The Amazon business model has been proven to be one of the most effective strategies for entrepreneurs in selling their products online. In fact, a lot of people have successfully sold their own products and acquired millions of profits using the Amazon marketplace. This article will give you an overview and tips on how to start your Amazon online business.
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Starting your own Amazon Business
It is highly recommended for people to use the Amazon e-commerce business model in selling their products on the internet. All you have to do is register to the Amazon website as one of the Amazon sellers and start setting up your account. When creating your account, you will have two primary options to choose from, the FBA program and the FBM strategy. The third and final option is to choose both options as your business strategy.
The FBA stands for “Fulfillment by Amazon” in which Amazon encourages online sellers to use their fulfillment centers in the overall selling process. This process includes storing, handling, and shipping of the products to the customer. An FBA seller practically avoids the headache of running an actual online store and just rely on the Amazon fulfillment methods in running the business. On the other hand, the FBM strategy, which actually means “Fulfillment by Merchant,” allows you to take control of your business process. The FBM strategy will allow you to be in charge of packing, storing, and delivering your products to the customers.
Choosing the right Amazon fulfillment strategy largely depends on the actual size of your business including your products on Amazon, its size, and volume of turnover. The FBA vs. FBM business strategy will be discussed thoroughly as we go along with this article.
What Does FBA Stand for?
A lot of people planning to do Amazon business are asking what does FBA stands for and how it works. Fulfillment by Amazon or FBA is all about availing the Amazon services in the overall process of the business. This strategy is best suited if the seller has small, light-weight, high volume, and fast-turnover products. An Amazon FBA seller will let his own products to be stored in the Amazon warehouses until such time that they will be sold on Amazon. The FBA will also handle the shipping and the fulfillment process including related services such as after-sales and customer service.
There are also other points to consider when choosing the FBA program. Please check the advantages and disadvantages of using Amazon FBA as your business model.
- All the product listing in the FBA will be enrolled in the Amazon Prime Program, which will be beneficial to the seller. In fact, an estimate of 60 to 80 million prime members is waiting and can even eventually purchase your items. There is no need for an Amazon search to see your products as this will be automatically shown to all prime members.
- FBA seller’s product listings on Amazon will also have a greater chance to win the Buy Box option. This is a white box on the product page, which allows customers to add items for additional purchases in their cart. The Amazon buy box was made with the customers in mind for them to benefit and have the best value for their money as they go shopping on Amazon.
- Availing of FBA services will also lessen the workload of an online seller. This means that you will have extra time to focus on other things that will help grow your business. These include marketing and finding more products to sell to make the business grow.
- The product will be exposed to possible customers who loved and trusted Amazon’s authority as an e-commerce business. The chance of higher conversion is high as a lot of people believe in Amazon as a brand and the quality of its services.
- Lastly, it’s easy to learn as there is a lot of support from Amazon and free training available online. As it is, there are a lot of tutorials that can be found on the internet to practice and learn the Amazon business. The model is so popular that other people teaching the process of the business model for free.
- Amazon charges several payments that might affect your profit margin. The fees include order fulfillment fees, storage fees, pick pack and ship handling fees, and other related payments. It is a costly business strategy that is not advisable for those who are still starting in the business, which does not have the financial capability and resources.
- The “Fulfillment by Amazon FBA” also charges long-term storage fees for products that are not sold from 6 to 12 months. Therefore, it is important for you to be aware of your current inventory and the aging of your products.
- Having your products stored on the Amazon warehouses means that you have limited access to your products and in checking its quality. When there is a problem with delivery, the Amazon seller cannot check the product physically as it is being stored in the Amazon facility. The seller will have to coordinate with Amazon in solving product and customer service issues.
If you are now familiar with the FBA meaning and its pros and cons, be sure to examine your capabilities as a business owner and find out whether this strategy is made for you. The next section will discuss the other Amazon business strategy, the Amazon FBM, and how it works.
What is Amazon FBM and How Does It Work?
The FBM meaning is “Fulfillment by Merchant,” which means the online sellers are the ones responsible for shipping, handling, and storing their products. This means that all FBM Amazon sellers will be taking charge of the overall operations of the business including logistics, fulfillment service, and storage. An FBM seller will just wait for the order in Amazon before shipping the product on Amazon to the customers.
This strategy is best for businesses that have large or heavy products or even items that have a slow-turnover volume. FBM is also better for businesses that are exclusive and has a private label product, which you can offer to Amazon customers.
Furthermore, the pros and cons of Amazon FBM are listed below:
- The FBM strategy gives more control to the business owner with regards to the operational process of the business. This means that you will be hands-on in the overall process of your business including handling and shipping the products, which give you a lot of control.
- Doing the FBM strategy gives the business owner’s opportunity to build an independent product with a high-profit margin. If you will be able to find a product that is unique to the market, it can give you an opportunity to make it your own and label it as an independent product that usually comes with a bigger selling opportunity.
- With fewer fees and Amazon charges, the FBM strategy gives a greater margin to the business. The business owner will have a lower cost in its overall business process, which means higher profit and returns.
- FBM also allows all business owners to have more freedom in product handling and inventory. The more freedom you have, the more ways you can strategize your business in terms of product handling and fulfillment.
- No added costs in the operation as you will not be paying the normal Amazon charges and other fees that are required in the FBA strategy.
- The FBM strategy needs the business owner to be disciplined in handling the overall process of his business. Amazon is meticulous when it comes to customer service, and failure to comply will result in a penalty to the seller. These errors that a seller will commit will affect his chances of winning the Buy Box and his health rating.
- Winning the Buy Box will be difficult as you need to keep the price low in competing for other sellers, which will affect your profit margin.
Understanding the Amazon Buy Box
The Amazon Buy Box was created by Amazon to give it to all of its loyal customers the best value for their money. The Buy Box location can be found on the right side on the details page of an Amazon product. With the Buy Box, the customers can add multiple items to their cart, thus having a greater chance to sell more items through the Amazon Buy Box. This is the reason why winning and being eligible to the Amazon Buy Box is important to an Amazon seller as it brings a lot of advantages and privileges that will help in beating out the competition.
Winning the Amazon Buy Box is as complicated as its algorithm. Amazon has set minimum requirements for all merchants in order to pass the eligibility of winning the Buy Box. Once passed through these requirements, the Buy Box will break down the merchants further in terms of different factors and variables. Amazon will then let the merchants compete using the same products while determining how they will hold up against each other. The seller who is stronger than his competitors will have a bigger chance of winning the Buy Box option.
The importance of winning the Buy Box is crucial for any Amazon seller business as around 82% of the sales coming from Amazon is coming from the Buy Box itself. However, not all Amazon sellers are entitled and eligible for winning the Amazon Buy Box. Because of the stiff competition in Amazon where all sellers sometimes have the same products, those businesses that have the best seller metrics will have a greater chance of winning the in-demand Amazon Buy Box. It is important for the business owner to understand the feature and the algorithm of the Buy Box to be able to find ways to increase store performance and eventually get a higher chance of winning the prestigious Buy Box.
Which is the Best Business Model for You?
By now, you probably have an idea what the difference between Amazon FBA and the FBM model is. The most crucial stage is choosing which business model is most suited for you. It is important to consider the size and the financial capabilities of your business including its potential growth in choosing the strategy of your Amazon business. You must identify the products, its categories, and other aspects of the business before choosing the right business model that is suited for you.
In terms of popularity, FBA sellers will have a distinct advantage compared to their competition because of their privilege to offer the Amazon Prime shipping option and the access to the Amazon fulfillment networks and shipping centers all over the world. Nonetheless, it is still an expensive program that comes with a lot of charges and storage fees that can definitely affect the cash flow of the business owner. This is the biggest reason why you must determine first the overall size of your business and your financial capability before choosing the Amazon FBA as your business model.
On the other hand, the Amazon FBM is highly recommended for business owners who are just starting to get their feet wet in the Amazon E-commerce business. The sense of control in the overall operation of the business will be a big help in learning the ins and the outs of the business operation including storing and shipping your products. The business owner will gain a lot of experience with this strategy, which will enable him to strategize further on how to grow his Amazon business.
There are several factors that you must carefully consider in determining the best strategy for your Amazon business. Whether it’s the size of your business, the products, the financial aspect, or some other factors, you must be aware of the pros and the cons of its option. After all, it will be you who will be responsible for the success or the failure of your Amazon business.
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