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How Much Does It Cost To Start Amazon FBA

 

How Much Does It Cost To Start Amazon FBA?

With nearly 3 billion visits a month, 200 million global Amazon Prime members, and about $500 billion in annual revenue, Amazon is the most visited e-commerce platform in the United States. It ships products to more than 180 countries, and it is the dominant online retailer in 28 countries. Furthermore, roughly two-thirds of U.S. consumers start their product search on Amazon.

Also, the majority of sales on the Amazon marketplace come from third-party sellers. In the third quarter of 2023, third-party sellers accounted for 60% of all marketplace sales. This number is in a steady uptrend having risen from 56% in 2021. Thus, all these figures showcase that more and more sellers are selling on the Amazon marketplace, causing it to grow steadily in terms of number and revenues.

Seeing the potential that the e-commerce behemoth offers for sellers, there’s no doubt why the largest as well as the emerging household brands sell on Amazon. If you have a product idea that you believe can be of great value to consumers, Amazon offers a great marketplace and spans a vast array of product categories, allowing you to offer a wide range of goods.

But before selling your products through Amazon FBA, you must consider a host of factors to ensure a successful and profitable experience. One of the primary factors that you must consider is the cost of running your Amazon FBA business.

The costs to start an Amazon FBA business can vary based on several factors, including the types of products you plan to sell, the scale of your operations, and whether you choose to handle aspects like product photography and listing optimization yourself or hire professionals for these services. Thus, it’s crucial to conduct a thorough analysis of your business plan, projected sales, and associated costs to ensure that you can operate profitably on the Amazon platform.

To help you do that, in this blog post, we are going to walk you through in detail how much it costs to start Amazon FBA. We are going to list out every aspect where you need to invest and how much you need to invest. Finally, we will give you a rough estimate of the cost of starting an Amazon FBA business.

How Much Money Do I Need To Start Amazon FBA?

The amount of money that you need to start an Amazon FBA (Fulfillment by Amazon) business can vary widely depending on several factors, including the types of products you plan to sell, your business model, and your scale of operations.

It’s challenging to provide an exact figure, as the costs can vary significantly based on your business plan and the specific products you’re selling. Some sellers start with a few thousand dollars, while others may invest tens of thousands, especially if they plan to launch a wide range of products.

Therefore, before starting, it’s crucial to conduct thorough research, create a detailed business plan, and carefully calculate your expected expenses.

In this section, we are going to walk you through in detail the various steps that you need to follow to start selling through Amazon FBA. Also, we are going to let you know the estimated Amazon FBA startup costs that you need to bear to start your Amazon FBA business successfully.

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1. Product Research

The first and the most crucial step in starting an Amazon FBA business is Product research. Product Research helps in determining the viability of a product for selling on Amazon FBA. It allows you to understand if there is a demand for the product and if there is room for a new seller to enter the market.

Furthermore, by researching products, you can evaluate the level of competition in a particular niche. Also, understanding your competitors helps you identify opportunities for differentiation and competitive advantages.

Apart from determining the product viability and level of competition, thorough product research helps you minimize risks associated with choosing the wrong product. It allows you to identify potential challenges and obstacles before investing significant time and resources.

Given this, for our Amazon FBA business, the first thing that we need to do is to do thorough product research. Now there are various ways in which you can research the products that you intend to sell through Amazon FBA.

a. Product Research Tools

The best way to identify trending and highly profitable products to be sold through Amazon FBA is to use product research tools. Product research tools automate the process of gathering and analyzing data, thus saving a significant amount of time for you as a seller. Instead of manually sifting through countless products, you as a seller can quickly identify opportunities and focus on strategic aspects of your business.

There are a host of Product Research Tools to help you discover promising product niches and top products in those niches. Jungle Scout, Helium 10, and Viral Launch are a few of the top-rated Amazon Seller Software and Product Research tools that provide you with insights into sales estimates, competition levels, and much more.

For instance, Jungle Scout provides you with a product database that allows you to search for products based on various criteria such as category, estimated sales, price, and more. This helps you as a seller to discover potential products that match your criteria. Furthermore, the tool also assigns an Opportunity Score to each product, indicating the potential of a product based on factors like demand, competition, and listing quality. This score helps you as a seller to quickly assess the attractiveness of a product opportunity.

Apart from offering the Opportunity Tracker tool, Jungle Scout also offers a tool called Product Tracker that allows you to monitor the performance of specific products over time. This feature is valuable for understanding trends, seasonality, and the long-term viability of a product.

Likewise, Helium 10’s Black Box tool is a powerful product research tool designed to help you as an Amazon seller find profitable product opportunities within the Amazon marketplace. The tool allows you to search for potential products based on various criteria, including Product category, monthly sales, price range, review count, weight, size, and more. You can apply advanced filters to narrow down your search and identify products that meet specific criteria. This can include filtering by the number of sellers, estimated revenue, and other relevant metrics.

Now, if you choose to invest in any of these third-party market research tools, these tools may have monthly subscription fees, typically ranging from $30 to $100 or more, depending on the plan.

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b. Use Amazon’s Best Sellers List

Another straightforward and effective approach to undertaking product research for Amazon FBA is to use Amazon’s Best Sellers List. Amazon’s Best Sellers List provides insights into products that are currently performing well on the platform.

To use this list for product research, all you need to do is go to Amazon’s homepage (www.amazon.com) and scroll down to find the “Best Sellers” section. This section is typically located on the left-hand side of the homepage or at the bottom of the page.

Then, you need to click on the category that aligns with your interests or the type of products you are considering selling. Once you do this, you will find that within each main category, there are often subcategories. Therefore, you need to click on a subcategory that interests you to narrow down the list and focus on specific types of products.

Once you’ve selected a category or subcategory, you’ll see a list of the top-ranked products. You must analyze these products to understand what is currently popular and in demand. Also, you must look for patterns or trends among the top-performing items.

Furthermore, click on individual products in the Best Sellers List to view their product pages. Analyze the features, product descriptions, and customer reviews. Also, pay attention to what customers like or dislike about these products.

Now, there is no cost for using Amazon’s Best Sellers List. However, it might give you insights into products that are currently performing well on Amazon. However, you must supplement this approach with additional research using tools and strategies to analyze market demand, competition, and other relevant factors.

c. Use Amazon’s Best Seller Rank (BSR)

Leveraging the Best Sellers Rank (BSR) on Amazon is a useful method for conducting product research. BSR is a numerical ranking assigned to products within specific categories on Amazon, indicating their relative sales performance.

To use Amazon’s BSR for product research, go to www.amazon.com and choose a product category and a sub-category that aligns with your interests, expertise, or the type of products you are considering selling. Once you’re in a specific category or subcategory, you can sort the products by best-seller rank (BSR). This option is usually available in the category’s navigation menu. Sorting by BSR will show you the top-ranked products in that category based on their sales performance. Generally, lower BSRs indicate higher sales.

Therefore, review the top-ranked products with the lowest BSRs. These are the products that are currently selling well within their respective categories. Therefore, pay attention to product features, prices, and customer reviews of these products. Look for products that consistently maintain low BSRs over time. That’s because consistency suggests steady sales and ongoing demand for those products.

While BSR is a valuable metric for gauging product performance on Amazon, it’s essential to complement this approach with other forms of product research.

Read: How To Find The Best Products To Sell On Amazon FBA?

2. Choose Product Sourcing

Once you undertake in-depth product research and finalize the product that you need to sell through Amazon FBA, the next step is to choose a product sourcing model. The cost of starting an Amazon FBA business will be greatly influenced by the product sourcing model that you choose.

There are various methods for sourcing products for an Amazon FBA (Fulfillment by Amazon) business, each with its advantages and disadvantages. The method you choose will depend on factors such as your business model, budget, and preferences.

Here is a list of product sourcing models along with their pros and cons. Note that no one method is better than the other. It’s just that you need to carefully evaluate the pros and cons of each sourcing method based on your business goals, resources, and preferences.

But to calculate an estimated figure for the cost of procuring products through any of these models, let’s consider an example.

Example

Say, we want to sell funky t-shirts on Amazon under the brand name KOOKY. Assume that the selling price or the market price of the product that we intend to source is $143. Why $143 and not any other figure?

Well, as per a study conducted by Semrush, the average price for the most popular Amazon products across all categories is $142.74. Thus, we will assume the market price of our product will be $143.

However, the cost of a T-shirt is $10 if we import the T-shirt from China. The price of one sample is $50.

Also, assume that the Minimum Order Quantity (MOQ) that you need to place with the supplier is 300 units. Out of these 300 units, 100 t-shirts are of small size and weigh 118 gms each, another 100 t-shirts are of medium size and weigh 130 gms each, and the final 100 t-shirts are of large size and weigh 141 gms each. So the total weight of 300 t-shirts is:

Total Weight (300 t-shirts) = (Weight of Small Size * Number of t-shirts) + (Weight of Medium Size * Number of t-shirts) + (Weight of Large Size * Number of t-shirts)

Total Weight (300 t-shirts) = (118 gm * 100) + (130 gm * 100) + (141 gm * 100)

Total Weight (300 t-shirts) = 11,800 gms + 13,000 gms + 14,100 gms = 38,900 gms/1000 gms = 38.90 kg or 39 kg

Total Weight (300 t-shirts) = 39 kg

As for the Shipping Cost, the cost of shipping a package of 300 t-shirts that weighs 39 kg or 85 pounds is $110 within USA. If it’s international shipping, the average cost of shipping increases to $200.

Now, let’s talk about the import duty that we need to pay for the t-shirts. There are 4 types of duties and taxes imposed on goods that are imported into the US:

  • Customs Duties
  • Merchandise Processing Fees (MPF)
  • Harbour Maintenance Fees (HMF)

Now let’s talk about each of these duties separately.

A. Customs Duty And Other Fees
1. Customs Duty

Customs Duty is a duty implemented by the U.S. Customs and Border on imported goods that are valued above $800. The enforcement of this duty depends upon the nature and value of the imports. That is, the nature and value of imports determine both the applicable duty on the goods and the type of clearance process your products undergo.

Note that in the US, you need to charge customs duty if the cost of your shipment is above the de minimis value. The de minimis value is the minimum cost of importing products required to be eligible for charging import duty and taxes.

The de minimis value in the US is $800, and anything below this would not be charged for import tariffs and duty.

Accordingly, any imports that are above $800 will have to go through a conventional clearance or full formal entry at the customs. Whereas eCommerce purchases that value between $800 and $2,500 could enjoy a simplified clearance process that involves minimal intervention from the customs. However, e-commerce purchases that exceed $2,500 will have a flat import tariff rate of 3%.

Though, textiles are the only exception. Accordingly, the customs duty will be incurred for goods in this category valued above $250.

Since we are importing t-shirts, the HS code for the same is 61091000, and accordingly, the flat customs rate is 16.5%.

2. Merchandise Fee

In addition to levying customs duty, the U.S. Customs and Borders Protection (CBP) also collects user fees on imported goods. The amount of this fee depends upon the mode of transportation and type of entry in the U.S., that is formal or informal entries.

Accordingly, if the value of the imported goods exceeds $1200 and are typically imported for commercial selling purposes, then such imports are eligible for a formal entry clearance route. In this case, the importer has to pay a fee of 0.3464% on the estimated value of goods. Note that this fee does not include freight, duty, and insurance charges.

On the other hand, if the value of the imported goods is less than $1200 and is typically imported for both personal use and commercial selling purposes, then such imports are eligible for an informal entry clearance route. In this case, a set fee that ranges from $2.22, $6.66, or $9.99 per shipment is charged.

3. Harbor Maintenance Fee

CBP collects the Harbor Maintenance Fee (HMF) if the imported goods are transported via a ship. It amounts to 0.125% of the imported cargo’s commercial value. This fee does not apply to the cargo imported via mail or air.

B. Customs Broker Fees

In addition to the above fees and duties, you also need to pay customs broker fees. Customs brokers are individuals or entities that facilitate the customs clearance process for businesses or individuals involved in international trade. Their primary role is to ensure that goods can smoothly pass through customs and comply with all relevant laws and regulations. Furthermore, customs brokers act as intermediaries between importers/exporters and government customs authorities.

Their key responsibilities include:

  • Preparing and submitting the necessary documentation required for the import or export of goods like invoices, packing lists, bills of lading, and other relevant paperwork.
  • Determining the appropriate Harmonised System (HS) classification, ensuring accurate and compliant customs declarations.
  • Calculating the applicable customs duties, taxes, and fees associated with the import or export of goods.
  • Communicating directly with customs authorities on behalf of their clients.

Now, to avail of these services, you have to pay a customs broker fee. Note that customs broker fees typically consist of several components, reflecting the various services provided by the customs broker to facilitate the import or export of goods. These fees may vary among customs brokers and are influenced by factors such as the complexity of the shipment, the volume of documentation, and additional services required.

Thus, customs brokers charge clients based on specific services. The common services for which the importers pay fees to customs brokers include:

(i) Basic Brokerage Fee

The basic brokerage fee is a charge imposed by customs brokers for the services they provide in facilitating the customs clearance process for imported or exported goods. The fee charged by customs brokers can vary based on factors such as the complexity of the shipment, the value of the goods, the volume of documentation involved, and the specific services provided by the broker.

It can range from $50 to $150 or more, depending on the broker and the complexity of the clearance.

(ii) ISF Filing

Importer Security Filing (ISF), also known as 10+2, is a U.S. Customs and Border Protection (CBP) regulation that requires importers or their agents to provide specific information about ocean shipments before the goods arrive in the United States. The goal of ISF is to enhance the security of the U.S. supply chain and enable CBP to assess potential risks associated with incoming cargo.

Note that the Importer Security Filing rule applies to cargo arriving by ocean vessel. Furthermore, importers are required to submit key shipment information electronically to CBP at least 24 hours before the goods are loaded onto an ocean vessel bound for the United States. Also, the information needs to be submitted through the Automated Broker Interface (ABI) or other approved electronic data interchange systems.

So the average service charge that customs brokers charge for ISF filing is between $25 to $50.

(iii) Customs Bonds

Customs bonds, also known as import or surety bonds, are financial guarantees required by customs authorities to ensure compliance with regulations and payment of duties, taxes, and fees associated with importing goods. These bonds serve as a form of insurance that protects the government and ensures that importers fulfill their obligations during the customs clearance process.

There are different types of customs bonds based on the specific requirements of the customs authorities. The two main types are:

  • Single-Entry Bond: Covers a single import transaction.
  • Continuous Bond: Provides coverage for multiple transactions within a specific period, usually one year. Continuous bonds are common for regular importers.

Note that customs authorities, such as U.S. Customs and Border Protection (CBP), may require importers to obtain a customs bond based on factors such as the type of goods, the value of the shipment, and the importer’s compliance history.

Furthermore, the bond amount is determined by customs authorities and is often calculated based on the value of the goods, including customs duties. This bond amount serves as a financial guarantee to cover potential losses or non-compliance.

You will need a customs bond if you plan on importing more than $2,500 worth of products. The cost of a Single-Entry Bond is 0.5% of goods value. For our shipment, we will consider a Single-Entry Bond. The value of our Single-Entry Bond will be

Bond Amount = Declared Value + Taxes and Duties
Bond Amount = $3000 + [(16.5% x $3000) + (0.3464% x $3000) + (0.125% x $3000)]

Bond Amount = $3000 + [$495 + $10.392 + $3.75]

Bond Amount = $3000 + $509.142 = $3,509.142

Single-Entry Bond Cost = 0.5% x $3,509.142 = $17.54571

C. Storage Fees

In addition to paying the customs duty and customs broker fee, you also have to bear storage costs. This storage cost relates to storing the goods before they are sent to Amazon’s Fulfillment Centre (FC).

Say to store your products before sending them to Amazon’s FC, we take a self-storage unit of 100 square feet at $2 per square foot. Therefore, the monthly rental turns out to be $200 and the annual rental turns out to be $2400.

Note that self-storage units, also known as storage units or storage lockers, are facilities that provide space for individuals, businesses, or organizations to rent and store their belongings. These facilities offer various-sized units or containers that customers can use to store items temporarily. Self-storage units are typically rented on a month-to-month basis, providing flexibility for users who need short-term or long-term storage solutions.

D. Insurance

To protect your shipment, you will have to take import-export insurance. You need such insurance for your financial protection from anything that could go wrong during the shipping process. This may include buyers not paying for your product, goods becoming damaged during shipping, or political upheaval in the destination country

Now, the insurance cost may consist of marine cargo insurance and international product liability insurance. Marine cargo insurance can be of two types: All-Risk Cost and Named Perils Cost. The amount of All-Risk Cost is between one percent to three percent of the total value of a shipment. Whereas, the Named Perils Cost amount is usually 0.5 to 2 percent of the total value of an exported load. Let’s take all risk costs at the rate of 3% for our example. For international product liability insurance, we simply need to charge $0.25 for every $100 you make in revenue.

Now let’s discuss each of the product sourcing models and understand the cost of sourcing through each of these models.

I. Wholesale Product Sourcing

Wholesale product sourcing for an Amazon FBA (Fulfillment by Amazon) business involves purchasing products in bulk from authorized distributors or manufacturers and reselling them on Amazon.

Once you have identified your niche and the types of products you want to sell through Amazon FBA, the next step is to look for authorized distributors or manufacturers within your chosen niche if you choose the wholesale product sourcing model. To find potential suppliers, you can check industry directories, trade shows, and online platforms.

Ensure that the distributors you consider are authorized to sell the products you want to source. Always verify their legitimacy and authorization by contacting the brand directly or checking their official website.

Once you verify the suppliers, zero down on a list of potential suppliers. Then, reach out to potential suppliers and inquire about their wholesale terms, pricing, and minimum order requirements (MOR). Also, negotiate terms such as payment terms, shipping costs, and any other relevant details.

Don’t forget to request samples of the products you intend to sell before placing a large order. This allows you to assess product quality, packaging, and overall suitability for your business.

Now, the cost of wholesale product sourcing for an Amazon FBA (Fulfillment by Amazon) business can vary based on several factors. These factors include:

a. Product Cost

The product cost is the purchase price of the products from the wholesale supplier or manufacturer. This cost will depend on the type of products you’re sourcing, the supplier’s pricing structure, and the quantity you’re purchasing.

b. Shipping Cost

Shipping costs include both the cost of getting the products from the manufacturer or distributor to your location (if applicable) and the cost of shipping the products from your location to Amazon’s fulfillment center.

c. Customs Duties and Import Fees

If you are sourcing products internationally, customs duties and import fees may apply. These costs can vary based on the country of origin and the type of products being imported.

d. Storage Fees (Pre-Amazon)

Before sending your products to Amazon’s fulfillment center, you may incur storage costs if you need to store the inventory in a warehouse or your facility.

Thus, the total cost of importing products from a wholesaler or manufacturer who resides in the US is:

Total Cost = (Product Cost * MOQ) + Insurance + Shipping Cost + Customs Duties and Import Fees + Customs Broker Fee + Storage Fee

Total Cost = (Product Cost * MOQ) + [All Risk Cost Insurance + Product Liability Insurance] + Shipping Cost + [Customs Duty + Merchandise Fee + Harbor Maintenance Fee] + [Basic Customs Broker Fee + ISF Filing + Single-Entry Bond Cost] + Storage Fee

Total Cost = ($10 x 300) + [(0.03% x $3000) + ($3000 x $0.25)/$100] + $200 + [(16.5% x $3000) + (0.3464% x $3000) + (0.125% x $3000)] + [$100 + $50 + $17.54571] + $200

Total Cost = $3000 + [$90 + $7.5] + $200 + [$495 + $10.392 + $3.75] + $167.54571 + $200

Total Cost = $3000 + $97.50 + $200 + $509.142 + $167.54571 + $200 = $4,174.18771

This is the approximate cost if we choose to get the products shipped via ocean, that is

However, if we choose to get the products shipped via air, the costs would vary.

Also, if you choose to order samples first, then you need to add the cost of samples to the total cost. Say, it costs $50 to import one sample. If you order 10 samples, then your total sample cost turns out to be $500.

b. Manufacturing (Made-To-Order)

The second way to source your products is through manufacturing or made-to-order product sourcing. Manufacturing or made-to-order product sourcing for an Amazon FBA business involves creating custom products based on specific designs, features, or requirements. This sourcing method allows you as a seller to differentiate your products and enter niche markets with unique offerings.

To source made-to-order products, the first thing that you need to do is to define clearly the concept for your custom product. When defining the concept for your custom product, consider factors such as design, features, materials, and any unique selling points that will make your product stand out in the market.

Once you finalize the concept, you must then look for manufacturers that specialize in producing custom or made-to-order products. You can use online platforms, trade shows, industry directories, and networking to identify potential manufacturers. When searching for potential manufacturers, consider their experience, production capabilities, and quality standards.

After you select the potential manufacturers, you must reach out to them and inquire about their capabilities and willingness to produce your custom product. You must provide these manufacturers with detailed specifications and discuss any customization options, including materials, colors, sizes, and packaging.

Furthermore, before committing to a large production order, you must request samples of your custom product to assess the manufacturer’s quality, craftsmanship, and adherence to your specifications. Then, you must evaluate the samples for design accuracy and overall product quality.

Also, you must negotiate terms with the manufacturer, including pricing, minimum order quantities (MOQs), production lead times, and payment terms, and clarify any additional costs, such as tooling fees, mold fees, or sampling fees.

Now, to calculate a rough estimate of the minimum amount that you need to invest if you choose to source custom or made-to-order T-shirts from manufacturers in, say China, we will consider the same example as mentioned above.

The cost of importing the customized t-shirts would be similar to the cost of importing t-shirts from wholesalers. The only component that will vary will be the cost of t-shirts. Since under the made-to-order product sourcing model, we are getting the t-shirts custom manufactured, the cost of t-shirts would be a bit higher as compared to the price of the t-shirts purchased through wholesalers.

Say, the cost of getting a customized t-shirt manufactured is $15. Therefore, the cost of 300 t-shirts will be $4500. Considering, that all the other things including insurance, shipping cost, storage fees, customs duty, customs broker fee, and storage fee remain the same, the total cost of shipping the goods is:

Total Cost = (Product Cost * MOQ) + Insurance + Shipping Cost + Customs Duties and Import Fees + Customs Broker Fee + Storage Fee

Total Cost = (Product Cost * MOQ) + [All Risk Cost Insurance + Product Liability Insurance] + Shipping Cost + [Customs Duty + Merchandise Fee + Harbor Maintenance Fee] + [Basic Customs Broker Fee + ISF Filing + Single-Entry Bond Cost] + Storage Fee

Total Cost = ($15 x 300) + [(0.03% x $4500) + ($4500 x $0.25)/$100] + $200 + [(16.5% x $4500) + (0.3464% x $4500) + (0.125% x $4500)] + [$100 + $50 + $26.262315] + $200

Total Cost = $4,500 + [$1.35 + $11.25] + $200 + [$731.25 + $15.588 + $5.625] + $176.262315 + $200

Total Cost = $4,500 + $12.6 + $200 + $752.463 + $176.262315 + $200 = $5,841.325315

Where,

Bond Amount = Declared Value + Taxes and Duties
Bond Amount = $4500 + [(16.5% x $4500) + (0.3464% x $4500) + (0.125% x $4500)]

Bond Amount = $4500 + [$731.25 + $15.588 + $5.625]

Bond Amount = $4500 + $509.142 = $5,252.463

Single-Entry Bond Cost = 0.5% x $3,509.142 = $26.262315

c. Other Product Sourcing Ways

In addition to sourcing products from wholesalers and manufacturers outside the US, you can also source products for your Amazon FBA business using the following methods:

(i) Private Label Sourcing

Private label sourcing involves a business model where you as a seller purchase products from a manufacturer or a supplier and sell them under your brand name. Unlike the traditional retail models where businesses sell products from established brands, you as an FBA seller in private label sourcing own the brand and have control over how the products are presented and marketed.

In addition to this, you have the flexibility to customize the products to some extent, such as choosing packaging, design elements, colors, and specifications. This way you as an FBA seller can create a unique and distinctive brand identity for your products.

Furthermore, private label sourcing can offer cost advantages, as you can negotiate directly with manufacturers and suppliers. This can result in lower production costs and potentially higher profit margins compared to reselling branded products.

Considering how much you does it costs to source products through private label sourcing, it’s similar to the cost of sourcing products from wholesalers. This means to start an FBA business using a private label sourcing model, you will require roughly $4500.

Read: What Is Amazon FBA Private Label And How Does It Work?

(ii) Retail Arbitrage

Retail arbitrage is often associated with e-commerce platforms like Amazon, eBay, or other online marketplaces. It is a product sourcing model where you as an FBA seller purchase products from local retail stores at lower prices and resell them at a profit through online platforms or other marketplaces. The process involves identifying discounted or clearance items in physical retail locations and leveraging the price difference to make a profit when selling those items online.

Since retail arbitrage relies on the principle of price arbitrage, you as a seller exploit the difference in prices between the retail purchase and the online selling price. This allows you to make a profit after covering expenses such as shipping, fees, and the initial purchase cost.

Once you source products from local department stores, big-box retailers, or local stores at discounted prices, you then create product listings on the chosen online platform like Amazon or eBay. After creating product listings, you optimize these listings by crafting clear and concise product titles, providing more detailed product descriptions, and using high-resolution images that showcase your product from multiple angles to attract potential buyers.

Note that successful retail arbitrage requires a good understanding of market dynamics, effective sourcing strategies, and compliance with the policies of online platforms. Additionally, because it involves purchasing physical products, inventory management and logistics are crucial aspects of the business model.

As for the investment required to source products through retail arbitrage for your FBA business, the main cost components include product cost, shipping cost, and Amazon FBA fees.

Let’s consider the example discussed above again. Say, you find a local retailer who is selling t-shirts at discounted prices. You are getting one T-shirt at the rate of $30. Thus, the cost of 300 T-shirts will be $900.

In addition to the product cost, you will also pay for shipping t-shirts from the retail store to Amazon’s FC. Say the shipping cost in the US for a package weighing 85 pounds is $110.

Then, to sell through Amazon FBA, you will have to take one of the subscription plans. We will talk about the subscription plans in detail in the section below. As for now, assume that you buy the Amazon Professional Seller plan for which you have to pay a monthly subscription fee of $39.99.

Thus, the approximate total cost to sell products through Retail Arbitrage is:

Total Cost = Cost of Inventory + Shipping Cost + Amazon FBA Fee

Total Cost = $900 + $110 + $39.99 = $1049.99

(iii) Online Arbitrage

Just like retail arbitrage, online arbitrage is a product sourcing model where you as an FBA seller purchase products at lower prices from online retailers and resell them at a profit on different online platforms or marketplaces.

Thus, online arbitrage begins with sourcing products from various online retailers. As an FBA seller, you look for discounted items, clearance sales, promotions, or special deals on platforms like Amazon, Walmart, Target, or other e-commerce websites.

To compare prices across different online platforms, you can use online tools, browser extensions, or software and identify products with a significant price difference between the source platform and the potential selling platform.

Thus, the online arbitrage process involves finding discounted or clearance items on one online platform and leveraging the price difference to make a profit when selling those items on another platform.

To start selling through Online Arbitrage on Amazon, you will first create product listings of the products that you purchased online from other platforms. Then, you will optimize these product listings to attract customers. You can optimize product listing titles, descriptions, and images by using relevant keywords.

As for the investment required to start selling on Amazon FBA through Online Arbitrage, it’s similar to Retail Arbitrage. The only difference is that instead of purchasing products at discounted prices through local physical retail stores, you purchase products from online stores like Amazon, eBay, Walmart, etc.

(iv) Dropshipping

Dropshipping is a product sourcing model in which you as a dropshipper sell products to customers without holding inventory. In the dropshipping product sourcing model, you as a seller do not have to maintain stock and manage products. Rather, you partner with a supplier or wholesaler who handles the storage, packing, and shipping of products directly to the customer.

Thus, the dropshipping model allows you as a seller to focus on marketing, sales, and customer service while outsourcing the logistics of order fulfillment.

Note that Amazon also allows sellers to dropship products on Amazon’s marketplace. To sell products using Amazon dropshipping, you first need to create an online store on Amazon and create listings of products that you want to sell on Amazon.

But before you do this, you need to partner with suppliers or wholesalers who offer dropshipping services and are responsible for storing inventory and fulfilling orders on your behalf.

As a drop shipper, you need to select products to sell on your Amazon store from the supplier’s catalog. You must choose products with good profit margins, demand, and reliable suppliers. You can even integrate your Amazon store with the supplier’s system to automate order processing, inventory updates, and shipping information.

So how does Amazon dropshipping work? After partnering with suppliers offering dropshipping services, you create a store on Amazon and list the products that you are going to drop ship from the suppliers with whom you partnered. Once you list products and start selling on Amazon as a drop shipper, customers start placing orders on your Amazon store.

When you receive the orders, you then forward the order details to the supplier, along with the payment. The supplier processes and fulfills the order by picking, packing, and shipping the product directly to the customer. You as a dropshipper are responsible for customer service, handling inquiries, providing tracking information, and addressing any issues or concerns.

Now, as for the investment required to start selling on Amazon FBA through dropshipping, the key components are the product cost and the shipping cost. Let’s consider the KOOKY t-shirts example to work out an estimated figure for the investment required to sell on Amazon through the dropshipping product sourcing model.

Say, you find a supplier who is ready to drop ship t-shirts on your behalf to the customers. This means that the supplier is responsible for storage, packing, and shipping of products directly to the customer. Since you do not have to maintain inventory, you will not pay for storage fees. You only have to pay for the product cost and the shipping cost.

Say, someone ordered 2 T-shirts. The weight of 2 T-shirts is 236 gms. Accordingly, the cost for shipping 2 t-shirts is $8.

Then, to sell on Amazon, you need to have a seller account. Say, you have subscribed to the professional account the cost of which is $39.99 per month.

Thus, the total cost that you have to bear is:

Total Cost = Product Cost (As Per Order) + Shipping Cost (As Per Order) + Amazon Seller Fees (Monthly)

Thus, the upfront investment that you need for the dropshipping model is $39.99 per month.

Read: What’s Better: Dropshipping Or Amazon FBA?

(v) Liquidation Sourcing

Liquidation sourcing is a model in which you as a seller acquire products through liquidation sales, typically from retailers, manufacturers, or distributors looking to sell off excess or obsolete inventory. These products are often sold at significantly discounted prices, and you as a seller may leverage this sourcing model to obtain inventory for resale on Amazon.

The liquidation sourcing model can present opportunities for you as a seller to acquire goods at a lower cost, but it also comes with some risks and considerations.

Note that liquidation sales occur when businesses seek to quickly sell off excess, overstocked, or discontinued inventory. This may happen due to reasons such as changes in product lines, store closures, or the need to clear warehouse space. Accordingly, products may be damaged, have missing components, or be close to expiration.

As a seller trying to purchase products through a liquidation sourcing model, you need to carefully inspect the inventory to assess its condition and marketability. You also need to ensure that the liquidation inventory complies with Amazon’s policies and quality standards.

Once you acquire the liquidation inventory, you can create listings on Amazon to sell these products. You can even optimize product listings with accurate descriptions, images, and pricing to attract potential customers.

Now, how much investment you need to sell products through the liquidation product sourcing model will depend upon a host of factors including:

  • Purchase price of the products
  • Shipping and freight costs
  • Inspection and testing
  • Storage and warehousing
  • Regulatory compliance
  • Repacking and refurbishing
  • Marketplace fees
  • Marketing costs
  • Market research and analysis

Thus, you need to work out each of these costs and see whether it’s viable to sell products through Amazon FBA using the liquidation sourcing model.

3. Amazon FBA Plan

In addition to product research and product sourcing costs, another important cost that you have to incur to sell products through Amazon FBA is Amazon Fees.

Selling on Amazon involves various fees that you as a seller must consider in your overall cost structure. These fees can vary based on factors such as the type of seller account you have on Amazon, the fulfillment method you choose, and your product category.

The following table explains the main types of Amazon selling fees that you may have to pay as a seller selling products through Amazon:

Type Of Amazon Selling Fees What Is It And When To Pay?
Referral Fees The referral fee is charged for each item that you sell on Amazon. This fee is based on your product category and typically ranges from 6% to 45% of the item’s sale price, with a minimum fee per item. Certain categories, like books and electronics, may have specific referral fee structures.
Fulfillment Fees A fulfillment fee is charged when you as a seller use Amazon’s fulfillment services, such as Fulfillment by Amazon (FBA). This fee covers the costs of storing, picking, packing, and shipping the products. Fulfillment fees are based on factors like the size and weight of the item.
Subscription Fees Amazon offers two main types of seller accounts: Individual and Professional. Individual sellers pay no monthly subscription fee but are charged a per-item fee of $ 0.99 for each sale. Professional sellers, on the other hand, pay a monthly subscription fee of $39.99 and may benefit from lower per-item referral fees.
Variable Closing Fees Variable closing fee applies to media categories, such as books, music, videos, DVDs, and video games. This fee is charged in addition to the referral fee and is charged on a per-item basis.
High-Volume Listing Fees For sellers with a high volume of listings in certain categories, Amazon may charge a high-volume listing fee. This fee helps sellers with high volume cover the costs associated with maintaining a large number of product listings. Non-media listings that have not sold in 12 months need to pay a monthly fee of $0.005 per eligible listing to cover cataloging costs. Amazon waives this fee for the first 100,000 listings.
Advertising Fees If you as a seller participate in Amazon’s advertising programs, such as Sponsored Products, you need to pay an advertising fee based on clicks or impressions. Note that the advertising costs are separate from the standard selling fees.
Refund Administration Fees If you as a seller issue a refund to a customer, Amazon may charge a refund administration fee to cover some of the processing costs. The Refund Administration Fee amounts to $5.00 or 20% of the applicable referral fee, whichever is less.
Storage Fees If as a seller you are using FBA service, you may incur a storage fee for keeping your inventory in Amazon’s fulfillment centers. This fee is based on the volume (cubic feet) of storage space the inventory occupies.
Long-Term Storage Fees Long-term storage fee applies to inventory stored in Amazon’s fulfillment centers for an extended period. This fee is charged semi-annually and is based on the length of time the items have been in storage.
Return Processing Fees A return processing fee may be charged for certain product categories when a customer returns an item. This fee helps Amazon cover the costs associated with processing returned products.
Restocking Fees In some cases, you may as a seller choose to charge a restocking fee for returned items. This fee is deducted from the refund amount and is intended to cover the costs associated with processing and restocking returned products.

Thus, as an Amazon seller, it’s important that you carefully review Amazon’s fee structure, as the details may change, and new fees may be introduced. Understanding these fees is crucial for accurate pricing, profitability analysis, and effective management of an Amazon business. Therefore, as a seller, you should regularly check Amazon’s Seller Central for the most up-to-date fee information.

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