Fulfillment by Amazon (FBA) has proved to be a total game-changer for millions of Amazon sellers. It’s a desirable asset for any entrepreneur, but while some want to build businesses from scratch, others want to skip to the good part.
And why not? From customer service to stock management to shipping and delivery logistics, the world‘s largest online e-commerce platform takes over everything in exchange for a monthly fee, leaving you to focus on the more important (and less frustrating!) part of running a profitable business.
If you’re contemplating buying an Amazon FBA business and want guidance, we’ve got you. This guide will go into detail about factors you should keep in mind when buying, as well as share long-term strategies to grow your brand.
Why Buying an Amazon FBA Business Makes Sense
Whether you should build or buy an Amazon FBA business depends on your goals.
Building any business takes time, effort, and solid commitment. On the other hand, investing in an already established business allows you to get into the profitable phase without the effort.
You get immediate access to Amazon’s tremendously loyal customer base. With over 2.4 billion combined desktop and mobile visits, simply listing your products on the website is enough to receive millions of visits daily, even as a small, single-person operation.
Amazon taking care of logistics is another advantage.
After sending your inventory to its fulfillment centers, they will take charge of the fulfillment, warehousing, and customer support. You can then channel your saved time to up your marketing game and boost sales.
In addition, when you use FBA to fulfill customer orders, your products will receive the Prime badge and get access to Amazon another prominent Prime customer base that takes orders exclusively from Prime sellers.
Buying an Amazon FBA business is really the easiest way to run a thriving e-commerce business—faster. Of course, there are a few considerations to remember like platform risk, the capital-intensive nature of the business, and potential instability. But then, every business has its share of risks.
You’ll need to pay storage fees and FBA fees to experience these benefits, though. Monthly or long-term storage fees are the cost of storing items in an Amazon fulfillment center. On the other hand, FBA fees are calculated after considering your product’s weight and size (typically, this is 30%-40% of your product price).
Quick Tips to Buy an Amazon FBA Business Today
No two Amazon FBA businesses are alike. You can have three stores selling similar products in the same categories, but there are still three different stores to consider.
Generally, when you start an ecommerce business your first priority is to choose a reliable ecommerce platform based on your personal requirements and budget. But since you’re going to sell on the Amazon marketplace, you need to choose an ecommerce platform that integrates with Amazon. Shopify, for one, has an excellent Amazon Integration Plus to get started.
But before that, you need to buy a profitable business. The following are three tried-and-tested tips to help you make the right decision:
Select a Business With a Unique Selling Proposition (USP)
Before purchasing an existing FBA business, find out whether it has a USP.
Choose a business that’s part of a profitable niche, preferably one you’re passionate and knowledgeable about. Find out whether the product has a demand and can compete with existing competition. If yes, what are the supplier/production costs? Is there a promising opportunity for growth and expansion?
The idea here is to thoroughly understand your competitors and use the knowledge to create a strong strategy that will help you boost profitability.
How do you do this? Through research.
Look at other listings in your product category to understand how the competition’s listing their products. Analyzing social media platforms, product reviews, and blogs is also critical to knowing customer perspectives.
If you find your potential FBA business is in a profitable mess but its products have a low rating, you can use it as an opportunity to grow and improve the business.
Suppose the Amazon FBA business you’re interested in buying sells electronic gadgets. While this is a popular selling niche on the platform, you decide to sell the products with sustainable materials to protect the environment. This position is your business as a socially conscious company, which can help you grow sales.
Only Work With Reliable Suppliers
Having a reliable and efficient supplier is critical to running a successful FBA business.
Unprofessional suppliers can be a nuisance. They may not deliver your products on time or fail to meet quality standards. This can have grave consequences to your market reputation and create tons of problems that threaten your business’s very survival.
To avoid this, ensure all parties involved understand each other’s terms and conditions. You want you and the supplier to be on the same page regarding the following:
- Whether they’ll offer an extended warranty
- Will they issue a refund in case anything goes wrong
- Will they be able to handle changes in specifications after an order is placed
- Will they be able to make changes within a short period
Choose suppliers that not only deliver products at great prices but also within the deadline. Yes, you want someone affordable, but this shouldn’t be at the cost of poor quality. In fact, working with bad suppliers is ultimately expensive because of the hefty costs associated with refunds, replacements, and returns.
We highly recommend checking the suppliers’ credit history. Talk to other business owners who have worked with them in the past to know about their experience.
You also want to have a backup supplier in place. If one supplier discontinues scaring your products, you can work with another to fulfill your merchandise requirements without delay. Be prepared for unforeseeable circumstances, like supply change disruptions from labor, raw materials sourcing weather, and power outages, as well.
Other considerations to keep in mind include domestic vs. overseas suppliers (domestic suppliers promise faster shipping; overseas suppliers can mean delayed times and higher shipping fees) and alignment with your company’s social causes (don’t work with suppliers who use harmful product packaging when your business has strong environmental credentials).
Accounting and Financials
Checking financial history is a no-brainer before acquiring any business, and this is no exception.
Carefully analyze financial statements and company history. In case you’re facing difficulties, reach out to finance professionals and experts. Amazon FBA stores also have a seller account where you can check metrics highlighting business performance and penalties, which is again useful information for making a sound purchase decision.
In addition to accounting and financials, you need to understand the product demands of the niche and the business’s resale value in the future. Be sure to check the profit and loss statement to understand how well the business is performing and will continue to perform.
In case the business depends on other external services, consider those funds as well. Did the seller spend money on promotional activities? Will you need to make additional expenses to run the business successfully? You should know whether there are any one-time or unusual expenses involved as well.
Don’t forget to factor in sales tax nexus, storage, referral, and shipping fees as they directly affect your gross revenue. As labor shortages and fuel prices continue rising, you’ll also need a clear understanding of how these factors will impact your business in the short and long run.
Knowing this information will help you set realistic expectations of the business’s return on investment.
Long-Term Strategies for Growing Your Amazon FBA Business
After acquiring an Amazon FBA business, your next priority should be growing it. With more than 70% of U.S. Amazon sellers using FBA, you need to figure out how to distinguish your product from your competitors to make an impact.
Keeping this in mind, here are some long-term strategies you can apply to grow your newly-acquired business.
Experiment With Paid Advertising Channels
Advertising is a super effective tool to build your customer base and grow your business. Optimizing your product listings is a good tactic, but it’s slow. Paid advertising works faster and also lowers customer acquisition costs—provided you do it right.
First and foremost, embrace constant experimentation. Even if you think you know how your business works and what customers think, there may be a more effective solution that helps you get what you want faster.
Do multi-variant testing across each step of your sales funnel to learn more about how advertising works for your business. For instance, you can test the images and copy added to your ads. Through A/B testing, you can determine which images people click on the most, giving you the highest CTR for the lowest CTC.
The same applies to testing copy, too.
Track and Record Everything
From key metrics to numbers to keywords, you should consistently track and record as much as possible to know the true pulse of your business. Otherwise, you won’t be able to take your business to where you would like it to be and ensure it thrives in the longer run.
Amazon offers built-in analytics and reports for third-party sellers. And while these are great tools, they don’t let you track what you, as an FBA seller should be regularly tracking.
Look for other analytics tools in the market to track factors integral to your business’s growth. Ideally, you would want software that offers handy solutions designed for Amazon sellers. This includes automating PPC campaigns, estimating profit margins, and keeping track of metrics in real-time.
You can also use tools that help with product research, keyboard tracking, and listing optimization.
Optimize Best Sellers Rank
You may have noticed Amazon product listings have a Best Sellers Rank (BSR). It’s a critical metric meant for customers and sales that informs them how your product’s orders compare to your competition’s products in the same category within a pre-defined time frame.
No one really knows sure how Amazon calculates BSR, but it’s an attractive feature for customers and influences their purchasing decisions.
Scoring the Buy Box, which is the white box on the right-hand side of the product image containing the CTAs “Add to Cart“ and “Buy Now,“ is a good way to improve your BSR. This is because the seller in the Buy Box is the one whose product gets added to the customer’s carts or is bought right away.
Considering that 82% of Amazon sales go through the Buy Box (with an even higher percentage on mobile phones), this can be a huge win for your business.
If you cannot keep up with your competition’s BSR rank, you may need to re-evaluate by either switching your product offering or finding something less competitive. Poor customer reviews are another factor that causes a low BSR ranking.