Starting a business on Amazon sounds cool, but don’t get too hyped until you face the reality of funding. Sure, having lots of cash gives you room to experiment and make mistakes, but if you’re starting small, you’ll want to minimize any missteps.
A recent survey found that only 40% of Amazon businesses that started with less than $10k were successful. But hey, it’s not impossible to make it big on Amazon FBA with limited funds.
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How Much Does It Cost to Start an Amazon FBA Business?
If you want to start an Amazon FBA business, you should have $10,000 in the bank. But don’t stress, plenty of successful business owners started with less.
When it comes to Amazon FBA, you’ll need to invest a big chunk of your cash in buying inventory. On top of that, you’ve gotta factor in packaging, shipping, Amazon fees, and all that jazz. So, you’ll probably need about $7,000 to get your biz off the ground.
Keep in mind, $7,000 isn’t set in stone. Different products come with different price ranges, sizes, and customer bases. So, the amount of capital you need will depend on what you’re selling and your business model (FBA, wholesale, arbitrage, etc.).
Here are the breakdowns:
Mandatory Costs
To ensure you launch your Amazon FBA business on the right foot, you’ll need to factor in the following five types of mandatory costs. Let’s take a closer look at each.
1. Amazon Seller Central Account
To run a successful Amazon business, you’ll need to sign up for a Professional Seller account. This plan costs $39.99 per month, so you’ll need around $120 for the first three months of your business.
2. Product Research Tool
Product research is essential to the success of your Amazon FBA business. You need to know what products are selling well and what the competition is like. That’s why investing in a product research tool is crucial.
There are several options out there, but Jungle Scout is a good place to start. It costs $49 per month, so you’ll need around $150 for the first three months. Alternatively, you can use Helium10, which ranges from $39 to $99 per month, depending on the plan you choose.
3. Inventory Samples
To avoid negative reviews that can kill your Amazon FBA business, it’s a good idea to order samples of your products. This will help you evaluate the quality of the products and avoid any guesswork when it comes to product selection. However, keep in mind that suppliers won’t manufacture samples for free, so you’ll need to pay for the production and shipping costs. This usually comes in at around $200.
4. First Inventory Order
Your product research will pay off when it comes to your first inventory order. If you’ve chosen your product based on the data, your launch is more likely to be successful. A good starting point for new sellers is to order 500 units of a product with a retail price of around $26 per unit. This will cost you around $3,000, assuming the product costs $6 to manufacture, including the cost of the product ($4.50) and shipping ($1.50). Keep in mind that many suppliers won’t work with new distributors unless they’re willing to invest at least $5,000 or more for inventory.
5. Barcode
Finally, it’s wise to invest in a GS1 Company Prefix Barcode. This will give you more control over logistics and allow you to create coupons in your Amazon account. The minimum order quantity is 10 barcodes, which will cost you $250.
Total Mandatory Costs
Mandatory costs are the funds you need to start selling on Amazon. If you don’t have at least $3,720, FBA may not be the best business model for you. It usually takes three months to complete the above tasks, but keep in mind that reviewing samples and shipping delays can sometimes cause the process to take longer.
Recommended Costs
Here are the three types of recommended Amazon FBA startup costs you should consider.
1. Amazon PPC
Running Amazon pay-per-click ad campaigns is a great way to get your product noticed, especially if it’s brand new and has no rankings. This type of marketing strategy will drive traffic to your listing and help you get reviews, which in turn will improve your rankings. Although not mandatory, investing in PPC is highly recommended. On average, you should expect to spend between $300.00 and $1,000.00 over the first three months.
2. Promotional Giveaways
Generating product reviews and building customer loyalty is crucial in the early stages of your Amazon FBA business. One of the quickest ways to do this is through promotional giveaways. There are different options to choose from, so pick one that fits your budget.
Some sellers offer 100% product rebates on a fixed number of “freebies”, while others prefer to offer a deep discount for a limited time following launch. This type of marketing strategy will cost you around $200.00.
3. Trademark
If you’re going for the private label FBA model, you’ll want to trademark your brand. This will protect you from copy-cat competitors and Amazon listing hijackers. The cost of trademarking will depend on your place of residence and other factors, but on average, it will cost you between $350.00 and $600.00.
Total Recommended Costs
These recommended costs are essential if you want to speed up the growth of your Amazon FBA business and reduce the risks involved.
You can be successful without spending this money, but it will take much longer. Based on the upper end of the price range for the Amazon PPC and Trademark categories, the total recommended costs will come to approximately $1,800.00.
Optional Costs
Here are the 5 types of optional Amazon FBA startup costs you should be aware of so you can make informed decisions when it comes to starting your business.
1. Design Work
Design work covers all the creative aspects of your product, such as logos, packaging, product inserts, etc. You can delay this expense if you’re handy with design software and can create a basic product yourself.
However, if you want to present a more professional image, you’ll eventually need to invest in design work. The cost can vary greatly, so it’s up to each seller to decide what their budget will be. On average, expect to spend between $200-$400.
2. Professional Photography
Whether or not you need professional photography will depend on the type of product you’re selling. Take a look at your competitors’ listings and see what kind of images they’re using. If the competition is using eye-catching images, you may need to invest in professional photography to keep up. Expect to spend between $300-$500.
3. Second Batch of Inventory
Ordering additional product is an important investment for your business growth. You don’t want to run out of stock, as it will negatively impact your Best Seller Rank and organic keyword ranking. Assuming you’re replenishing a $6.00 product, expect to spend $2,000 on a second batch of inventory.
4. Accounting Software
At the beginning, many new sellers handle their own accounting. But as your business grows, you’ll need better financial tracking for expenses, taxes, etc. A popular option for new sellers is QuickBooks Simple Start, which costs $25 per month, or a one-time startup cost of $75 for 3 months.
5. FBA Training Course
Taking a training course is the best way to get started with Amazon FBA. While there are free videos on YouTube, they’re not always comprehensive. High-quality paid courses come with step-by-step videos and ongoing support, making the learning curve much shorter. The cost of a training course can range from $500-$5,000.
To help you get started, we’ve compiled a list of the best Amazon FBA courses.
Total Optional Costs
Think of these optional costs as the tools you need for the best chances of success. Based on the upper end of the price range for “Design Work,” “Professional Photography,” and “FBA Training Course,” expect to spend around $7,975 in total.
In conclusion, starting an Amazon FBA business can be a lucrative venture, but it’s important to be aware of the potential costs. Take your time to evaluate each expense and decide what’s best for your business goals.
Can I Start Amazon FBA with No Money?
There are a lot of Amazon FBA sellers who started with a budget under $1000. Is it possible to do it for even less money? The answer is “yes” if you do it right.
To start a business with FBA without money, you only have to take a few steps.
Step 1: Source Your Inventory for Free
Find products lying around that you no longer need, like clothes, utensils, appliances, and books. Not only will this de-clutter your home, but it could also be a profitable start to your FBA business.
Step 2: Get Registered on Amazon
Signing up as an individual seller on Amazon is totally free. Simply create an account by providing basic information and bank details, and you’re ready to go!
Step 3: List Your Products for Free on Amazon
Product listing on Amazon is free. Add high-quality photos with a detailed description and bullet points. Be as detailed as possible to help customers make an informed decision. You don’t need a pro copywriter or photographer – use your cell phone camera and some helpful tips to get the job done.
Step 4: Make Your Sale for $0.99
The only money you’ll spend is the $0.99 Amazon account fee upon sale. Amazon will deduct FBA fees and referral charges from your margin before you can take the profit home. Although starting an Amazon business without money is possible, it won’t let you tap into its full potential or make it your primary source of income.
How to Lower Your FBA Fees?
As an Amazon FBA seller, you may struggle with controlling your expenses, especially if you’re a beginner. But don’t worry! Here are some tips to help you save money and minimize your FBA fees.
1. Choose Your Inventory Wisely
FBA fees are calculated based on your product’s specifications, so it’s crucial to store the right items in the fulfilment centre. Here’s what to keep in mind:
- Steer Clear of Cheap Items – Don’t store items that cost less than $15. Storage fees are based on weight and size, not price, so the profit margin on a $1 item will be harder to make up than on a $50 item of the same weight and fulfilment cost.
- Limit Heavy Items – Extra fees for weight can cut into your profit margin, so consider avoiding heavy items unless you’re making excellent revenue from them.
- Avoid Large Items – Long-term storage fees are calculated by the cubic foot, so big items that take up more space will cost more to store.
2. Monitor Your Inventory with the Inventory Performance Dashboard
Make the Most of Your Tools – Amazon provides a variety of tools to help you keep track of your items and fees, including the Inventory Performance Dashboard (IPI) in your Seller Central account.
The dashboard allows you to monitor your inventory activity and provides advice and suggestions to help you streamline your inventory management.
Here’s how you can improve your IPI score:
- Address Stranded Inventory Actions – This refers to various problems with your listing that can be fixed to make your products more buyable.
- Follow Restock Recommendations – Ensure you always have enough inventory by following the restock suggestions.
- Consider Excess Inventory Suggestions – Avoid long-term storage fees by taking action on excess inventory suggestions.
3. Bundle Your Products
By bundling 10 items into one unit, you only pay fulfilment fees for one item, not 10. Packaging the items into a bundle is simple and inexpensive, and bundles are one of the top promos you can run on Amazon!
Is FBA Still Profitable in 2023?
The short answer is yes. If you’d like a more detailed explanation, you can read our article on Amazon FBA profitability. But here’s a quick rundown of some of the challenges you might face:
- The competition on FBA is fierce with 4,000 new sellers joining every day.
- Amazon fees keep going up, so keep that in mind.
- And watch out for Amazon’s own private label brand, “Amazon Basics,” which gives Amazon a big advantage over third-party sellers.
So there you have it. Selling on Amazon can be a great opportunity, but it’s also important to be aware of these challenges. For more information, check out my article on Amazon FBA profitability.
Final Thoughts
From my personal experience, I’d recommend having about $15,000 set aside for your new venture on Amazon FBA. And, if you’re a new seller, you might want to consider this money as “hands-off” for at least the first year or two.
It’s important to remember that profits should be reinvested back into the business, especially during the first 1-2 years. This is to help fund new product launches and keep your business growing.
Just a heads up, this article only covers the startup costs. Don’t forget that Amazon has been known to increase their fees each year, so make sure you account for that in your overall business plan. Or you should explore other ways to make money online.
There’s no guarantee that any startup business will become profitable. But, if you treat your Amazon FBA business as a long-term venture (not just a hobby), you’re setting yourself up for the best chance of success.
For more guidance, sign up for my online business coaching.