When I was first looking into investing in an Amazon business, I wasn’t sure if it was the right move for me. But after doing some research and talking to people who had successful businesses of their own, I realized that there were a lot of reasons why buying an FBA business made sense. Why and how to invest in Amazon business?
When you’re starting your own business, it can be tough to know which products will sell well and which ones won’t. With an FBA business, you can be confident that the products have been carefully curated by the seller and are more likely to be popular with customers. This gives you a head start on making sales and ensures that your investment will pay off quickly.
In this article, you will learn how to invest in Amazon business and six reasons why you should do it.
Why Should I Buy an Amazon FBA Business Instead of Starting From Scratch?
There are many benefits to starting an Amazon FBA business but buying an existing Amazon FBA business can be a great option for some people. Buying an existing Amazon FBA business can provide you with a business that is already successful and has a proven track record. Additionally, you can avoid the hassle of starting a business from scratch.
Most businesses on Amazon fail – it is a highly competitive marketplace, and it can be incredibly difficult and time-consuming to stand out from the crowd.
To start from scratch, you will need to gather ratings, reviews, and search rankings in order to make a profit.
Why buy an Amazon FBA business instead of starting your own? There are a few key reasons:
- You’ll save time and money.
- You’ll have an easier time getting started and scaling up.
- You’ll benefit from the existing brand equity.
6 Reasons to Invest in an Amazon FBA Business
What type of business are you looking to purchase? Many people are investing in Amazon FBA businesses because it is a trending business model with the potential for high profits.
This business opportunity is definitely worth checking out if you are looking for something new in the business world.
First of all, what is Amazon FBA?
FBA stands for Fulfillment by Amazon. Essentially, these businesses make their products available for sale on Amazon, and transactions are completed through the site’s secure shopping cart system. Once an order is placed, Amazon’s employees take care of packing and shipping the product, as well as handling customer service inquiries. In exchange for this service, Amazon takes a portion of the sale price. From the customer’s perspective, the process is just like buying from Amazon directly.
Investors are increasingly interested in Amazon FBA online businesses for many reasons.
1. Unlimited Growth Potential
As an online business owner, it’s important to consider how large your business can potentially grow. For many small businesses, there comes a time when growth is limited due to the lack of ability to scale. This can be detrimental to the company, resulting in the loss of customers. However, with an Amazon FBA online business, there is no limit on how many orders can be fulfilled on a daily basis. Amazon can easily support extra orders with their team of employees. All the business has to do is keep supplying Amazon with more inventory.
2. Virtual Warehousing
Do you have a passion or interest that could be turned into an Amazon FBA business? There are businesses related to virtually anything you can imagine, so there’s likely one that would be a perfect fit for you. If you love the outdoors, for example, you could sell fishing gear or sporting equipment. Or if you’re a foodie, you could sell gourmet items, cookware, and specialty appliances. And if you’re a sci-fi geek, you could make a living selling books and gadgets. The beauty of virtual warehousing is that it doesn’t tie a company down to one specific location—so you can run your business from anywhere in the world!
3. Zero Customer Acquisition Costs
Amazon is the most popular e-commerce site in the world. They already have millions of people logging in every day, so there’s no need to invest money in attracting customers to your online website. In fact, you don’t even need to maintain your own business website. Everything can be conducted through Amazon, keeping your costs at a minimum. There are interested buyers in every category and Amazon is motivated to push them towards FBA products and other sellers on the marketplace—which means more money saved for you!
4. Zero Manufacturing Costs
There are many manufacturers who are looking to sell their products through retailers. This means that you will not have to worry about manufacturing items as a part of your FBA online business. You only need to be able to recognize a high-quality product that has real appeal to a set target market. Just be sure to find one that meets your quality standards, as consumers look to Amazon product reviews to gauge whether or not they should buy a product. A poor-quality item will stand out quickly.
5. Hassle-Free Order Fulfillment
You will never have to worry about packing a box, tracking shipments, or dealing with customers who are upset about how their orders arrived when you have an Amazon FBA business. Amazon is responsible for every aspect of the shipping process, including customer service inquiries. This means that you can focus on other aspects of your business, safe in the knowledge that your fulfillment is being handled by one of the world’s largest and most efficient retailers.
6. Flexibility to Sell Through Other Channels
One of the best things about owning an Amazon FBA business is that you have the flexibility to sell through other channels as well. You can sell through social media, other marketplace sites, or even launch your own website if you want. No matter where buyers complete the transactions, Amazon will fulfill the orders for you for a relatively small fee. So you don’t even need a website – you can just direct consumers to your Amazon store to complete the transaction.
5 Essential Tips on How to Invest in Amazon Business
In addition to considering the typical factors, such as profitability, ROI, and growth potential, you should look at these additional things when shopping for an FBA business.
1. Favorable Supplier Dynamics
The supply chain of an e-commerce business is incredibly important. Buyers should look at the lead time, payment terms, and operations of the suppliers they’re considering.
As an FBA business, it is crucial to have a good understanding of your supplier’s lead times. This way, you can be sure that Amazon will always have items in stock to sell. The shorter the lead times, the better.
You should ask about the average lead time for each product in the product mix, how often shipments have been late in the past, any history of slow downtimes (e.g. holidays), and what contingencies have been agreed upon with the supplier in case of late shipments.
Additionally, you should inquire about how customer demand for each product fluctuates across the year.
When looking to acquire an FBA business, it’s important to consider the supplier terms. Product price and differentiation are both crucial for maintaining competitive advantage and sales. Make sure you understand the terms before making any decisions.
It is important that pricing agreements, exclusive arrangements, and product trademarks are transferred with ownership. This will ensure a smooth transition for the new owner.
When looking to purchase an FBA business, it is important to consider the supplier dynamics. Make sure to find out what pricing agreements and discount rate cards are in place, as well as who owns the trademark for the product.
It is also crucial to ensure the safe delivery of the items. Has the potential sale of the FBA business been discussed with the supplier? By taking all of these factors into account, you can be sure to make a well-informed decision.
As mentioned earlier, supplier management is a key skill to have when looking to take over an FBA business. Having a good relationship with your suppliers can help you keep costs down and improve your chances of getting the products you need in a timely manner.
As a buyer, you want to make sure that your supplier(s) are well-equipped and that the seller has perfected their supplier management processes. This includes understanding how many suppliers there are in total, their locations, whether there is a single point of contact for each one, and what language(s) they speak. The seller should also have well-documented processes written up and ready for handover.
By doing this, you can be confident that you will receive the best possible product or service.
2. Carefully Selected Product Mix
When looking at an FBA business, it’s important to examine the product mix. The product roadmap, focus, and concentration are important, and so is the margin.
Adding more products to an FBA business can be a great way to increase sales and profits. As an investor, it is important to recognize potential growth opportunities for the FBA business. A big opportunity for most FBA businesses is to add additional SKUs. Adding more products to an FBA business can be a great way to increase sales and profits.
Product categories are a good way to gauge whether there’s room for you to move into other product areas, eventually.
What is the minimum order quantity for these product(s)? What is the lead time for these product(s)? What are the costs of these product(s)?
If you’re looking to expand your product offerings, it’s a good idea to check out related products offered by your current supplier. This will give you an idea of whether they would be able to manufacture additional products, what the minimum order quantity would be, and what the lead time and cost would be.
If a business has a high product concentration, it is effectively a single-product business. This means that the company relies heavily on one product for both revenue and profit. While this can be a successful strategy in some cases, it also leaves the business vulnerable to changes in consumer demand or competition.
A single product FBA business poses a higher risk and will have a lower valuation. This is because if that one product becomes less popular or goes out of style, the whole business could suffer. It is important to look at how many products the FBA business has and what percentage of total sales profits the most. Additionally, it is helpful to see the sales trends for each product to get an idea of future growth.
Product margins are one of the most important aspects to consider when starting an FBA business. A target profit margin of 30-50% is a good goal to aim for.
However, there are several costs that need to be taken into account such as Amazon fees, commissions, shipping costs to Amazon, refunds, and chargebacks. It is important to have a margin buffer to cover these expenses.
To ensure that your product mix is profitable, it’s important to understand all of the associated costs with each SKU. This includes the sales price, unit cost, shipping costs, and warehousing costs. By understanding how these costs fluctuate over time, you can make informed decisions about which products to sell and at what price point.
3. Healthy Amazon Profile/Trends
As an FBA business, it is important to evaluate the current owner’s Amazon profile, customer feedback, and product(s) before making a purchase. By doing your research, you can get a better understanding of the seller and the products they are selling. This will help you make an informed decision about whether or not the FBA business is right for you.
All Amazon sellers must have a ‘Seller account’, which determines their ‘health status’. If a seller is selling a ‘restricted’ product, such as alcohol, then they must meet the criteria.
Buyers should ensure that the seller has a good account health, even if the business does not operate in a restricted category.
As an Amazon seller, it is important to maintain good standing with the company by adhering to their standards and promptly responding to and resolving any negative feedback or customer service queries.
The seller should check their Amazon account regularly to ensure that they are not in violation of Amazon’s terms and conditions. Additionally, the seller should aim to maintain a healthy order defect rate, pre-fulfillment cancel rate, and late shipment rate.
As a potential buyer, it is important to analyze the product reviews in order to get an understanding of how well the seller is doing. By looking at the sentiment of the reviews, you can get an idea of whether or not the customer base is happy with the product. If there is a trend of negative sentiment, it may be indicative of underlying issues that could impact your decision to buy from this seller.
Customer feedback is important for Amazon sellers; it allows them to see what areas they need to improve on in order to make more sales. By looking at the number of reviews for each product, as well as the proportion of organic vs. promotional reviews, sellers can get a good idea of how customers feel about their products.
Additionally, by reading through customer reviews, sellers can identify any common themes or issues that may be causing customers to hesitate in making a purchase.
Your Amazon Best Seller Rank (BSR) is an important metric to track for your product’s success on Amazon. It’s a good indicator of recent and historical sales and can help you gauge how well your product is selling on Amazon. Keep an eye on your BSR and look for consistency and improvement over time.
A business that is seeing consistent, steady improvement in its Amazon Best Seller Rank is a good indication that it is growing organically and is less reliant on aggressive marketing campaigns. As with all business investment opportunities, it is desirable if there is some room for improvement here untapped upside.
4. Positive Trends in Product Niche
When looking at an e-commerce store, it’s important to look at the overall trends in your niche. Also, be sure to track how competitive the category is.
In general, businesses with products that have long-term appeal are safer than those based on short-lived trends.
It is important for buyers to determine if there is sustained or growing demand for the products they are interested in.
When considering what products to sell in a niche market, it is important to think about whether or not the demand for those products will stay strong or grow over the short to medium term. It is also important to consider under what circumstances the products might become obsolete, and where the niche market is in its lifecycle.
The size and growth of the market are key factors in determining the potential upside for an FBA business. While popular products are great, if they are only popular with a small number of people, it may be difficult to grow the business.
What is the average order value for this product? What is the lifetime value of a customer that purchases this product? The size and growth of the market are closely linked to the potential upside for an FBA business.
If a product is only popular with 100 people, there may be a problem. It is important to consider if there are more or fewer people searching for products related queries than last year and if the products are likely to be popular in emerging markets. The average order value and lifetime value of a customer that purchases this product are also important factors to consider.
Competition is a fact of life when you’re in business. If you’re looking to invest in an FBA business, it’s important to do your research and make sure that the niche you’re targeting is not already saturated. A growing, evergreen niche is a great place to start, but if the competition is too stiff, it may be difficult to make your mark.
Looking at how many products are being sold in a particular category, as well as how many reviews that category has on average, can help you gauge how competitive the Amazon FBA business is in that space.
Evaluating the number of products and average BSR in a specific category will give you a good indication of how competitive the FBA business is within that space. If there are a lot of sellers on Amazon with similar BSRs to your target FBA business, it’s likely that the competition is quite stiff.
Additionally, if other products are very similar in terms of feature set and functionality, it may be difficult to differentiate your product from the competition.
Finally, if there are barriers to entry or the product is easily replicable, that could also make it more difficult to get started in that particular space.
5. Other Assets Available
When you purchase an FBA business, there are usually fewer assets involved than with other types of businesses. However, this doesn’t mean that an FBA business is completely independent.
When looking to invest in an FBA business, it is important to consider if the company comes with any additional assets that could help with customer acquisition. A branded authority site, for example, can provide referral traffic to an FBA product on Amazon. This can reduce a business’s reliance on Amazon and its terms and conditions.
If you have a blog or accompanying content-based website for your FBA business, you can use it to generate referral traffic to your FBA product on Amazon. This is a great way to get more exposure for your product and increase sales.
If the website you are looking to purchase has high traffic and conversion rates, along with content that is easy to produce, then this could be a very lucrative deal. Especially if the seller has an Amazon Associates Account, which earns a commission on each product purchased through the site.
When investors are looking to buy an FBA business, they should look at the type of marketing activity that has taken place in the past as well as campaign performance. This will help them understand how successful the business has been in the past and what kind of campaigns have been successful.
As a new owner, it is important to have data that can help drive successful promotions and marketing campaigns. This data can be vital in helping to create a successful post-sale business.
Promotional campaigns that have been carried out in the past, their results, costs, and ROI can give you an idea of what works well for the business and how much should be budgeted for future campaigns. Additionally, knowing when these campaigns should be carried out throughout the year can help you plan ahead.
Many online entrepreneurs advocate building a subscriber list as early as possible in the online business lifecycle.
Although an FBA business may be trickier to market to visitors, as they land on Amazon and are likely to be one-time product viewers, there are still many ways to promote your business.
However, the seller may have other valuable assets available, such as a mailing list for ongoing marketing and new product launches. This is often present when there is a branded authority site.
If so, it’s important to consider the following: Is there a mailing list of any kind? Is the list purged and is there an active auto-sequence? What are the open rate and click-through rates? What is the average revenue per click? What cost time would it take to build a similarly sized mailing list?
When considering an FBA business opportunity, it is important for buyers to take the time to familiarize themselves with some of the key metrics. As with all business models, there are nuances that need to be understood when evaluating investment opportunities. By understanding these key metrics, buyers will be in a better position to assess whether or not an FBA business is a good fit for them.
This list is not exhaustive, but it should provide enough detail for buyers to feel comfortable vetting FBA opportunities that come their way.
Should I buy an FBA Business?
Buying a fully established Amazon business is the fastest way to start selling on Amazon. Early investors will see a quick return on investment.
Buyers should always take caution when making an FBA acquisition. It is important to ensure that the acquisition target meets most of the criteria outlined above.
If you’re thinking about how to invest in Amazon business, there are a lot of reasons to do it. From a carefully selected product mix to trends in the product niche, you can be sure your investment will pay off. So don’t wait any longer – get started on your own Amazon business today!