15 by a well know retail outlet…
…you buy it and sell at a higher price for profit on AMZ.
What price would you need to sell it to lose your money?
You would hope to at least break-even if not lose a small amount on a purchase… which is limiting the risk, and that would be the absolute worst-case scenario.
The buying of stock is down to personal choice.
You can buy anything from one item up to as many as you feel comfortable buying at the time.
You haven’t got to commit to shiploads of product, and Amazon don’t have minimum quantities of what you can send.
That gives the less brave amongst you to “dip your toe” in the water before taking the plunge and investing more and more money into FBA.
If you want to get into business this year, FBA is one of the easiest entries into market you will get.
You don’t need to worry about marketing, running a website, delivering products, managing warehouses or staff.
Amazon are doing all the work for you once you have sent the items to their fulfilment centres and also take care of the customer services, delivery and much more.
This allows you to scale your FBA seamlessly from wherever you are in the World.
Returns are part of running any online business, and your FBA business is no different.
But how many forums or Facebook group have you read that returns are killing people’s FBA businesses?
This is because Amazon are probably the best company around at delivering items, and also take responsibility for lots of different issues.
So having looked at the risks, where do you start this adventure or to grow your existing FBA business?
FBA Buying Options
Here are a few buying strategies that you will need to consider to purchase stock to ship to FBA, including some of the abbreviations you may see people using on Facebook groups and so forth.
Retail Arbitrage (RA)
The process of visiting retail shops and using the Amazon app to scan barcodes to check prices on items to see if they are cheaper than the same items on AMZ.
A deadly strategy as you’ll often find deals not available on the internet.
Online Arbitrage (OA)
Online arbitrage is the same concept as above… but from the comfort of your home.
This is what our software specialises in, and is how I make 99% of my Amazon FBA income.
This isn’t a strategy as such, but rather a place for you to buy products that can potentially be “repeatable/replenish-ables”.
This means you’re not buying a limited number of items in a sale and if you find a good line can order it consistently for longer periods of time.
Private Label (PL)
This is where you source products from manufacturers (usually found on Alibaba) and sell them under your own brand on Amazon. This is a lot harder to pull of successfully than arbitrage, and whilst it might have bigger rewards, does carry a bigger risk in terms of capital.
Many people often learn the ropes of FBA by doing arbitrage before tackling Private Label products.
RA/OA is the best place to start as this will give you chance to learn about the processes involved in listing and selling on Amazon FBA.
The private label route is a more expensive option to start with and you’ll need money to invest.
If you don’t have experience with AMZ FBA, I would recommend doing RA/OA first and at some point adding PL as you feel more confident in the whole process.
Costs & ROI (Return On Investment)
If you use a fee calculator (such as our awesome one you get free just for trying FBA Wizard here) you’ll quickly know if there is any profit in an item you are looking at buying.
Then it comes down to ROI% which will vary depending on your views on whats a good profit margin to make…
… a good rule of thumb for AMZ FBA is anything from 50% ROI+ or a minimum of £5 per item (whichever is greater.)
However its only a guide and would depend on a couple of factors:
- How much have you got to invest?
- How quickly do you want to turn your money around?
Would you buy something for £100 to make £30?
Many people would say that’s not enough profit and is too high risk…
…and some will be comfortable buying items at these prices and will be more than happy with these margins.
That’s the beauty of FBA; there are no hard and fast rules and you can do what you feel is right at the time for you.
Remember, it’s your money!!!
By doing some simple maths you can quickly calculate if a item you are interested in buying meets your requirements before making a purchase.
I usually calculate ROI% by dividing profit against buy price.
Of course you will need to take into account other fees such as shipping to Amazon, VAT etc but these are always easy enough to calculate and then to decide if there’s enough “meat” left on the bone once it’s all factored in.
So there you have it.
If you make smart buying decisions you can expect an attractive return on your money with Amazon FBA…
…and if you make a mistake along the way most products can be sold at break-even or even a very small loss (if you really need the money back quickly.)
Now is the perfect time to take advantage of the benefits of Fulfilment by Amazon, and with very little barrier to entry you have absolutely nothing to lose testing out a few items.