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Starting a business on Amazon sounds pretty fascinating until you face capital challenges. A huge amount of money can give you the margin to experiment and make mistakes. However, when you are investing a limited amount, you may not want to have too many slip-ups.
According to a survey, about two of five Amazon businesses that start with an investment of less than $10,000 were successful. It shows that it is challenging but not entirely impossible to become a successful Amazon FBA seller with little money.
Are you also looking to kick-start your Amazon journey with very little capital?
Then, continue reading.
In this article, we will try to answer these critical questions.
By the end of this discussion, you should be able to decide on the suitable business model for your product and the estimated budget to initiate your Amazon FBA business.
So without further delay, let's begin our discussion.
Ideally, one should have at least $10,000 to start a stable business on Amazon FBA. But that is not completely necessary as many business owners have run successful businesses with a capital of less than $10,000.
As an Amazon FBA seller, you will need to invest a massive chunk of your capital in purchasing inventory. Apart from that, considering the inevitable expenses of packaging, shipping, Amazon FBA fees, and other running costs, one may need an estimated $7,000 to start a business on Amazon.
That being said, $7,000 is not a fixed amount. Different products have different prices range, variable sizes, and a unique customer base that separates the product categories from each other. Therefore, the required capital will hugely depend on your choice of a product and business model (FBA, wholesale, arbitrage, etc).
The margin of making mistakes is quite thin when you are on a tight budget. Every miscalculated step might result in a loss or unexpected problem, so it's always better to plan ahead to ensure your business doesn't spiral out of control.
A few rules are essential for every Amazon FBA seller, especially those who lack massive capital to run their business.
This is one of the significant decisions you need to make when you’re about to start an Amazon FBA business.
Currently, Amazon offers two seller plans: Individual and Professional. So now the question is, why do you need to choose an Individual Seller Account over a Professional Seller Account when you have less money to start your business?
The individual seller account is typically used by Amazon sellers with less than 40 sales each month. Whereas the professional seller account plan is designed for sellers with a higher sales rate— the entrepreneurs that sell more than 40 units of the product every month.
Before you decide on the seller account plan for your business, ask yourself this question: will your product make 40+ sales each month?
If the answer is anything other than a clear "yes", consider signing up for an individual seller account.
Let us tell you why.
The professional seller account on Amazon comes with a monthly subscription fee of $39.99. It means no matter how many sales a professional seller makes, they will pay $39.99 to Amazon at the end of each month.
On the other hand, the individual seller fee structure covers you with $0.99 fee charges on each sale. So, for example, if you make 15 sales in a month on an Individual seller plan, you'll be paying (0.99 × 15) $14.85, which is half of the fee charges of a professional seller account for the same number of sales.
Therefore, initially signing up using an individual account is a smart step for those who cannot afford to pay the monthly subscription fee.
Also, you’re not bound to operate with the Individual seller account forever. Once your sales exceed the 40 mark, you can switch to the Professional version.
It is essential to properly research the business model you want to choose for your Amazon FBA Business. As FBA has become widely popular due to its seller-friendly operations, you can take full advantage of it by choosing the right business model.
To better understand the major Amazon FBA business models, you must know the relevant details and the minimum investment required to start them.
FBA and Referral Fees
In the case of any FBA business, be it Private Label, wholesale, or arbitrage, Amazon takes care of the packaging and shipping. As an Amazon FBA seller, you will pay a fixed fulfillment cost for each sale. Depending on size and weight, it can be anything from $2.92 to $4.52 per item.
Amazon also charges an additional referral fee on each sale as it facilitates the process of making a sale for the listed sellers.
Since Amazon deducts these fees from your sales remuneration, you don’t need to set aside a dedicated budget for those expenses.
If your budget is around $4000-6000, you should be able to private label your product on Amazon.
You should save away a major chunk, about 60% of the budget, of your total business capital to purchase at least 300-500 units of the inventory.
The rest of the money needs to be broken down into:
Since it is not allowed to send samples to the customers and get their feedback on Amazon, sellers often prefer to invest in ordering samples from the manufacturer to check the quality of their product. It ensures that all Amazon requirements are fulfilled before the item is listed.
Compared to regular product procurement, samples are more costly for a seller as they are shipped by the manufacturer individually upon demand. It may seem expensive and unnecessary, but in the long run, it might help you get good customer feedback.
You must prepare your Private Label inventory according to Amazon’s requirements before shipping them to its fulfillment centers. This preparation and shipping can also cost you a few hundred dollars for a batch of inventory.
The best way of getting your private label products noticed in the current market is running ads through Pay Per Click (PPC) advertising. PPC promotions entail paying Amazon a fee each time a customer clicks on your Advertisement.
You must choose the right keywords for your Amazon listings to ace PPC advertising. In simpler words, choose unique phrases and terms relevant to your product, and Amazon will bump your product advertisements based on the keyword searched.
For example, if you are selling a hair straightener, the most popular keyword to choose would be "hair straightener". Similarly, you could also use "portable hair straightener" or "professional portable hair straightener".
You can expect to pay anything from $0.05 to $10 per click for your PPC advertising in the form of bids. This cost mainly depends on how competitive a particular keyword is, i.e. how many listings compete for the same position for the given keyword.
Initially, there will be different costs like:
Unique Product Code (UPC)
UPC is assigned to the items to give them a unique identity or to differentiate between multiple products of the same category. It is a code assigned to each product by a third-party standardization body. Therefore, it can be considered a consolidated database to track products worldwide. The one-time cost of a single UPC is $30.
Branding
Since the Private Label FBA business is about labeling the product as your own, this will be an essential part of your operations. Designing a logo and getting it printed and embossed on your products and packaging can also cost a significant amount. This cost will depend on the details and the number of colors you want to incorporate in your design.
Amazon's Wholesale business means purchasing the branded products in bulk and shipping them to the Amazon warehouse for sale. FBA takes care of recording the sale orders, product packaging, and shipping. For executing this Amazon FBA business model, you need to have $2500-$4000 as your initial investment.
For buying the inventory in bulk from the manufacturer, you need to have about $2000 saved explicitly for this purpose.
Shipping the inventory to Amazon's warehouses is a critical part of the FBA supply chain. You may want to save a few hundred dollars for this.
Amazon FBA Arbitrage entails products bought at a lower price from retailers and sold at a higher price on Amazon. If you want to establish an Amazon arbitrage business, you need to have a minimum of $1500.
This money will cover the purchase of discounted products from the retailers, packaging, shipping, and promotional expenses as discussed for Wholesale and Private Label models.
Considering the price ranges discussed above, you can choose a model that suits your idea of Amazon's FBA business.
By choosing your FBA products wisely, you can effectively reduce the cost of running any Amazon business model.
When selecting the product, keep the following points in mind to minimize the margin of mistakes that may cost you extra money.
Lightweight products with smaller dimensions can be your go-to items as an Amazon seller with a shoestring budget. A smaller product will significantly reduce your fulfillment costs.
There are specific categories that are highly competitive and expensive. For example, starting an Amazon FBA business of electronic products is not only expensive, but the sellers often have difficulty in getting to the top rankings due to competition.
Make sure to select a product that has lesser reviews and fewer sellers. Also, it should be easily bought with your limited capital and can offer a good margin. For instance, apps & games, beauty care products, and grocery and gourmet foods provide better profit margins than many other product categories.
Instead of going for seasonal products, choose a product that has yearlong stable sales. You need an invariant customer base throughout the year instead of getting high sales only a few months of the year.
Your Amazon FBA product may succeed if it is one of the everyday use products. A functional item used by the majority of the customers every day will ensure that your sales do not drop at any point of the year.
It is also necessary to avoid selling one-time products (e.g. lawn mowers, winter jackets, large appliances) on Amazon when you don’t have too much capital to work with.
If you are working with a tight budget, you can stick to popular brands via the Wholesale or Arbitrage model. This way, you can save a good amount of money that goes into packaging and promoting products. However, keep in mind that selling well-established branded products involves a lot of competition.
And lastly, you do not want to sell fragile products that may break during shipping. Instead, go for a product that can handle transport and perhaps rough handling. Fragile products have a good market, but it's not the product one may choose to go for with a capital of less than $8,000.
FBA revenue calculator is a calculator by Amazon that helps you analyze the product profitability, compare different fulfillment models and calculate Amazon FBA fees. With these analytical data points, you should be able to determine your product's price range accurately. In short, this calculator answers whether a product is worth your effort.
You can put your product's code (ASIN), dimensions, category, and weight and estimate the profit. It should give insight into how practical your choice is considering your capital. This calculator is user-friendly and helps one decide on the right product for their business.
An easier way to find the profitability of any product is to use ZonGuru’s FBA Profit Calculator. It comes in the form of an extension, making it a built-in feature of your web browser. Through this FBA profit calculator, you can instantly validate product ideas and determine if selling a particular item is feasible in your little budget.
Just run this extension in the background and open any product page. The profit calculator will instantly give you the profit and margin numbers.
You can click on the Profit Calculator widget to get more data points like total COGS, fulfillment cost, ROI, etc.
In short, this FBA profit calculator is a more straightforward and detailed version of Amazon's in-house FBA calculator.
Despite your efforts to cover your expenses within your budget, things may likely get out of control for a beginner Amazon FBA seller.
We've got some great hacks to ensure you do not waste money on unnecessary procedures.
Rule number 1: Do not ship more than 90 days of items to the Amazon warehouse.
Let's discuss why.
Amazon charges a monthly storage fee of $0.75 per cubic foot for a standard-sized product from January to September. Then, the fee increases to $2.40 in the year's final three months. Eventually, for the products that spend longer than a year in the warehouse, there is an additional (overage) fee of $6.90 per cubic foot or $0.15 per unit (whichever is higher) every month.
Pretty expensive, right?
This could be unnecessary and excessive overhead for an Amazon seller with a budget of less than $8,000 initially.
Nonetheless, you can cut down your inventory storage fee through these measures.
As we know that the items' fulfillment fee, storage fee, and shipping fee depend upon the product size and dimensions, it is vital to register the accurate product dimensions to Amazon.
Amazon uses a hi-tech measuring system for these products. However, it is still possible for the system to misread the dimensions due to multiple factors, including the air trapped in the bags and sometimes the inaccuracy of their scanner. This leads to extra charges by Amazon.
As Amazon re-measures the products to check if their sizes have been changed, you need to actively look out for any updates in the fee charges or listed dimensions of your products.
If you do notice a change, file a report with Seller Support immediately and escalate the issue.
You cannot change the size of a product. However, with some thoughtful planning, your Amazon FBA products can be adjusted in the minimum weight and size bands.
For instance, take a look at these charts showing the size tiers and corresponding FBA fees for the US marketplace:
These charts show the difference between the fulfillment fees per unit between items of different weights and sizes. As it can be seen that only one a couple of inches and ounces can cause an increase in the fee, it is better to avoid that by adjusting your product accordingly. Also, every marketplace has different fulfillment charges with different size tiers. Therefore, it is paramount to take a look at the relevant size tiers and FBA charges of the marketplace you want to operate in.
The following tips can come in handy for optimizing the product size.
Sometimes, when customers return the products, Amazon conducts an inspection and decides whether the product can be resold. The products that cannot be resold are called unfulfillable items. These products only cost you money as a storage fee and are basically of no use.
It is important for an FBA seller to regularly check their inventory to ensure that there are no unfulfillable products in their inventory. To do that, you may check the Amazon Inventory Health Report every two weeks, so you don’t miss out on any product rusting away in fulfillment centers.
If you come across unfulfillable inventory, you can request that Amazon destroy it or have it shipped back to you. This way, you will not only be saved from paying extra storage charges but can also make at least some value out of the otherwise useless inventory in the warehouse.
Are you aware that your inventory sometimes faces discrepancies from Amazon, and you can make a reimbursement claim for it?
Amazon pays the affected inventory's retail price in case of a reimbursement claim. This means you are paid not only the original cost of your item but also the profit you were to make. However, Amazon FBA sellers can only make a reimbursement case within a limited time - nine months in the US and six months in the European Union.
It is totally up to you to audit your inventory and verify data to look for a discrepancy. You will be required to provide invoices, delivery proofs, and packing slips. In short, it can be a long and slow process but very worthwhile in the long run, as Amazon will pay you the item price, including the profit.
As a new seller with little capital, these tips will help you start efficiently on Amazon FBA.
Many sellers have started their Amazon FBA business with a budget below $1000. But can it be done with even less money? The answer is a simple "yes" if you do things the right way.
You need to take only a few basic steps to start an FBA business without money.
Select any product that is lying around without being used much. It could be clothes, utensils, appliances, and even books you do not need anymore. It can also prove to be a successful and profitable way to de-clutter your home.
Signing up as an individual seller is entirely free on Amazon. All you need to do is make an account by providing basic information about yourself (including banking details), and you are ready to start.
Product listing on Amazon is the third step, and it's free. Add good quality photos of the item with a detailed product description along with bullet points. Ensure to include as many details as possible that resolve potential customer pain points.
You don’t need a pro copywriter to write that for you. You can do it yourself with some practice and looking at other listings. Similarly, you don’t need to hire a professional photographer for the product shooting. Instead, you can do it at home with your cell phone camera using these helpful tips.
You will pay the $0.99 Amazon account fee upon the sale. This fee, FBA fee, and referral charges will be deducted from your margin. After these deductions, you can take the profit home.
It looks simple, doesn't it? Making a sale without spending almost any money is possible after all. However, it’s not something we’d suggest you do. Starting an Amazon business without money won’t let you tap its full potential or make it your primary source of income.
Having less capital isn't that much of a problem; spending the capital in the right place is. By choosing the right product, business plan, mode of shipping, and promotional scheme, you may be able to start your Amazon FBA business with $500.
Sourcing small batches of low-value daily use products at the right price, smartly running PPC campaigns, and good listing management can make it happen for you in the thinnest of budgets.
Ideally, you should at least have $5000 for a more significant margin for mistakes and profit. This means that the lesser the capital, the lesser your margin of making mistakes.
Dropshipping is the business model for sellers who want to do business on Amazon without buying the product. However, it is primarily an FBM method.
In FBA’s case, it is not possible to sell without buying the product as the seller is required to ship the inventory to Amazon Warehouses.
Dropshipping on Amazon only requires the seller to list the product, wait for an order and send it to the supplier for further processing. In other words, the Amazon seller acts as a third party between the customer and supplier without purchasing any merchandise.
Dropshipping requires minimal investment, both financial and operational.
According to a survey conducted in 2022, nearly half of the surveyed Amazon sellers make $1,000 to $25,000 per month. That makes it an annual profit of around $12,000-$300,000.
Similarly, over 60% of the sellers shared that their listings were profitable within the first year of their Amazon business.
Keeping these numbers in mind, an Amazon seller can expect annual earnings of up to $300,000. However, this is only achievable by striking the right balance of a well-planned business idea, a highly demanded product, good marketing, and effective customer service.
Starting a business on Amazon with little money is challenging but not impossible. With the right product and business model, many sellers have successfully begun their businesses with an initial capital of more or less $2,000.
To avoid unnecessary costs, take advantage of the free services by signing up for the free seller account. In the case of FBA, it is essential to ensure the accuracy of the size and dimensions of your products to avoid overcharging by Amazon in the name of storage fees. Similarly, you may cut down the costs by managing your inventory smartly.
To run a successful and profitable business on Amazon with little investment, one may want to select a product that has a smaller size, higher demand, and usability. Also, remember that fragile products may seem like an interesting choice, but they should be avoided with limited capital.
In short, you can start an Amazon FBA business without needing the huge investment required to run any conventional retail gig.
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