Intro to Amazon FBA: The Business Model

If you’ve stumbled across this page you’re probably considering starting your own Amazon business. Most people don’t know this but over 40% of the products being sold on Amazon come from third party sellers. To put this in perspective in 2015 alone Amazon shipped over one billion items for third party sellers. Lots of people are making a healthy living selling on Amazon.

What is Amazon FBA? Why should I care?

Before we dive into the details about FBA let’s take a minute and review the eCommerce business model:

Business Cycle

eCommerce Business Model

  1. Buy or manufacture products to sell.
  2. List products for sale.
  3. Collect payments from customers.
  4. Deliver products to customers.

Doesn’t seem so complicated right? Well if you’re like me and you’ve ever sold something on Craigslist or eBay then you know that while this sounds simple the reality is it takes a lot of work.

Enter Amazon FBA. In technical terms FBA stands for Fulfillment by Amazon. What it represents is one the most significant advancements in the eCommerce space to date. In simpler terms Amazon has developed a service which eliminates many of the headaches you encounter with other eCommerce business models. Let’s take a closer look and understand exactly how the FBA program has revolutionized the eCommerce business model.

1. Buy or manufacture products to sell: You’re still on your own with this one. FBA offers lots of benefits once you have products available for sale but you still have to assess what products you want to sell and have the working capital to invest in inventory.

2. List products for sale: Amazon has a huge marketplace with millions of products across tons of different categories. When you choose to sell products on Amazon if an item is already in the Amazon catalog (and there is a strong possibility it will be) this step becomes infinitely easier. Instead of having to create a product page with product details, photos etc. you just click a button that says “Sell on Amazon” add a few details and you’re good to go.

Aside from simplifying the listing process when you sell your products on Amazon you get to take advantage of their customer base. Millions and millions of people shop on Amazon everyday. The more potential customers you have the better your chances are of making a sale.

3. Collect payments from customers: Amazon handles everything from the payment perspective. Once your items have reached the Amazon warehouse and are available for sale your work is done. Amazon will collect all your payments for you and provide you with disbursements every two weeks minus their fees of course. When you participate in the FBA program Amazon also handles all your customer service issues and returns.

4. Deliver products to customers: Instead of having to package every item and ship them yourself to customers with FBA you send everything to Amazon where they will store your items in their warehouses until they are sold. Once at item sells Amazon takes care of everything and they will package and ship the item for you.

Now that you know the basics let’s see what the Amazon FBA business model looks like:

Amazon FBA Business Model

  1. Buy or manufacture products to sell.
  2. List items for sale on Amazon.
  3. Ship your products to Amazon.
  4. Amazon collects payment, packages and ships items, deduct associated fees, and cut you a check every two weeks.

Still four simple steps but drastically different effort required from you as a seller. Are you excited yet? Make sure to check out our next blog post which will arm your with the information you need to go out and begin sourcing products to be sold on Amazon.

For even more great deals, info and free stuff check out our closed Facebook group: FBA Sourcing Simplifiers

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