The FAQs of FBA for 2021
March 2, 2021
Since the onset of the coronavirus pandemic, interest in selling on Amazon has skyrocketed to new heights. According to Google Trends data, searches for “selling on Amazon” and “how to sell on Amazon” have seen a significant upward trend that has continued into early 2021.
When examining the current landscape of the world and taking into consideration external factors at play, the increased interest in selling on Amazon makes perfect sense. Whether due to local restrictions or customers preferring to spend less time in crowded spaces, online shopping became a safer, more convenient alternative.
As a result of the ongoing pandemic, e-commerce’s steady rise over the past decade has been greatly accelerated, as evidenced by the nearly $800 billion increase in sales for the industry in 2020. With Amazon being responsible for roughly half of all e-commerce sales, it’s easy to see why people are looking to capitalize on this $3.5 trillion industry that is still on the rise.
As an industry without much standard, formalized training, selling on Amazon lends itself to plenty of misinformation and misleading claims from those with money at stake. Unfortunately, this leads to prospective sellers entering the marketplace with skewed expectations.
With years of experience monitoring Amazon data and tracking the latest trends, Viral Launch is here to answer a few of the most frequently asked questions, which will bust common myths and misconceptions and provide a clear-eyed view for prospective Amazon sellers.
What are common misconceptions about Amazon FBA?
Perhaps the most important misconception is the idea that Amazon FBA is purely “passive income.” Passive income is defined as income that requires little to no effort to earn and maintain.
In general, the idea of passive income is a misconception in e-commerce.
While FBA selling allows for a flexible schedule that can let you manage your business whenever you want from wherever you are, it’s not passive income. After the beginning stages of starting FBA (product research, sourcing, shipping, adding photos and copy to your listing, etc.), managing your business can be incredibly convenient.
However, it is by no means passive income.
Whether you’re managing inventory, advertising, or doing any of the daily tasks an Amazon seller performs, it’s not a set-and-forget setup. At least, not for those looking for sustained success.
In recent years, an influx of self-described coaches or “gurus” have set unfair, unrealistic expectations for FBA. If you see anyone touting FBA as passive income, they either don’t understand what passive income is or are lying. Simple as that.
Is it too late to start an Amazon business?
Not at all!
As we mentioned before, e-commerce exploded in 2020, but it was merely an acceleration of online retail becoming more prevalent in our lives than traditional brick-and-mortar retail. More people prefer to do their shopping online than ever before, and they’re buying more items online.
Since the pandemic accelerated the evolution of shopping, there’s no reason to think this won’t continue as we get back to normal.
For years, the phrase “location, location, location” has been popular for real estate and in business, meant to specify that the placement of a home or business stands out as the first priority when buying a home or setting up a business. For businesses, the logic is simple and sound: go where your customers are.
And the customers are on Amazon. In early 2020, Amazon surpassed 150 million Prime members worldwide. These are 150 million shoppers in one place, who have paid to shop in the marketplace and receive items at their door within two days. This massive audience of buyers combined with Amazon’s far-reaching infrastructure makes selling on Amazon such a wonderful opportunity.
Why start on Amazon with rising competition from Shopify, Walmart, and other emerging e-commerce companies?
Amazon wasn’t the only big winner of 2020. After years of climbing, Shopify emerged as a powerful alternative to Amazon. For prospective sellers, the allure of Shopify is easy to see. Shopify sellers have a wide range of e-commerce tools at their disposal and much freedom to create their brand.
While other e-commerce platforms have come and gone, Amazon has been the dominant online marketplace for more than a decade. Designed for convenience featuring state-of-the-art logistics and hundreds of millions of customers, Amazon’s platform makes kick-starting entrepreneurial dreams more accessible.
But other platforms are great, too! Shopify and Walmart experienced significant growth in 2020 and may continue to gain ground on Amazon. We recommend supplementing FBA sales with other avenues such as Shopify and Walmart over the long run. Still, FBA has built-in advantages to take many hassles off the seller’s plate, and it remains the go-to marketplace for consumers with no signs of slowing down.
Amazon in 2020, by the Numbers
- 63% of consumers worldwide use Amazon to start searching for products, leading the next closest source by 15%, according to a 2020 survey by Statista
- $96.1 billion: Amazon’s reported Q3 revenue, a 37% increase over Q3 2019, and projected growth between 28% and 38% for Q4 2020
- 54%: The percentage of paid units on Amazon sold by third party (3P) sellers, who are independent merchants who sell either FBM or FBA. Even as more major brands enter the marketplace, independent sellers like you are responsible for over half the sales on Amazon.
- 213 million: Unique visitors in July 2020 alone to Amazon sites
- 153 million: Amazon Prime members projected in 2022
A central theme you will continue to see in 2021 and beyond is the growing emphasis on diversified selling. As e-commerce continues to grow and competition increases, other platforms like Walmart and Shopify will be contenders. We recommend beginning your efforts on Amazon. But as you grow your Amazon business, expanding into these other platforms will be a crucial strategy for further growth.
How much capital do I need to start?
This answer varies on a seller-to-seller basis and depends on the cost of the product you choose. If you’re selling an inexpensive product such as rubber bands, start-up costs will be much cheaper than if you sell more expensive products like vacuums.
If we were to put a ballpark figure on how much money you should prepare for investing in your FBA business, we recommend roughly $3,000-$5,000. When breaking down the costs that go into defining your budget, there are plenty of fees that add up and catch you by surprise if you’re not careful.
However, according to a Viral Launch survey with more than 30,000 responses, 77% of prospective sellers begin with a budget of $5,000 or less, showing it’s possible to find, source, and ship a winning product without totally breaking the bank.
Unless you’re Jeff Bezos, $5,000 is no small amount of money to invest. Luckily, options do exist for people wanting to pursue FBA who might not have the funds to enter the marketplace comfortably. Amazon has its own loan program, Amazon Lending, designed to help small- and medium-sized businesses compete.
How to get started
It’s hard to know exactly where to get started. After all, there isn’t a high school or college class for starting an FBA business. Before diving headfirst into entrepreneurship, we recommend doing as much research as possible to make sure FBA aligns with your goals and resources.
After reading through materials by respected industry leaders, following along with existing sellers, and taking inventory of how your resources align with your business, we highly recommend taking our entirely free Amazon seller course to help you take the first steps of your Amazon seller journey.
With the free Amazon seller course, you can learn directly from Amazon sellers who used FBA to kick-start their ventures. They have plenty of experience with the process and have helped countless others.
We hope that by now you have a better understanding of what FBA is and, just as importantly, what it isn’t. It’s crucial to enter the marketplace with healthy expectations.
While FBA may not be a “get rich quick” or a “passive income” opportunity (which should now set off internal alarms about sketchy schemes or scams), it can be an incredibly rewarding experience that results in personal fulfillment and financial freedom.
It’s our belief that if you have the proper mindset, accurate data to make strategic and informed decisions, and the work ethic to continually evolve with Amazon, you can experience success launching your own business.
