How Does Selling On Amazon Work?

There are different ways to sell on Amazon. Most businesses start with a third party seller account. There are two types, individual which is good for those who have just a few items to sell or beginners, and professional which cost about $40 a month and are good for small to large sized businesses. Brands can also sell as vendors direct to Amazon. For small to medium sized businesses, third party selling as a professional is usually the way to go.

Amazon & Business Basics

Amazon is a marketplace which means that they let you sell inventory that you own on their website to their customers. You are a self employed business owner and can function as a sole proprietor, LLC or SCorp and then pay them to sell on their platform. You own your inventory, are legally responsible for it, and you are also responsible for your bookkeeping and taxes. Usually, the seller pays for inventory up front, as well as paying any fees and then keeps the profit that remains.

Remember to calculate profit per item and overall. Expenses such as bad inventory, losses, software, fees, inventory costs and more need to be deducted from total payout to determine actual overall profit. So if one items sells at a $100 profit, one at a $30 loss and there are $20 in expenses, profit is actually $50 overall. Keeping track of and understanding your numbers is vital to the success of any business.

In order to learn and grow, sellers in general should plan to sell on Amazon for at least a year or sometimes more before pulling a salary out of the business. If you take money out, there will not be enough left to pay for more inventory. If you need money now, and can’t afford to grow long term consider investing some startup capital in Amazon inventory and some in eBay or keep a job.

Once you start, there are software and service providers who all want to help with different aspects of your business for a monthly fee. Some of these are worth it, some are not. You really cannot evaluate the value of that service or product to YOU unless you do that task yourself and know exactly what is involved and can then value outsourcing it. It’s vital when starting that you learn and understand every aspect of the business. It can seem overwhelming, but being part of a professional group of sellers, that you can ask questions of can really help.

Beware of asking Amazon Seller Support for anything other than very specific help. They cannot advise you on business decisions and frequently their staff gives answers that are in direct disagreement with their policy. The Seller forums are un moderated and can be filled with negativity. So while they are an important source of support, they should not be your only source of support.

Our organization, Scanner Society, has over 700 members with side hustles to multi million dollar businesses who are all very helpful.

Selling on Amazon is a FANTASTIC way to make money, learn e-commerce, and build a business. As you grow, add multiple channels and revenue streams so that you are not too dependent on any one channel.

The Logistics of Selling On Amazon

There are two different types of seller accounts. Individual and professional. An individual account is ok if you are selling a few items or just when you are learning and need to get the basics entered. Once a business wants to scale in any way, a professional account at $39.99 a month is worth it. It allows for no per item processing fee, and gated category and brand approvals. Anecdotally, we see that listings for professional sellers rank better and sell more.

Scanner Society

Set up a new Amazon account for your selling business with a business email. This is not for secrecy but simplicity. Do not try to hide from Amazon, they are smarter than you.
[email protected] = BUYING for myself
[email protected] = Selling in any capacity

Each item has its own catalog page that is called a listing. Many mainstream products already have a listing with a BSR (Best Sellers Rank). Each item is ranked with #1 being the best. The lower the rank, the better that the product sells. Once you start digging into sourcing, many sellers create their own listings for bundles or products that they bring to the platform.

There are two primary ways to fulfill customer orders. Fulfillment by Amazon or FBA is the most popular for customers. The seller fees are higher and there are other things to consider such as storage fees by weight, size and amount of time in the warehouse, but customers love their prime shipped items. Additionally, Amazon fulfills each individual order and handles returns while the seller ships their inventory to the designated warehouses in bulk. These customers belong to Amazon so sellers cannot market to them separately. This can be a great way to make money, just understand the fees up front.

The other way to fulfill orders is using Merchant Fulfilled or Fulfilled by Merchant (MF or FBM). That means that the seller sends each item to the customer from their home or warehouse. Returns go direct to seller. Fees are lower but usually sales are too. This can be good for items that are being sold closer to a major holiday, hazmat products, long tail products (things that might just sell occasionally) or very popular items. This will work for niche or high demand items but in general, primer buyers like prime items. Also, keep in mind that while fees are lower, the work per order is greater and the shipping costs are higher.

Product Sourcing Methods

Scanner Society

There are a few ways that sellers source inventory. Some are riskier than others but all have their merits. Some methods used to be safe to sell on Amazon but in 2017 and 2018 the standards have gotten higher so make sure that you are current with requirements, terms and risk.

  • Arbitrage. This is buying products new somewhere else and selling them for more. This can be done in person which is referred to as retail arbitrage or on websites, online arbitrage. For example, a seller can buy a new 3 pack of men’s underwear at TJ Maxx for $8 and sell it on Amazon for $30. Or, a seller can find a great deal on a popular toy on a website such as Walmart.com and sell it for 3 times buy price. Sell price is usually determined by a mix of demand and supply and can change frequently. Beware that Amazon does not always consider this a legitimate source of “new” products and carries risk. Prices are volatile, thus is profit. It’s a good way to start and some scale it into a multi million dollar business but it’s much harder and risker now than it was in the past.
  • Wholesale. Buying products direct from the brand owner or a distributor as a business and reselling them. In the brick and mortar world, this is simply called retail. A resale certificate is required for this which can be acquired for free from the Secretary of State website for your state.
  • Private Label. Also called manufacturing. Whether you make products in bulk in the US or import them, you can create your own widget and sell it. There are many variations of this from buying a version of something already selling and changing it a little, to inventing your own awesome gadget.
  • Dropshipping. Selling products that are fulfilled by another company completely. This is touted as a great way to make money but is very risky. Amazon and the customer do not care that your supplier did not take care of the product, did not send it on time or some other quality control issue, they hold your business legally responsible. Do this only with companies that you have a great relationship with and be very cautious.
  • Liquidation. Buy large lots of goods through a liquidator at pennies on the dollar and then reselling them on Amazon used to be a good way to source. There are still sellers who do this but it’s much more risky as they are not considered legitimately sourced. Consider selling these items on Facebook Marketplace or eBay.
  • Used/Thrifted. Selling these items on Amazon used to be a great way to make money. A treasure found at a thrift store that was in it’s original packaging could be sold as “new”. This practice is now very risky and books are really the only area that used merchandise can be sold on Amazon.
  • Bundles. Creatively combining wholesale, private label and arbitraged single items into a new product that solves a customer need or want is a great way to own your listings and sell to niches. We have a course for that! www.ScannerSociety.com/Classes

List & Ship

Once the products are sourced, they are prepared according to Amazon’s terms of service, listed in the Amazon seller app or website, and then either sent in bulk to the warehouses designated by Amazon (FBA) or shipped individually as they sell to the customer (FBM). Sellers need to track returns, buyer feedback, their books and more.

The smartphone is a vital tool to this business. It is used to scan barcodes, do research, keep up with customer emails and more. Beginners can use the Amazon Seller App which is free and then if arbitrage is a part of the business model, . There are also great app and software solutions.

Other ways To Sell On Amazon

There are lots of things that can be sold on Amazon, including books (KDP), Print on Demand , services, custom products, handmade, Alexa skills, video games and more. Amazon Business is a marketplace for B2B transactions that sellers can list on as well. Find the right starting point and dig in. A community of successful and helpful sellers, Scanner Society, can be vital to success as finding answers to small questions and big ones is best done in a positive and professional group.

Want to learn how to launch your own flexible and profitable online selling business? Take our course, Amazon Gateway today! www.ScannerSociety.com/Amazon

We sit down with the experts in the industry

Jeff from Seller Labs sits down with us to discuss the Amazon search engine.

Jaya Patel is an Atlanta based entrepreneur. She started selling on Amazon and eBay and sourced via arbitrage.

Rob from Payoneer is going to show us how to save money on your international shipments.

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Get your free e-book with the info you want to grow your business!

We sit down with the experts in the industry

Jeff from Seller Labs sits down with us to discuss the Amazon search engine.

Jaya Patel is an Atlanta based entrepreneur. She started selling on Amazon and eBay and sourced via arbitrage.

Rob from Payoneer is going to show us how to save money on your international shipments.

2019-01-29T21:24:13-04:00 Amazon 101, News and Updates|Comments Off on How Does Selling On Amazon Work?