How to Start a Business on Amazon in 2022

Written By Dennis Cleary  |  Blog  |  0 Comments

Owning a business for yourself can seem like a dream. But dreams come true if we work for them. This article is for anyone who has thought about starting a business on Amazon but needs a few more questions answered before they feel comfortable making the investment.

Being your own boss is a great path toward financial independence, and living out your dreams that don’t involve work. Fulfillment by Amazon (FBA) is a great small business model that thousands of people have used to get to their goals.

We have researched this from every angle, and have come up with a few broad categories to consider before getting down to brass tacks. We’ll tackle each category first, then we have a simple, 10 step process that will help you get up and running. If you have any questions at the end, make sure to check our FAQs.

Questions Only You Can Answer

Before you click the button on Amazon to become a seller, you should have a few questions answered for yourself, first. One of the biggest reasons online businesses fail, especially with the FBA model, is that people aren’t sure what they actually want to do. 

We’ve all seen the success stories, seen the online ads. But there are some nuts-and-bolts questions that no one seems to answer. These are things you need to consider. Like, what will you sell? Where will you actually store all the products you will sell? Where will you even get the products?

Having a clear plan will set you up for success. It won’t guarantee it, but it will make moments of frustration a lot easier to handle. Also, remember that plans can change. Deciding on a plan now doesn’t mean you won’t be flexible as your business grows.

First Priority: What Will You Sell?

There are a number of different types of FBA business models, almost as many different types as there are people. Some people use Amazon because they have a specific product they know will sell that no one else is marketing. If that’s the case for you, you can skip to the next section.

But if you don’t already have an edible pet soap that doubles as a water purifier, then you need to figure out what you will sell. This is your first priority. Will you sell anything that makes you a profit? Or do you want to specialize in car accessories?

If you don’t have an MBA it can be difficult to analyze the market. Even with a degree it can be next to impossible. But making this decision right away will help keep your mind clear. You’ll be able to maintain focus on your brand and your products even when distracting fads come. Because as quick as fads come, they are certain to go.

So, before going forward with your Amazon business, devote some time to thinking about your product. And it’s okay if you’re going for the profit-only approach. Lots of people make good money on Amazon selling anything and everything. But if that’s your model, be prepared for extra work.

Second Priority: Arbitrage, Private Label, or Maker

There are three basic Amazon models, and we’ll break them down in simple terms. Basically, arbitrage is reselling other people’s products; a private label is when you buy products from manufacturers directly, and they put your name and logo on it; and being a maker is when you produce the goods yourself.

After you’ve decided between Arbitrage, Private Label, or to Make your own products, we’ll get into how that works with Amazon, specifically.

Arbitrage

What’s that word? It’s the funky sounding word for buying low and selling high. Whether you specialize in a product or decide to sell anything that will make you a profit, arbitrage could be the path for you.

Essentially, you find something on sale at your local retailer, or on a holiday sale online. You buy several units of the product, store it, and when the market price of that product goes up, you sell it at a profit on Amazon. 

You can also take advantage of regional price differences. Amazon has an app for sellers where you can scan a product on your phone at your local retailer, and the app will tell you what that product is going for online.

Perhaps you found a great deal on snow shovels at your local Wal-Mart, because you live in an area where it snowed every year except for this one. Meanwhile, a dozen cities across the country are getting snow they never expected. You can earn a profit on Amazon by buying up all the shovels at your local Wal-Mart and selling them online to everyone else.

In online arbitrage, you find the deals from online retailers, and try to sell them at higher prices on Amazon. This works for a couple of reasons. One, Target isn’t going to sell to Amazon, and some people only do their online shopping on Amazon. That means you get to make a profit being the middle-man.

There are some Pros and Cons to arbitrage, so consider them before deciding if this is the route for you:

PROS
  • Flexibility—you can sell almost anything.
  • You can take advantage of your insights.
  • Leverage regional differences in price.
  • If you use Amazon Inventory Management, you may never need to touch a product.
CONS
  • Market prices can change at a moment’s notice.
  • Supply chain issues could hold up your sales.
  • Because it’s so easy, there is a lot of competition.

Private Label

Have you noticed that every grocery store has their own line of foods? From sugar to cereal, from syrup to chips, every grocery store has their own brands. Now you’ve probably already figured out that these grocery stores aren’t making all that food, so how does the model work?

It works with an old industry model called White Labels. A White Label is when a large manufacturer of a product doesn’t want to get into the retail game. Take yogurt. A dairy outfit in Wisconsin might be passionate about their cheese, butter, and yogurt, but they’ve decided to restructure their company. They will focus only on making the products.

That means they’re not going to pay for a logo design, for sales people, for marketing campaigns, or for supply chain logistics. They’ll make yogurt. Then Safeway or Kroger comes along and buys the yogurt at wholesale prices, puts their own label on it, and sells it as their own.

Costco and their Kirkland Signature brand have made a lot of money doing this, and so can you on Amazon. 

When using the Private Label option, it will take a little more planning than arbitrage. With arbitrage, you’re simply shopping for deals and selling things at higher prices. With Private Label, you’ll need to have a product or type of product in mind, first.

This model is perfect for someone who has a brand idea, but doesn’t want to invest in manufacturing equipment, warehousing, and employing workers. Let’s use our edible pet soap model. If you want to start building a brand of pet products, you can contact wholesale manufacturers of food and water bowls, leashes, toys, and even pet clothes. 

Once you’ve contacted them, you pitch them your ideas, and negotiate a rate. Then you will work with them on labeling and designing specific products for you to sell on Amazon. 

If this is the way forward for you, here are a few Pros and Cons to think about:

PROS
  • You get to decide the products you sell.
  • Build your own brand.
  • Develop customer loyalty based on your unique brand.
  • Flexibility to move into manufacturing, yourself.
  • Less competition than arbitrage.
CONS
  • You could be liable for product issues.
  • Consistency in product quality could vary.
  • More legwork finding and setting up a relationship with the manufacturer.

Making Your Own Products

With this option you definitely have more preparation work than the previous two. And there’s more risk, because it requires more setup cost. But this option also gives you the most control, the highest profit margins, and the least competition on Amazon.

It also means you need to know exactly what you’re going to sell. It is the rare and very lucky person who can start a business and then stumble into the right product.

This article isn’t as much about starting a business from scratch, or developing a supply chain for raw materials, finding manufacturing space, hiring employees, managing shipping, or dealing with the legal protections you would need to consider. We mention that because those are all things that a maker of goods needs to think about.

The good news is, this article is all about what to do to get your products sold on Amazon. So if you’re comfortable making your pet soap in your garage, and you have all those kinks worked out, read on.

Selling your own products on Amazon makes you truly your own boss. Selling on Amazon means you have a place to advertise, sell, warehouse, and ship your products. Amazon becomes your logistics department, and all you need to worry about is making great products and branding yourself.

We’ll go over some of the basic Pros and Cons, and then we’ll move on to how you can use Amazon to maximize your business.

PROS
  • You run the whole show.
  • Product flexibility.
  • You can ensure quality.
  • Only make the products you need (less overages).
  • Less competition on Amazon.
CONS
  • Most expensive set up.
  • More risk.

Third Priority: Where Will You Store Your Product?

This question gets us to the heart of the Amazon business question, and it’s a question that a lot of people don’t put enough thought into. It’s also the last question you need to answer before we get to the step-by-step instructions for setting up your FBA business.

It might seem like a simple issue, but some people never consider it. No matter what your model is (arbitrage, private label, or maker), where will you actually put all that product you’re trying to sell, and how do you pay for shipping it to the buyer?

This question can torpedo even a really sharp Amazon business owner. It usually happens like this: someone finds those snow shovels on sale at Wal-Mart for only $10; they know it can go online in a blizzard for $20; but then they see it’ll cost them $12 to ship the shovels individually. That means they’ve now lost $2 on every shovel.

The Amazon seller app has a breakdown of estimates for every product you might want to buy. Estimates of how much it’ll cost you to ship every item, either from your house to the buyer, or from you to Amazon warehouses. 

But these are estimates. And those prices can change. At the end of the day, we’re only talking about a few shovels. Let’s be honest: you’re not starting a business on Amazon to sell a couple of things. If you want to make real money, you’ll need to repeat this process hundreds of times.

Which brings us to our second torpedo: once you’ve moved on to selling two dozen shovels a week, three dozen boot scrapers, seventeen bottles of windshield wiper fluid, and sixty bags of ice-melt, where are you going to put all of that?

If you already happen to have a clean garage, you’re still talking about shipping all that product to yourself, then turning around and shipping it to the buyer through Amazon. Or you’re renting warehouse space and doing the same thing with the added cost of rent.

Lucky for you, there’s another option. Amazon Inventory Services is built into the Amazon seller app and dashboard. You can have all the products you buy in arbitrage or White Label shipped to and stored at Amazon facilities. For a price, of course.

But you’re also paying for convenience and peace of mind. You don’t have to worry about a thousand packages showing up at your house every month, or finding warehouse space. In the end, only you can make this call. And it’s important to think about, if not decide on, before moving forward. 

If you’re making your own products, Amazon Inventory Services still might be a great option for you. You can simply make what products you want, based on your system and raw materials, and then ship what you have to Amazon when your batches are complete.

For makers, this can be the best of both worlds. If you make those pet soaps, you can set up your garage for the lavender scented, blueberry flavored dog soap, make all the product you can, ship out the whole batch, and then convert your space over to the thistle-and-honey cat scrubs.

Here are the Pros and Cons of using the Amazon Inventory Services. After considering them, we can move on to the step-by-step instructions for setting up your business.

PROS
  • Amazon handles all physical packages.
  • Tools on your dashboard to help with shortages, overages, and even stagnant products.
  • Helps analyze returns on investment (ROI).
  • Sell-through rate (how well you’re managing your inventory).
CONS
  • Prices almost triple during peak months (Oct. through Dec.).
  • Disposal, packaging, and handling fees may apply.
  • Not as much flexibility on holding items long term.

Let’s Get it Started: Step-by-Step

The good news is that the first three steps are the hardest, and if you’ve read through this whole article, you’ve already taken them. You’ve thought long and hard, you’ve looked at the market, and you’ve decided which route you’ll take. Those are steps 1-3. 

After that, steps 4 and 5 are on Amazon itself. Finally, steps 6-10 will depend on what sort of business you’re running. So be sure to look through the steps to make sure you’re following your model, Arbitrage, Private Label, or Maker.

Steps 1-3

1. Identify your product(s).
2. Decide if you are Arbitrage, a Private Label, or Making the Product.
3. Decide if you will warehouse your products, or use Amazon.

Steps 4 and 5

4. Sign up as an Amazon Seller.
5. Download the Seller App.
a. This will link to your Seller account and help you move forward.

Steps 6-10 for Arbitrage

6. Visit your local retail stores or begin price shopping online.
a. This is where you can use your creativity and personal insights.
b. Check for sales, and monitor when your local stores cycle through types of products.
c. Check every brick-and-mortar location you can think of.
d. Online, try to look outside of Amazon, but stick to big-ticket sellers, like Wal-Mart, Target, etc.
7. Use the Seller App to calculate shipping, storage, and profits.
a. Make sure you’re looking at profit, not sale price.
8. Make your purchases based on profit margins.
a. Decide on what you buy based on a limit of profit you set, and then stick to it. If you decide you want to make a minimum $5 per product, stay with it for a while. Don’t make hasty decisions.
9. Track, Track, Track.
a. Track price trends at your local stores.
b. Track product trends.
c. Track shipments to yourself.
10. List products on Amazon.
a. Pay attention to what sells.
b. Monitor your inventory tools in your seller app.

Steps 6-10 for a Private Label

6. Label name and design.
a. Make your label name unique. You want to stand out and build a brand.
b. Make sure your label and logo don’t violate any copyrights.
c. Make sure your label is easy to transfer to packaging and product materials.
7. Find a manufacturer.
a. Having decided on your product, search online for people who make that product in bulk.
b. Find products and pricing with over %50 margin of resale.
8. Make contact.
a. Tips for making a good impression: don’t ask questions you could’ve searched for online; pretend to be an employee of a bigger company; be respectful, and talk in big numbers.
9. Negotiate price and product shipments.
a. Don’t be afraid to mention that you’re using FBA. Lot’s of businesses do.
b. Don’t be pressured into ordering too much product—stick to your plan.
10. List on Amazon.
a. Be sure to file for unique barcodes.
b. Monitor your shipments from the manufacturer and keep a sharp eye on your inventory with Amazon.
c. Track your sales and pay attention to the market.

Steps 6-10 for Making Your Own Products

6. Label name and design.
a. Similar to White Label, you want to make sure you don’t violate anyone’s copyright, you want to make your logo unique, and you want to make sure it stands out on packages and products.
7. Source your materials.
a. Look for quality and quantity.
b. Keep your brand in mind: if you want to target eco-consumers, keep it green; if you want to target high-end consumers, spend for the quality materials.
8. Develop a manufacturing system.
a. Systems can make or break your model. Streamline it, plan manufacturing schedules, and stay on track.
b. Dedicate space to making things—whether it’s your garage, a shed, or rented space, you want to make things in the space for making things, not the space for cooking, or cleaning, or living.
9. Develop a Profit and Loss spreadsheet.
a. You don’t need a degree in accounting. Just keep track of what you pay for products, how long it takes you to make them, and what it will cost to ship them and store them.
b. Decide on an hourly rate for yourself. This will help you make sure you’re personally profitable. By building in a $20/hour wage for yourself, you have more flexibility for setting your prices, and it gives you a margin for error on your bottom line.
b.Constantly update your P&L and save different versions of it. You’ll want to track changes over time.
10. List on Amazon.
a. Like with While Label, get unique barcodes from Amazon.
b. Work on branding and advertising.
c. Use Amazon seller tools to develop sales, promotions, and track trends.

Have You Started Yet?

Now that you’ve seen the steps, it’s time to get going. The planning is the hard part, but clicking that first button is the scary part. There are a lot of things to keep track of, and that’s why it’s so important to write down the plan and stick to it. When things get rough, you’ll want to have something concrete to focus on, and a list of steps is great for staying on target.

As you get going, there will be more things that pop up. There are even niches of Amazon selling that we didn’t have time to cover. But these are the basics, and if you believe in yourself, and you’re not afraid to put in the work, there’s a market for you and your business.

Tips

Keep these in mind as you go forward. They can slip through the cracks, or make all the difference to your success.

  • Stick to your plan. Some businesses take months to get settled. Don’t panic.
  • Plan, plan, plan, but also stay flexible. The market talks, so we need to listen.
  • Check what things are forbidden to sellers on Amazon. They have business relationships, too, and some brands are very well protected. Do your research on what can and cannot be sold on Amazon.
  • Don’t miss a day: whether tracking orders coming to you or shipments going out, don’t go a day without looking at what’s going on.
  • Profit, not revenue: don’t be blinded by huge revenue streams. If you’re paying out as much as your bringing in, you’re not really making any money.

FAQs

Is Arbitrage Legal?

Yes, it is. In fact, thousands of people every year get started on FBA with arbitrage. Just make sure you’re paying attention to what is allowed.

Do I Have to Use Amazon Inventory?

No, but many people have found it’s the easiest, safest, and cheapest way to manage their FBA business.

Are There Other FBA Models?

There are, including something called dropshipping. We outlined the three best and most common business models, and the three with the most research behind them.

Can I Really Make a Profit with FBA?

Yes. But nothing in business is guaranteed. The word ‘hustle’ comes up a lot in FBA, and that’s sometimes what it comes down to. People who put in the time and effort can make money. The question becomes how much is your time and effort worth, and then how much can you get out of your FBA.

Do I Need an LLC for FBA?

No, you don’t. There are many advantages to being a Limited Liability Company, but it’s also a few more steps. This guide is for people who want to stay within the Amazon model, and you don’t need to form an LLC to form an Amazon seller profile.