For those, who follow my journey along, I’ve been experimenting with Amazon FBA for the last couple of months.
In this article I want to share my personal experience and explain the downsides I face with FBA and why I probably won‘t invest any more time and money in it.
By sharing my experience I don‘t want to discourage anyone from getting started with FBA, but rather point out the challenges you could face when choosing this business model.
Don’t get me wrong, there are a lot of people making a lot of money with FBA and there is enough proof out there that it works.
However, while I found it was a great learning experience, I realized that it’s too complex for me at the moment and decided to invest my time in other business models.What is FBA ?For people who are not very familiar with this business model, I want to quickly explain.
FBA stands for Fulfilled By Amazon and is Amazon‘s Logistic Service that helps small businesses with the heavy lifting.
You ship your physical products to the Amazon Warehouses where they are stored and create a listing so that customers can find the products on the Amazon Website.
When using FBA, Amazon is responsible to pack and ship the product to the customer.
In return, Amazon takes a part of the total selling price -> Fulfillment fees.
You can recognize FBA products with the “Sold by XYZ and fullfilled by Amazon” – Label.
The reason why the FBA method is great:
You don’t have to deal with logistics yourself, which means less headache
If you are a Solopreneur like me, this can take a huge amount of work off your shoulders. This is time saved that you can spend on growing your business. If you have to fulfill each order yourself, you will run into limitations quickly if you receive many orders.
However, if you are just selling self made items in smaller amounts, FBA might not be the right model for you.
Amazon is a trusted brand
The simple truth is, Amazon today has such market domination and people trust the brand. The free shipping for prime members and the idiot proof return policy is hard to compete with. I love to shop on amazon myself because it‘s convenient and fast. Of course, this market domination also has its dark side which I will get to later.
People have their payment method already installed
This is probably one of the greatest advantages compared to having an independent online shop. Because people are shopping all kinds of stuff on Amazon, they already have their payment infos in the system. They don’t need to go through a whole sign up process if they want to buy a product from you. Therefore, people have to think less before making a purchase because they are already trust the system.My Background StoryBefore getting into the challenges with FBA, I want to give a quick recap of my journey so far.
In January 2016, I started a project to design my own physical to gain some experience in the online business world. The purpose of this, was to learn business skills, build something on my own and MAYBE make some passive income.
Very early on, I was convinced that I will be using FBA because of the reasons mentioned above. I didn’t plan to sell just 5 -10 products but aimed for hundreds.
In early 2018, I finally launched my first product after 2 years of developments. Because I created an entirely new product from scratch, it took me a long time for testing and sourcing.
I finally created the listing an Amazon and shipped my products to the warehouses directly from my supplier. I was ready to make some money 🙂
Now after 6 months into using FBA, I finally came to the conclusion that it is time to move on and here are the reasons why:
The upfront investment is TOO HIGH
The primary reason is the upfront investment you have to make with FBA.
As with many traditional physical product businesses you have to buy inventory upfront and store it somewhere. If you are serious about making money online, you are not just selling 10 or 20 pieces, and therefore your upfront investment can be in the thousands of $.
If you source your products from a manufacturer, the Minimum Order Quantity(MOQ) is in the hundreds or even thousands most of the time which can add up quickly.
This means that, if you source 500pieces for 4$ each (which is very cheap), you are already investing 2000$. On top of that comes shipping cost, importing cost, taxes, etc.
Based on personal and other experience, you are good to go if you have something between 5k and 10k in the bank.
So, if I wanted to continue with FBA, I would have needed to reinvest a lot if money upfront which I am not willing to do at this point.
I don’t like to give products to people who don’t appreciate it
This is closely related to making upfront investments.
Once you have your stock at the warehouse, you need to run promotions to get ranked.
In order to make more sales, your goal is to get ranked highly and optimally land on the first page.
Running promotions to kickstart your online business can be quite costly, because you are literally giving products away for free.
There are two ways to get on the first page:
The first way, is to run PPC Campaigns (Pay per Click). Those PPC campaigns are ads running on Amazon. Amazon charges for every click that brings a customer to your listing. If you are willing to bid higher than anyone else, you can make it to the first page literally on your first day.
However, in order to get ranked more organically, you need to increase you sales velocity. Amazon measures this with sales per day.
If the product on top of the list sells 10 pcs a day, you need to sell at least 11 pcs over an extended period in order to rank above.
In order to achieve that, you have to run promotions where you give products away for little money over a period of a couple of days.
Depending on how many you give away, you could end up giving away hundreds of products in the first weeks: if you give 15 products away each day for 7 days, you will lose 105pcs.
And here is the problem that I have with this system: to run promotions you have to sign up on promotion networks where they distribute your discount codes in the internet.
The majority of people who purchase your product with these codes, will not even use it. Many people are specialized in looking for cheap amazon deals to make a profit by selling them on ebay. If you put your sweat and tears for many years into developing your own product, you want to give it to people who really care.
Amazons is a freakin’ dictatorship
With market domination comes great power. If you want to sell on Amazon, you need to be clear that you are building your home on rented property. This means that Amazon dictates the terms they want and you have no power to counteract in any way. Take it or leave it.
Ok, I admit that it actually doesn’t matter which platform you use. You will NEVER be in full control if you use someone else’s platform. But Amazon is just slightly more anal about it.
Practically speaking, they can change anything at any given time.
- They can adjust the fees as they please.
- They can take down your listing without any warning.
- They can refund the customer and deduct the amount straight from your account without notice
- They can decide to not display certain product photos
- They can remove reviews (see next point)
During the 6 months with Amazon, I didn’t feel like I was in control of anything. There was ALWAYS something happening that I had to contact the customer support. It’s just annoying and a waste of my time.
Amazon’s Review System Sucks!
This is the most annoying part of all. It is so hard to get decent reviews on Amazon. And it’s totally understandable. People buy lots on the internet and if you have to leave a review for everything you buy, you gonna spent a great amount of your spare time.
The truth simple is, happy people don’t tend to leave reviews. If everything is working, then they move on with their day. Left are those with little patience to contact the customer support but instead express their anger with a 1 star review. You can sell 250 products to happy customers and nothing happens. But suddenly a customer comes along who has a bad day and messes with your business.
On the other side of the spectrum, Amazon is really quick in removing “good” reviews.
I had some situations where helpful reviews were deleted without any notice because Amazon “thought” it was a fake review. And I couldn’t do anything about it. Remember my point #3?
This shitty review system creates unnecessary headaches for sellers. For a platform that relies so strongly on the review system, Amazon should really rethink how to make it better for both sides: customers AND SELLERS.
A Redundant Customer Service
If you are selling on Amazon, you will not get around contacting the customer support, because there is always something going wrong.
While the customer support is very responsive most of the time, their answer is mostly limited to a generic answer such as “thank you for contacting us. We are working on your case and will get back to you soon”.
But what annoys me most is the fact, that you will never talk to the same person ever again. A case is passed on to multiple people along the line and everyone will just assure you that they are working on your case and get back to you soon.
If you receive the same message over and over again from different people, you start to wonder if they ever go through previous messages.
In my case, it took me 3 months to solve a problem of missing inventory which I had to escalate and got really mad at the guy on the phone. But even then, it took several more weeks to get the thing resolved.
You can only run PPC if you have a Professional Seller account
If you are not selling hundreds of items each month, it can be very hard to get profitable.
You basically have to run PPC campaigns all the time in order to get more exposure. This is typical with all types of online business.
However, you cannot run PPC campaigns unless you sign up for a Professional Account. The monthly cost for a professional account is around 40$ + VAT.
So if you take that and add the Ad Fees and Storages Fees to it, you end up very quickly with more than 100$ in monthly up keeping costs.
And if you sell very few products, you will barely make enough revenue to pay all the costs. And with no Professional account, you cannot run campaigns and make more money. Amazon is a freaking genius biatch.
If you came across this article because you wanted to start with FBA, please don’t get discouraged.
There is a lot of evidence out there that Amazon FBA Works:
If you want to give the FBA Method a chance, here is my Tip: don’t reinvent the wheel.
Amazon is a market place where people are less likely to explore. Most people go to Amazon because they know what they want to purchase.
Maybe they will discover new products accidentally, but usually people have a clear picture of what they want and are not in exploration mode.
All the people mentioned above, got successful with FBA because they didn’t reinvent the wheel but did extensive product research and found out upfront what people where looking for.
For that reason, you should take your time and determine what people are searching for. Here is a list of tools I can recommend:
If you create your own product like me and use FBA, chances are high that it’s too unfamiliar to people and they are more cautious before making a purchase.
You also safe a lot of money and time by selling things that are proven to work. Another positive side effect is that manufacturers are less likely to mess up your product. If it’s a product that they sell to other customers as well, they will more likely to make it right and you have less headaches with returns.
I hope this article gave you a good insight about what could await you with FBA.
If you have further questions, don’t hesitate to get in touch.