A Step-by-Step Guide on How to Start Your own Amazon FBA Business

If you are a seller on Amazon, you might already be aware of the Fulfillment by Amazon (FBA) facility and might also be using it. But if you are new and planning to become a seller on Amazon, this one is for you! Learn more about selling on Amazon FBA and how to start an Amazon FBA business step-by-step.

“FBA Sellers report an average of 20% - 25% jump in sales than non-FBA users. And as of 2023, Amazon had over 600,000 FBA sellers globally.”

What is Amazon FBA?   

Amazon FBA, or Fulfillment By Amazon, is a service offered by Amazon to its sellers, including those operating Amazon stores, wherein Amazon assists in storing, packing, and shipping products. This service, available to Amazon sellers, relieves them from logistics burdens, allowing them to focus on other aspects of their business. 

Sellers can start selling on Amazon by registering for an Amazon selling account, where they can list their products on the platform to reach Amazon's vast customer base. Amazon customers benefit from the convenience of Amazon's warehouses, where products are stored before being packed and shipped directly to Amazon Fulfillment Center. Amazon's catalog showcases a wide range of products available for purchase, and Amazon ships these products efficiently to customers' doorsteps.

How to Start an Amazon FBA Business for Beginners?  

To begin an Amazon FBA business, sellers can conduct market research to identify products with high demand and low competition. Once a product is chosen, sellers can source it from suppliers and ensure it is correctly labeled for tracking within Amazon's system. 

Registration with Amazon as a seller is necessary, where sellers can choose between individual and professional selling plans based on their sales volume. Utilizing the Amazon Seller Platform, sellers can optimize product listings, conduct Amazon SEO, analyze competitors, and conduct A/B testing to improve sales performance. Sellers can also register for Fulfillment By Amazon (FBA) to streamline shipping and customer service processes.

Step 1. Finding the Right Product and Labeling

The first step to starting with Amazon FBA business is finding the right product fit for your target market. 

Here are some steps to help you find the right product and label it correctly:

1. Conduct market research and identify unique products with high demand and low competition. Make sure that your product can solve your customer’s pain points. 

2. Once you have figured out your product, the next step is to source it from suppliers at a competitive price. You can also find platforms like Alibaba to find suppliers or work with a private label supplier to create a custom product.

3. Label it correctly so Amazon can quickly identify and track it. It includes creating a barcode, adding a product label, and providing a detailed product description.

Step 2. Registering with Amazon as a Seller

After choosing a product and labeling it, you must register with Amazon as a seller -

1. Visit the Amazon services website and create an account. Fill in your business information, name, contact, and tax information.

2. Amazon offers different seller plans, including Individual and Professional plans. An individual plan is best if you sell less than 40 items monthly. However, you should go for a professional plan if you sell more than 40 items monthly. 

3. Set up your payment method and list your products. Include the title, description, images, and pricing. 

Step 3. Exploring the Amazon Seller Platform

To overcome the challenge of navigating the Amazon seller platform, sellers must familiarize themselves with its functionalities, leveraging their Amazon seller account. It involves understanding key features such as product listing, Amazon SEO optimization, competitor analysis, and A/B testing. By mastering product listing techniques, sellers can create compelling listings that attract customers.

Step 4. Register with Fulfillment by Amazon - FBA

Even though you can ship the products independently, it can be time-consuming and costly. From managing the distribution to delivering exemplary customer service, the D-I-Y approach can be intimidating. The best way to solve this is to register for Amazon FBA and let Amazon handle your shipping and customer service for you. 

Visit the "Fulfillment by Amazon" page in your seller account. There, you can select the products you want fulfilled by Amazon and provide information such as the dimensions and weight. 

Step 5. Make Branding and Advertising Strategies

Once registered for Amazon FBA, sellers can allocate time to devise creative marketing strategies. Leveraging their seller central account, they can opt for Amazon's paid advertisements or focus on garnering organic search rankings through customer reviews. 

To utilize Amazon paid ads, sellers navigate to Advertising > Campaign Manager, selecting sponsored ads to secure higher search result rankings. Alternatively, sellers can promote products on social media platforms like Instagram and Facebook through paid ads or establish organic reach via dedicated pages. By integrating these approaches, sellers can effectively enhance product visibility and drive sales on the Amazon marketplace.

Step 6. Going International

Once you become successful in your region and start getting decent sales, consider expanding your business to international markets. With an Amazon FBA professional account, you can access some of the critical international marketplaces. You can follow the steps mentioned above and launch your products internationally. Don’t forget to register for FBA so that you can rest assured and focus on expanding your business. 

How to Register a Business Name for Amazon FBA?

If you plan to register a business name for Amazon FBA, here is how you can do it -

Sign in to the Amazon Brand Registry

The first step is to register yourself as a seller on Amazon. You can sign in using your seller account ID and password. If you do not have a seller account, create a new one and sign in. 

Enroll Your Brand

• Once you sign in, the next step is to register your brand. 

• Provide the name of your brand with an active or pending trademark. The trademark should appear on the packaging of your products. You are required to provide pictures of the same to verify. 

• You also need to provide the trademark registration number from the Intellectual Property Office. 

• A list of all the product categories that your business deals in.

Do you Need a Business License for Amazon FBA? 

Navigating the legal requirements of starting an Amazon FBA business involves understanding whether a business license is necessary. While selling products online typically doesn't require a permit, the need for one in the context of Amazon FBA varies based on factors like business size and location.

What is a Business License, and Is it Necessary for Amazon FBA?

A business license is a legal document issued by the government that allows an individual or a company to conduct a business activity within a particular region, state, or country. In other words, a business license is the government’s approval to operate in a jurisdiction. 

Generally, you don’t need a business license if you sell products on Amazon online. But do you need a business license for Amazon FBA? The answer depends on the location where the business is registered and the size and nature of the business. For example, states like Nevada, Alaska, Tennessee, Washington, and Delaware issue statewide general business licenses. Therefore, checking the laws, rules, and regulations for business licenses in your state/region is best before starting. 

Fees for Selling on Amazon FBA   

Amazon FBA is one of the best ways to handle your logistics and customer service. How much money do you need to start an Amazon FBA business? Here are the different types of fees involved in Amazon FBA business -

• Fulfillment Fees: The fees charged by Amazon to pick, pack, and ship your products are known as fulfillment fees. The fee amount depends on the product's size, weight, and shipping destination. 

• Storage Fees: Amazon charges monthly for storing your products in their warehouses. The fees depend on the volume of the product and the time for which it is stored.

• Amazon Referral Fee: Amazon charges a refferal fee for each product sold, a percentage of the sale price. The rate of sale value varies depending on the product category.

• Long-term Storage Fees: You must pay an additional fee for long-term storage if you keep your products in the Amazon warehouse for more than 365 days. 

• Return Processing Fees: You must also pay a fee for every order the customer returns. 

• Removal Order Processing Fee: You must pay a removal process fee whenever you remove your product from the Amazon warehouse. 

Tips to Succeed with Amazon FBA: Business Model, Branding, and Financial Strategy

When embarking on an Amazon FBA venture, selecting the appropriate business model is necessary for success. Meanwhile, product research, listings, and branding are pivotal in determining the most suitable approach.

Business Model: Understanding your business model is foundational. Whether you opt for retail arbitrage, wholesale, private label, or manufacturing, each model has unique implications for product sourcing, branding, and profit margins.

Product Research and Listings: Thorough product research is essential for identifying lucrative opportunities and determining product viability. It involves analyzing market trends, customer demand, and competition. Once products are selected, creating compelling listings with optimized titles, descriptions, and images is crucial for attracting customers.

Brand Establishment: Building your brand offers long-term benefits, including loyalty and differentiation. Developing a distinctive brand identity enhances customer recognition and fosters trust, contributing to sustained sales growth and higher profit margins.

Selling Fees and Profit Margins: Understanding the fee structure on Amazon, including referral fees, fulfillment fees, and storage fees, is vital for accurate profit margin calculations. Balancing competitive pricing with profitability is essential for long-term sustainability.

Customer Orders and Major Retailers: Analyzing customer orders and trends helps optimize inventory management and forecast demand. Additionally, exploring partnerships with significant retailers can provide opportunities for expanded distribution and increased sales volume.

Financial Considerations: Establishing a dedicated bank account for your Amazon FBA business streamlines financial management and ensures clear separation of personal and business finances. Moreover, understanding the competitive space and assessing market dynamics is essential for strategic positioning and differentiation.

Inventory Management and Product Ideas: Determining how much inventory to stock involves considering factors such as seasonality, demand fluctuations, and storage costs. Research products thoroughly to generate innovative product ideas and obtain prior approval for restricted categories to unlock new growth opportunities.

Product Identification and Sales Performance: Each product requires a unique product ID and title for effective identification and searchability on the Amazon platform. Tracking sales rank and monitoring how products sell provides valuable insights into performance and informs future decision-making.

Best Business Entity Types for Amazon FBA

When starting an Amazon FBA business, it is crucial to consider the best business entity type for your company. The right entity type protects personal assets, minimizes taxes, and raises capital. What business type should I choose for Amazon FBA is one of the most asked questions. Here are some common entity types that you can consider -

• LLC (Limited Liability Company): This is a popular choice because it provides personal asset protection and is easy to set up. LLCs provide a corporation's asset protection but without the corporation's formalities and double taxation. An LLC can pass the income and the losses to the owners and help you save taxes. 

• C Corporation: C-corporations are suitable for large businesses that plan to go public shortly. C-corporations are taxed as separate entities, and the shareholders are taxed on dividends received. However, maintaining a C-corporation is costlier than the other entity types. 

• S Corporation: A complex business entity providing personal asset protection and tax benefits. It is generally suitable for businesses with huge sales volumes and multiple owners. An S-corporation has a pass-through tax status. In other words, the profits and losses of the company are taxed as the shareholder's income. 

• Sole Proprietorship: This is the simplest entity type and is very easy to set up. This type of business entity is ideal for a business with a single owner and a small sales volume. While sole proprietorship allows you to control your business, you must also bear the complete liability of all the business debts and liabilities. 

Things to Consider Before Choosing a Business Type for Amazon FBA  

• Involvement of Ownership: Before selecting an entity type, you must determine the level of ownership you want with your business. If you wish to start a business with others, don’t want to get involved in daily operations, or have complete control over it, you must choose the business entity type accordingly. 

• Protected Liability: If you send damaged or faulty products to the customers, they can sue you. If your business type is considered a separate legal entity, it will protect your assets and minimize liability. 

• Registration Process: You must also know the registration and setup process before choosing an entity type. If you are a single owner with a small sales volume and choose a C corporation, it will be complicated, time-consuming, and costly. Therefore, you must consider the registration process before selecting the entity. 

• Taxation: The rates of taxation depend on the type of entity you have chosen. Some entity types require you to pay taxes at corporate tax rates, while personal tax is levied on others. Therefore, you must choose the entity type carefully, as it might affect your overall tax liability. 

• Fees and Obligations: Depending on the entity type, you might need to pay different fees for incorporation. Choosing the right entity type can minimize your incorporation costs while helping you expand your business. 

How to Value Amazon FBA Business?

Several factors come into play when evaluating the worth of an Amazon FBA business. Understanding these elements can help sellers make informed decisions regarding the value of their business.

Fulfillment Infrastructure:

The presence of reliable fulfillment centers is crucial for assessing the operational efficiency and scalability of an Amazon FBA business. Sellers must consider the proximity and capacity of these centers to ensure smooth order fulfillment and customer satisfaction.

Financial Considerations:

FBA Fulfillment Fees: These fees, incurred for Amazon's storage, packing, and shipping services, directly impact the business's profitability. Evaluating the competitiveness of these fees compared to market standards is essential.

FBA Sales and Costs: Assessing the volume and consistency of FBA sales, along with associated costs such as inventory procurement and maintenance, provides insights into revenue streams and operational expenses.

Seller Performance:

The performance of FBA sellers within the Amazon ecosystem significantly influences business valuation. Factors such as seller ratings, customer feedback, and adherence to Amazon's guidelines contribute to the perceived reliability and trustworthiness of the business.

The Formula for Amazon FBA Business Valuation

Net profit is one of the key factors in valuing an Amazon FBA business. It is so because the more money a company can generate, the more value it holds. However, an average of at least 12 months of net profit should be considered for sales fluctuations and seasonalities involved in the business. 

The business is also given a multiple. This multiple is calculated based on factors like business age, number of products, and model. 

The average net profit is multiplied by multiple calculated for the business. 

Here’s how to value an Amazon FBA Business: 

Valuation = 12-Month Average Net Profit x Multiple

Where:

12-month average net profit: The average net profit earned by the business over the past 12 months.

Multiple: A valuation multiplier, typically ranging from 20x to 50x, depending on industry trends, growth potential, and risk factors.

Factors Determining Amazon FBA Business Value 

• Sales History: An Amazon FBA business that has been in operation for many years will likely have more profits, growth, and earning potential. Therefore, buyers prefer businesses with many years of operation as it is easier to identify past trends and estimate future profits. 

• Seasonality of Products: Some businesses are seasonal, i.e., they get sales only during certain seasons. For example, raincoats and umbrellas only get significant sales during the rainy season. Such businesses have less valuation because of their inability to produce profits around the year. Similarly, companies that operate the whole year have greater valuation. 

• Level of Product Customization: The level of customization you provide in your products also affects the valuation of your Amazon FBA business. If your company offers highly customized products, it gives you a competitive edge over others and increases the value of your business. 

• Time and Effort Needed: If your brand requires much time and effort to run, it will increase staff costs. The buyer will consider these costs and reduce the value of your Amazon FBA business. 

• Supplier Relationship: A secure and stable supply chain will increase the overall value of your business. 

Inventory Management for Amazon FBA Success

Efficient inventory management is critical to running a successful Amazon FBA business. Properly managing your inventory ensures that you have the right products available at the right time to meet customer demand while minimizing storage costs and maximizing profitability.

Optimizing Inventory Levels:

Maintaining optimal inventory levels is essential to avoid stockouts and overstock situations. Utilize sales data, demand forecasts, and seasonal trends to determine reorder points and quantities for each product.

Utilizing Amazon's Tools:

Amazon provides various tools and reports to help sellers manage their inventory effectively. Leveraging features like Inventory Performance Index (IPI) can help you track and improve inventory health. At the same time, tools like Manage Inventory and Inventory Reports provide insights into stock levels, sales velocity, and storage fees.

Streamlining Order Fulfillment:

Efficient order fulfillment is critical to providing a positive customer experience. By utilizing Amazon FBA, you can leverage Amazon's network of fulfillment centers to store, pick, pack, and ship orders on your behalf, ensuring fast and reliable delivery to customers.

Managing Seasonal Variations:

Many products experience seasonal fluctuations in demand. Anticipating and preparing for these fluctuations through seasonal inventory planning can help you avoid stockouts during peak periods and excess inventory during slower seasons.

Monitoring Inventory Performance:

Regularly monitor your inventory performance metrics to identify areas for improvement and optimization. Track metrics such as sell-through rate, inventory turnover, and excess inventory to make data-driven decisions and optimize your inventory management strategy.

Implementing Just-in-Time Inventory:

Implementing a just-in-time inventory approach can minimize storage costs and reduce the risk of obsolete inventory. You can optimize cash flow and maximize profitability by maintaining minimal inventory levels and replenishing stock as needed.

How to Sell Your Amazon FBA Business? 

If you are wondering how to sell your Amazon FBA business, here are some of the best ways to put your Amazon e-commerce business for sale:

Selling Privately

You can choose to find private buyers for your Amazon FBA business. It saves you from paying the brokerage cost and gives you more control over your business's sales. However, using online sites like Craigslist to find private buyers is the easiest way, but it can leak your private business data. 

Therefore, it is advised to look for private buyers on your own. Even if you have to use these sites, hide your brand name and products. Reveal these details only to those who firmly intend to buy your business. 

Selling Through a Broker

Another way to sell your Amazon FBA business is through a broker. A good broker has trustworthy buyers who can pay well for a good company. A broker lists your business and markets it among the buyers to get you the best deal. However, unlike private selling, selling through a broker requires you to pay a brokerage. 

Preparing Your Business for Sale

Once you sell your business, you must prepare for the best deals. Here is how you can prepare your business - 

Organize Your Finances: You must present your business’s financial position while selling your business. Therefore, organizing your financial statements and preparing your profit and loss statement/cash flows, etc, is essential. You can use accounting software like QuickBooks to do accurate accounting. Applications like PayTraQer seamlessly integrate payment transactions from various platforms into QuickBooks, simplifying reconciliation and ensuring accurate financial reporting.

Organize your Products: Unprofitable products can decrease the valuation of your business as it adds to the cost. Therefore, filter out unprofitable products or obsolete items and discontinue them. 

Maximizing Marketing and Advertising for Your Amazon FBA Business

In the complex arena of Amazon FBA, effective marketing and advertising strategies are essential for attracting more customers, improving your Best Seller Rank, and ultimately driving online sales. By leveraging a combination of sponsored ads, quality reviews, and multi-channel fulfillment, sellers can enhance their brand visibility and maximize their sales potential.

Utilizing Sponsored Ads:

Sponsored ads, including Sponsored Display Ads and Sponsored Brands, are powerful tools for increasing product visibility and driving traffic to your Amazon listings. With pay-per-click (PPC) ads, sellers can target specific keywords and audience segments to reach potential customers actively searching for related products. By strategically allocating advertising budgets and optimizing ad performance, sellers can increase their chances of generating more sales and improving their Best Seller Rank.

Encouraging Quality Reviews:

Positive customer reviews are crucial in building trust and credibility with potential buyers. Sellers should focus on providing exceptional customer service and high-quality products to encourage satisfied customers to leave positive reviews. Additionally, utilizing Amazon's Early Reviewer Program and Vine Program can help incentivize customers to provide honest feedback, further enhancing your product's reputation and increasing its visibility on the platform.

Exploring Multi-Channel Fulfillment:

While Amazon FBA provides a convenient and efficient fulfillment solution for sellers, exploring multi-channel fulfillment options can expand your reach and diversify your sales channels. By integrating with other e-commerce platforms and marketplaces, such as Shopify, eBay, and Walmart, sellers can tap into new customer demographics and maximize their online sales potential. Additionally, leveraging multi-channel fulfillment services allows sellers to fulfill orders from multiple platforms using Amazon's reliable logistics infrastructure, streamlining order management and improving overall operational efficiency.

Optimizing Campaigns:

Sellers should regularly monitor and optimize their marketing campaigns to ensure maximum effectiveness. It includes analyzing key performance metrics such as click-through rates, conversion rates, and advertising costs to identify areas for improvement. By testing different ad creatives, targeting options, and bidding strategies, sellers can refine their campaigns and achieve better results. Additionally, leveraging Amazon's manual campaign features allows sellers to exert greater control over their advertising efforts and tailor their strategies to specific goals and objectives.

When it comes to selling an Amazon FBA business, sellers have the option to sell privately or through a broker. Preparing the business for sale involves organizing finances and products to present the business's financial position accurately. Also, proper bookkeeping is crucial, and sellers can use accounting software like QuickBooks and popular QuickBooks apps like PayTraQer to automate the accounting and bookkeeping processes and make life easier. By following these steps and leveraging the resources available through Amazon's platform, sellers can start and grow successful Amazon FBA businesses.

Frequently Asked Questions

1. Do I Need a Business License to Start Selling on Amazon FBA?

Generally, no. Selling products online typically doesn't require a business license. However, the need for one may vary based on your location and the nature of your business. Before starting, you should check the laws and regulations regarding business licenses in your state or region.

2. What Fees are Associated with Amazon FBA?

Amazon FBA involves various fees, including fulfillment fees for picking, packing, and shipping products, storage fees based on volume and duration, referral fees as a percentage of sale price, long-term storage fees, return processing fees, and removal order processing fees.

3. What Business Entity Type Should I Choose for Amazon FBA?

The best business entity type depends on ownership involvement, liability protection, registration process, taxation, and fees. Standard options include LLC (Limited Liability Company), C Corporation, S Corporation, and Sole Proprietorship.

4. How Do I Value My Amazon FBA Business?

Valuing an Amazon FBA business involves considering factors like fulfillment infrastructure, financial performance, seller performance, sales history, seasonality of products, level of product customization, time and effort required, supplier relationships, and inventory management.

5. How Can I Sell My Amazon FBA Business?

Sellers can sell their Amazon FBA business privately or through a broker. Preparing the business for sale involves organizing finances and products, optimizing marketing and advertising, and leveraging resources available through Amazon's platform. Proper bookkeeping using accounting software like QuickBooks is crucial for presenting accurate financial information to potential buyers.