The typical question you often come across when researching about the cost of starting an Amazon business is “how much money do I need to start an Amazon business?”. Well, depends but you should be looking at the minimum in terms of experience rather than money. This question gets asked a lot and nobody can agree for obvious reasons: there’s a lot of variables. You can have a very simple and light product and you would be ok with a couple hundred dollars. You can have a complex and heavy product and need a few thousand.
If you knew exactly what to buy and how to market it, you could start with $500 or less, depending on the product.
Nonetheless, you still need to do further research to reduce the risk of choosing the wrong or unprofitable products to sell. But no matter the choices that such a research might lead you to, this article covers the potential costs you’ll most likely be facing. The information available in this article is mainly oriented toward Amazon business start-ups in the US, but readers looking to set up businesses in any part of the world can find valuable pointers here.
A lot of suggestions flying around claim start-up cost for an Amazon business can range between $100 to $1000, so I am gonna answer on the most common question: Is $500 Enough To Start Amazon FBA? Yes, I started with $500 and you can do it but it will be tough. I started in 2014 and back then anyone could make money on Amazon. You could follow a formula. All you needed to find for yourself was demand and margin. It was easy. Today, the hype is over but opportunity remains. The master trend is now Amazon’s Private Label FBA business model. For this model, as a starter, you can expect to invest any amount from $2000 upwards. Basically, items that feature on a budget for an FBA business startup can be grouped into three categories: Essential, Auxiliaries and Luxuries.
1. Training – $0
An experienced savvy business owner can successfully launch a new Amazon business without having to go through bouts of training, but a newbie stands a very slim chance of accomplishing such feat. Of course, you’ll come across copious training materials during the course of research, but by no means should that preclude training from your startup budget. You can get free information on YouTube, blogs and Facebook pages. Most paid courses on how to start-up an Amazon business lack up-to-date information and others are just money-making schemes for the authors. But a top-notch paid training program guides you all the way, picking you up when you slip or miss your footing. Note that I’ve purposely avoided advocating any specific training program. I am a firm believer in testing and tweaking, and I believe learning the loops of this business is more of real-life practice and less of wading through training materials. My advice is for you to start small, invest up to $500 and learn by doing, then scale up when you’ve got good grips.
In short, don’t worry about the feeling that you are under-qualified. Everyone is under-qualified when starting out. As soon as you have everything riding on success, you will learn by doing very quickly.
2. Samples – $150
If you don’t first collect samples of your choice private label product, you’re courting disaster. There’re always chances of a mix up over the product description found on the manufacturing source’s online pages and the real product quality. To eliminate the chances of any such error, it’s best to order samples from the supplier so you can get to see things for yourself.
In the course of choosing products and establishing contacts with the supplier, it is also propitious that you look out for traits in the supplier which sustain a long-term partnership; chief among these traits are minimal pricing and flexibility of business terms.
Let’s use the sale of this week trending item on Amazon as our case study. Rubber bumper phone case. Btw, this is one of the most competitive categories on Amazon – don’t jump in it unless you have a significat amount of funds to invest.
This phone case usually cost between $2 and $7 a piece. Generally, the average cost of getting a product sample to turn up at your doorstep is $50. Three samples should do a thorough verification of your chosen product’s quality.
3. Inventory – $3,888
Once you’re done with the verification of product’s quality, get cracking on real purchase immediately. Don’t forget to first check up the product’s profitability on the Amazon FBA Calculator, so you don’t end up counting your chickens before they hatch. This app gives you accurate figures of the net profits to expect after all the Amazon sellers fees have been deducted.
Also, to get accurate net profit projections, you must consider the Minimum Order Quantity (MOQ) fixed by the manufacturer for your chosen product. Alibaba suggested item is too expensive, so I am gonna find a cheaper item for our case study.
For the product of our case study, phone case, the MOQ is 100 pieces, price $1.8/unit. Every new supplier I jump into will require anywhere between $15,000 and $500,000 in spending before you hit the top pricing tier and that’s why we will calculate with high-end price in our case study.
Generally, the rule of thumb is to order for 300 – 500 units of a choice product initially, as this figure will likely surpass the MOQ required by most suppliers for most products, without blowing a hole in your budget. The degree of competition in your product’s category must count as a key determinant of the quantity of inventory you order.
Here’s a dexterous strategy for coming up with the perfect amount of inventory to order:
Research the top 5-10 listings in your product category. Run them on Jungle Scout’s Sales Estimator and obtain their aggregate monthly sales figures. Launch out with an inventory quantity that is 10% of this aggregate sales figures. The rationale behind this is that when you enter the marketplace as a new competitor, it is tenable to aim at taking one out of every ten deals of the top 5-10 sellers’ sales or taking away 10% of their aggregate sales.
In our case study, the aggregate sales figures of the top 10 listing are 8,634. Our strategic inventory figure is therefore 863. But its highly unlikely that we’ll reach this level of sales within the first month. We can envision with more confidence that we’ll be hitting this monthly sales figure after three months. So we’ll start out aiming for a lower monthly sales figure, then hope to gradually increase it until we’re taking away, on a monthly basis, 10% of the current total monthly sales figures of the top 10 listings in the phone case category. Let’s say we look to move 600 units in the first month, then move 700 units in the second month, and then finally sell 860 units in the third month and onward. With this strategy in the fore, our first order should be 2,160 units. That puts our inventory cost at $3,888.
Generally speaking, choosing a low-cost product and selling it at a low price is a great strategy for a low-budget startup. However, you’ll still have to balance your books by figuring out the profitability of the product.
4. Tools and Supplies – $100
Amazon FBA eliminates the need for sellers to have storage space and a host of other facilities, but there are some tools which a seller must necessarily acquire. The following are the basics in that respect:
– A Computer or Smart Devices: For accessing a seller account and monitoring products in the store.
– Shipping Labels or papers: For printing shipment info and product description.
– Printer: For printing box shipping labels as well as product labels.
– Boxes: Used to ship out product.
– Packaging tape: Used to close the boxes to be sent over to Amazon.
– Scale: Used to get an accurate weight of boxes.
– Jungle Scout: An indispensable tool for managing your Amazon Business.
– Unicorn Smasher: Another must-have Amazon Business tool. You can get it for free.
Most of these are easily obtainable. If they’re not already lying around in your home or place of work, buying them should not cause you any concerns. You can get shoe-size boxes for free at any Wal-mart store. You can use your bathroom scale to weigh the boxes.
5. A UPC Code – $250
Amazon requires all products listed by sellers on their FBA site to bear a GTIN (Global Trade Identification Number). Amazon then uses the product’s GTIN, which usually comes in the form of a UPC barcode, to generate their proprietary ‘FNSKU’ code, which is printed on the packaging of every unit of the product.
Recently, Amazon put in place a new TOS which says it will only recognize barcodes generated by the number 1 global provider, GS1. This means the cost of obtaining a barcode has been substantially increased to a non-negotiable $250 registration fee and $50 renewal annual fee (this cost covers up to ten barcodes). But there is a way around this, albeit a risky one. You can get barcodes from third parties at $10 per code. In principles, this goes contrary to the provisions in Amazon’s rulebook, but Amazon has so far not been strict in applying the relevant rules.
6. Inspection – $300
Most sellers prefer skipping this or carrying it out partially, but they run the risk of losing money. You can expect a full inspection in China to cost you about $300.
7. Shipment and Import Taxes
We won’t be putting out an estimate for this, as it boils down to the dimensions and weight of the product, as well as the product’s HS code. But take note that no import tax is levied on shipping below $2500 carried via air to the US, so you can take advantage of that tax loophole every now and then.
Sample shipping by Air cargo: Use the following formula this will ring true for ALL samples from China: 25.00 for the first kilo and 5-6 per kilo after that.
Is Sea shipment really that much cheaper than Air? In my experience, the cost for 1 cubic meter of LCL (so you’re not shipping the whole container) cargo from China to the USA is around $350. So, that sounds cheap and it really is. But, sea shipment has many hidden costs and takes a long time. You will need to pay to clear port, pay for a customs bond, pay for storage at the port, transportation from port to your door the and a bunch of other small fees – next thing you know you are out $600-1K just in clearing port and getting the items to your door. In short: You should have over 5CBM or your air shipments are over 2K in cost to even consider sea shipment.
8. Promotional Incentives – $250
Although Amazon has changed its policies concerning incentivized reviews in the past year, promotional incentives are still surefire and ethical instruments for boosting sales. But in order for your promotional giveaways to create waves and get your product listed on the first page, you’ll have to give out as many units as the top listing is selling, for at least five days. For our case study, we’ll have to give away some 30 units every day for five days. That means we’ll have to spend ~$50/day on a giveaway.
9. Amazon Professional Sellers Account – $40
A Professional Account has a battery of functionalities not available in the Individual Account, the two are virtual worlds apart. You cannot create promotional codes, run PPC campaigns or easily manage high volumes of sales with an Individual Account. The Professional Account is therefore irreplaceable.
There’s no way around paying to get your product listed on Amazon. But there is no upfront cost for an Individual account, as Amazon charges $1 for every item sold by an individual account holder. A Professional Account holder pays Amazon a monthly rate of $40. The cost of owning an Amazon sellers account therefore depends on the type of account you choose, which in turn depends on your goals as well as the volume of monthly sales you get to handle.
This set of items are not necessary for starting up but can serve as springboards. You stand a much better chance of succeeding if you put these measures in place.
Registered Trademark – $225
Amazon has recently enacted significant changes in a number of areas, including private labeling. Its new private label policy abandons the old Brand Registry in favor of a new version it launched in May 2017. One significant condition for enrolling in this new Registry is the mandatory requirement of a Registered Trademark
In order to have full access to all the benefits of enrolling your product in the new Brand Registry, you need to first apply for and secure approval for a Trademark. But as an auxiliary measure, acquiring a Trademark and enlisting a product in the Amazon Brand Registry can be carried out down the line, if it’s not done in the beginning. It might take up to 6 months to finalize the acquisition of a Trademark, and a lot can be accomplished within this time-frame. You can launch out to flex your sales acumen and to also test the waters during that period of time.
Nevertheless, you still stand a good chance of raking in a good volume of sales even if you don’t have a trademark in place. You should be able to complete the application on upsto.gov website yourself in a few hours for only $225.
Amazon Early Review Program – $60
A cost-effective way of gaining a foothold and credibility in the marketplace is by signing up for the Amazon Early Review Program. The program is basically a scheme in which Amazon gives out $1 to $3 gift cards to real buyers in exchange for their honest reviews of the product they’ve bought. It costs $60 per SKU, and is renewed annually.
Paid Advertising – $300
The success rate of your advertisement campaigns takes a snowballing effect once you begin raking in sales. As your customer base starts expanding, your ranking for the main keywords increases simultaneously, in turn leading to more customers and further growth of your customer base. Also, your customer base generates a significant portion of your overall sales. Soon enough, you’ll be recording substantial increments in profits without a corresponding increase in funds invested in the advertisement.
The Amazon PPC (also known as Sponsored Ads) remains one of the most effective advertisement strategies for Startups as well as for established brands. But whether you opt for Amazon PPC, Google AdWords, or any other marketing strategy, $10 per day is an ideal low-end budget for the advertisement of a new product. If you choose to stick to this rate of advertisement, you’ll be facing an average advertisement cost of $300 per month.
These items put a gloss over your product launch. They lend your product more credibility, boosting your chances of generating quick sales.
Packaging Design, Infographics, and Snap Shots – $50+
All these help cement your brand’s credibility. Do not underestimate the value of enlisting the services a good graphic designer. Although quality work commands higher fees most of the times, you can hit a lucky break if you’re able to find brilliant graphic designers who’re trying to establish themselves in marketplaces like Freelancer.com or Fiverr.com. These rising stars can provide you with superb deliverables at a fraction of the typical cost of a quality work as such.
Be that as it may, you can expect to pay anything upwards of $50 for the entirety of the design work you need to be done for your product.
Product Photography – $25
Try remembering the impression you got the last time you came across a product description with a product picture of poor resolution. Even if you were impressed by the specs, you probably ended up ordering the product from a different web page with a better picture of the product. The resolution of the product picture published on your product listing does count a lot. Your product picture must be eye-catching and click-worthy.
Strive as much as you can to make your product’s photograph look as captivating as the plain sight of the real product. A professional photograph costs anything between $25 – $50 for each photograph. Such photographs are usually mastered in state-of-the-art facilities and are laced with eye-catching features. Nonetheless, you can obtain crispy images of your product using your smartphone. To get it done right, you need to take shots in places with terrific lighting, and with a camera that has at least 1000 pixels. Use a white background for the main pictures, and take a few shots that depict the product being put to use in a real-life situation.
Cost of photography is therefore determined by your personal choices.
To sum up, the total cost here is a tabular recap of all the startup budget items for an Amazon Business that sells Jewelry as outlined above:
|NO||ITEM||COST PER UNIT||MINIMUM QUANTITY||TOTAL AMOUNT|
|3||Inventory||$2 – $7||2,160||$3,888|
|4||Tools and Supplies||Undefined||Undefined||$100|
|5||A UPC Code||$10||1||$10|
|7||Shipment and Import Taxes||Undefined||Undefined||Undefined|
|8||Promotional Incentives||$50||5 days||$250|
|No||ITEM||COST PER UNIT||MINIMUM QUANTITY||TOTAL|
|Amazon Early Reviews Program||$60||1||$60|
|No||ITEM||COST PER UNIT||MINIMUM QUANTITY||TOTAL|
|1||Packaging Design, Infographics and Snap Shots||Undefined||Undefined||$50|
So we have:
SUM TOTAL: $5,458
Some Cost-Effective Measures For Setting Up an Amazon Business
Who wants to keep costs to the barest minimum while maximizing profits? Take a wild guess. So what are some cost-effective measures that can help you get the best bang out of your bucks?
Search for Products with Low Per-unit Cost
The phone case business case study was chosen partly because I wanted to use a competitive niche for starting an Amazon FBA business. Notwithstanding, if you decide to go for a product with a low per-unit cost, the total cost you’ll be faced with will be slightly lesser than the figures we’ve come up with in this article.
Start Out With Minimal Inventory
Like we’ve noted already, ordering for a quantity of your chosen product that is lesser than the Minimum Order Quantity (MOQ) set by the manufacturer entails paying more per unit. But this can afford you the opportunity to carry out a low-budget trial run. If you do so, you’ll get to learn how to assemble the pieces of the jigsaw without risking too much. But don’t forget that there are numerous advantages in bulk orders which can boost the profitability of the product.
WARNING: Low-cost item with low MOQ is great for learning but not viable in the long run. Earlier this year, a friend of mine spent around $500 total and bought around 200 units. He gave a few for reviews, then was selling around 3-5 a day and was on page 1 for the main keyword. Within a month there were like 20 other sellers that jumped in. Now he sells 1-2 units per week and the price went down from $12 to $7 because everyone keeps slashing their prices to try and sell more than the competition so he makes maybe $1 net profit each now.
One of the main reasons for this is because the barrier to entry was too low. The MOQ was so low and the product was so cheap and could be air shipped that anyone with a few bucks could jump in and do it.
Keep Legal Fees At Amazon
You might want to take your time to absorb the contents of the TOS of all the outfits you go into business within the course of the product launch. This negates the need for professional legal advice. Also, you might want to hold off on acquiring legal entities like an LLC at the beginning, as that’ll have no immediate, direct impact on your product’s sales performance. You’ll still have plenty of things that need to be done if you hold off on that one. You can get down to it after you’ve successfully gotten the wheels of your Amazon business turning in the right way.
Run Your Amazon Business With a Website
The product listing you place on Amazon has all it takes to effectively display your private label product to the world. Spend time and resources to put up a website, and use it for driving traffic to your product page on Amazon.
The Amazon FBA business model is one of the simplest business models out there. You don’t need storage houses or a host of other facilities to run the business. Neither do you need to pay franchise fees. And you certainly don’t need a $2,000 website, use Shopify. With a seed money of about $2,000, you can begin selling your own private label products and grow your brand. According to a recent research, an average FBA business begins raking in profits equivalent to the seed money five months after launching.
If you’re short of product ideas, start with products that fit into shoe-sized boxes such as portable electronic devices, clothes, and mini-sized furniture. These are all low-cost per unit products, and they’re easily shipped by air.
Amazon themselves are keen on seeing Amazon business owners thriving. After all, the Amazon business owner’s success is Amazon’s own success.