I had a small Ebay business while at university, reselling products in random categories. The store I had wasn’t focused, it was more of a general store.
I enjoyed finding products and then reselling them at a profit, but it was hard work and didn’t have the potential to scale. The fulfilment part of the business, in particular, was monotonous and laborious.
I crammed my room with stock, and fulfilled every order myself and followed up with every customer query. In fact, I would say that I spent more time fulfilling orders than on any other aspect of the business.
Several months later I stopped trading was put off from selling physical goods online.
A few years later, however, I came across FBA, or Fulfilment by Amazon — a service that offsets the burden of fulfilling orders. It’s a great model; you just have to send your inventory to Amazon and they will take care of everything, from finding your orders to following up with customers for a fee.
I realised I could do what I was doing before but with the fulfilment part outsourced to Amazon. The problem, however, was that I had little capital and no experience of selling on Amazon through FBA. So instead, I started reselling books and did some retail arbitrage to build capital and to learn the basics of selling on Amazon.
And after several months of hustling, I had built enough capital and experience to start with the wholesale model. In this in-depth post, I’m going to share with you the steps I followed to start our Amazon FBA wholesale business, and the mistakes we made along the way so that you don’t.
Ready?
Let’s get started…
About the wholesale model
First, let’s get an idea of the Amazon FBA Wholesale is all about.
The idea behind the model is simple: buy and sell in-demand products at a profit at Amazon on a scale. In a nutshell, you find fast-selling products, purchase them for as low as possible and then sell them at a profit on Amazon.
There are two ways we could approach the wholesale model: we could resell products that only sell multiple times a day — products with proven sales histories from established brands. These products usually have smaller profit margins but are less risky. Or, we could build a portfolio of slow-selling but highly profitable products. We are using a combination of the two.
The wholesale model is easier to scale than other FBA business models such retail arbitrage; once we find a replenishable product (stock that can restock after running out), we can just restock it until it’s not profitable — this is the beauty of this model.
Imagine finding a replenishable product with a £3 net profit that you sell three a day. That’s £3,285 profit a year. Now imagine having a portfolio of 10, 100 or even 1000 of this kind of product. The numbers are mind-blowing.
The wholesale has other benefits too, including:
- being fully automatable. We haven’t yet automated our wholesale business but every aspect of it can be fully automated, from sourcing to pricing.
- doing business domestically. Whether you’re in the USA or UK, you’ll be doing business with suppliers in your country.
- building relationship with brand owners. Relationships with brand owners are invaluable and can lead to deeply discounted products, access to a wide range of products, and even to exclusive rights.
- developing knowledge of the ecosystem. Reselling the wholesale way gives us an understanding of the ecosystem of physical products, from market positioning to pricing strategy.
The wholesale model sounds easy in theory, but finding and building a portfolio of profitable products is not; it requires the right mindset, a lot of hustle and patience.
The other barrier to entry to playing the wholesale game is capital. I personally believe that you need a starting capital of at least £5,000 to play. If you have that kind of capital, great; this is a great way to get your money to work for you, with the potential to make a lot of money.
But if you don’t, I would recommend reselling books (which I’m still doing) first.
Preparing for business
You are in an advantaged position if you experience selling on Amazon, but if you don’t, don’t worry. I’m going to go through everything I know and provide you with the basics of starting an Amazon FBA wholesale business.
Registering your business
The wholesale model is a business-to-business (B2B) model, meaning we have to respect how things are done in this environment, we need to respect the etiquette in place to have a chance of succeeding.
Therefore the first thing we must do is create a legal entity, which is easy to do, at least in the UK – just follow the instructions on Companies Houses’ website; the process is quick and cheap (£12). If you’re in the USA, you’ll need to set up an LLC and get a resale certificate, I believe.
I had one issue at this stage though: our business’ registered address was going to be visible to the public at the click of a button. So instead, we used our accountant’s address. But if that’s not an option for you, I would recommend using a company address service.
Once your company is incorporated, don’t forget to open a business bank account, too.
Business email address
We mainly use email to contact suppliers. So we created a business email address to appear professional – which is optional, but if you can’t invest in a professional email address, this business model is not for you.
I used Bluehost to register our company’s name as a domain name, and Google’s G Suit to create and host our email address for only£3.49 a month. Contacting suppliers using a professional email address is mandatory.
Creating an online presence
Some brands/manufacturers have tighter distribution strategies than others and are, therefore, very selective. They assess the nature of every business that approaches them about carrying their products and choose according to their requirements.
Creating a niche focused e-commerce store and using a multi-channel fulfilment method can easily solve this issue. These suppliers will take you more seriously and, as a result, give you access to their products. I personally haven’t tried this approach buy might do in the future.
Delivery address
In the early days of our journey, I remember finding the ideal product and then ordering straight away. I was excited and waited patiently for the delivery. A few days later, to my surprise, our accountant called saying he had a delivery for me…it was at this that I found out that serious suppliers don’t ship to residential address.
We were stuck, but we were determined to find a solution.
Straightaway, I thought of self-storage; and after contacting many self-storage companies, I found the Big Yellow self-storage company, who accepts deliveries, small or large for their customers. You can also receive and send pallets as most of its branches have a docking bay. It was perfect.
Later, we realised we could have used a prep service company – these companies basically receive, prepare and send your inventory to Amazon for a fee. But I’ve never used one, so even if we had realised this earlier, we would not have used one because of the risks involved.
We will, however, consider and test prep service companies in the future when we decide to fully automate our business.
Opening an Amazon Seller account
I created a new Selling on Amazon account because we use our existing account for selling books – opening an Amazon Seller’s account is straightforward and quick.
Amazon has two kinds of selling accounts – you can sell products either using a Basic or a Pro account. The former is pay-as-you-go (£0.75 + VAT on items that sell). The latter is pay-monthly (£25 + VAT) and would fall cheaper when you start selling 35+ units a month.
We registered as a business and opened a professional account from the start. The wholesale business model is based on volume, meaning this and other fixed costs will become negligible as your business grows.
Identifying products
OK, let’s move on to the fun part: how to identify products to resell.
The wholesale model is based on reselling fast-moving products at a profit at Amazon using FBA. But how do you go about finding these products?
I use two easy ways to find products that move fast and consistently. The first way is to look through products on the best sellers page of a category, which is easy to do on Amazon.
The other way is to come up with a keyword or a brand name, sort the result by featured and search for profitable products.
I plough through these pages until I find a profitable product.
But what exactly makes a product profitable?
From my experience, I have learned that some kinds of products are more profitable than others. More specifically, a suitable product is one that:
- Amazon does not sell. It’s very difficult to compete with Amazon; they have a greater purchasing power and we are playing on its platform. We don’t want to compete with Amazon.
- is selling for £15 or more ($20 or more). Amazon’s fees work out less for higher priced products. A retail price of £15 (or $20) or more gives us more profit.
- has three or more sellers. If a product has less than three sellers, it’s likely to be a private label product, or the brand itself is selling it on Amazon.
- is not hazardous material (hazmat). These products are regulated and are not FBA eligible – make sure to research and understand what makes a product hazmat.
Looking through the best sellers page of the health and personal care category, I found the Colladeen Derma Plus supplement tablets. At the time Amazon was not selling it, was retailing for more than £15, and it had more than three sellers and no FBA sellers.
The outlined factors are important. But the most important variable is a product’s Amazon Bestsellers Rank (BSR). The BSR is a metric that Amazon uses to measure the popularity of a product – the lower the BSR the of a product, the higher the demand for it.
The BSR, which you can view using this free Chrome extension, is useful because it provides a snapshot of demand for a product. As you can tell, we want to find products with a high demand and a proven sales history. The product I found had a BSR of 20,299, which is good.
The BSR is a useful tool for identifying products but you cannot base your buying decision on it alone; It’s deceiving. It’s only a snapshot of demand. The BSR history, however, over a period of time, say 90 days, is a more reliable measure of the demand for a product.
Here is the BSR history of the product I found:
The free Chrome extension called Keepa gives us access to sales history, and much more, including price and competition over time. The green line in the graph is the BSR over time, and every spike down represents a sale.
The product I identified had an average BSR of 32,000 over 90 days, indicating consistent sales. I then used the average BSR to estimate the number of sales per month using Jungle Scout’s free handy Sales Estimator:
According to Jungle Scout, this product sells about 42 units a month. At the time, there were no other FBA sellers. And since Amazon prefers FBA over FBM offers, I estimated to get about 60% of the sales, or 25 sales a month.
If, however, there were existing FBA sellers, I would have divided 60% of the estimated sales per month by the number of FBA sellers, including myself.
There are some additional traits that I look for in a product. More specifically, I look for products that:
- are small and lightweight. A lightweight product has smaller costs. It doesn’t cost much to ship and has a small storage fee.
- have several or more positive reviews. Another indicator of a product’s popularity/demand is the number of reviews it has. We want products that sell quickly because we don’t want to hold on to stock too long.
The Colladeen Derma Plus tablets meets these criteria, too:
This product ideal for Amazon FBA, and was a good find but not a great one.
Lastly, you will need to consider the profit margin. The profit margin is an important variable in your purchasing decision but isn’t everything. You can negotiate prices with the manufacturers you contact. They usually offer a discount of 20 to 40%, depending on how good you are at negotiating. If it’s not profitable even after the discount, you just have to move on to the next product.
Finding suppliers
Traditional retailers (online and offline) go to wholesalers for stock. But the issue is that the prices wholesalers set are high, making most of their products unsuitable for Amazon FBA.
So what do we do?
We go to manufacturers and official distributors directly. It’s the only way to get the best prices.
A note on Supply Chain. Simply put, the term “supply chain” refers to the number of hands that touches a product before it reaches its intended consumer.
Few manufacturers sell directly to their target consumers. Instead, most reach their consumers through middlemen, namely distributors and wholesalers, who then sell to retailers, who finally sell to consumers.
Contacting manufacturers
Our goal is to do business with suppliers directly, or their official distributors if they don’t sell to retailers. The way to do this is by contacting them.
The manufacturer of a product can be found on its product page on Amazon.
As you see from the image, this product is manufactured by a company called Lamberts.
After contacting them, I was forwarded to a distributor called GD Cooper. This was one of the first products I sourced using this model so I was cautious, as reflected in the size of my order.
Most big and medium-sized manufacturers don’t sell on Amazon, but some might. It’s important that we avoid these suppliers. Avoid doing business with this kind of suppliers.
Anyway, here is the email template I use when contacting manufacturers.
Hello
My name is _____and I’m the Purchasing Manager here at _____ Limited.
We are interested in carrying some of your products that we recently found. We place large orders on a continual basis with our suppliers and we hope to do the same with your company.
Can you please send us a copy of your price list, and any paperwork required to open an account.
Please feel free to contact me on _____ or at _____ with any questions.
Thank you in advance for your time.
_____
Purchasing Manager
_____ Limited
This email template has been working for me. You can, of course, use and amend it to your needs. Or come up with your own completely.
You will get a range of replies from manufacturers.
In theory, suppliers should send you their price lists straight away as they are in the game of making money, too. But it’s more complicated and the responses you will get are based on their pricing and distribution strategies.
Most manufacturers are more flexible and will give you access to their products lists. But some are more selective about who they do business with and have more stringent requirements so they might probe you for information about the nature of your business.
Most suppliers carry thousands of products and our aim is to find products that meet our requirements and make sense financially – usually a small proportion. Finding these products will require a lot of hustle and persistence.
Wholesale is simple but not easy.
Profitability – Colladeen Derma Plus tablets
Shortly after contacting GD Cooper, they sent me their stock list. Their price for the Colladeen DermaPlus Tablets was £11.42 including VAT. And the price at Amazon ranged from £20 to £25 at the time. I bought 20 units of this item along with some other products.
Before purchasing, however, I used Amazon’s handy FBA calculator to work our potential net profit. The calculator uses a product’s ASIN number (found at the bottom of a product’s page) to calculate its associated fees.
As you can see from the screenshot, the costs include:
- Selling on Amazon fees: £3.30. This fee is comprised of Amazon Referal Fee (15% of the sale price of a product), and Variable Closing Fee, a small fixed fee that varies depending on category.
- Fulfilment by Amazon (FBA) fees: £1.71. The FBA fees include the cost of fulfilling an order and monthly storage fee of a product.
- Delivery to Amazon: £0.15 per unit. Sending small and lightweight products to Amazon is really cheap. I added an extra £0.35 to account for other costs.
- Cost of product: £11.42. This is the cost plus any input taxes (input VAT in the UK).
The total Amazon fees total to £5.01. But if you’re in the UK and unless you’re VAT registered, this fee is not accurate. If you’re just starting out, you don’t need to be VAT registered until you get close to the £85,000 threshold. This means that you don’t have to collect sales VAT for the HMRC. But you still have to pay input VAT – the VAT on goods and services you buy or use.
My calculation is based on NOT being VAT registered.
Since we’re using Amazon’s platform to sell our goods, we have to pay VAT on Amazon fees. The accurate Amazon fees, therefore, is £6.02 (5.02*1.20) for our product.
Here are the actual numbers:
Note: the price we sold at ended up different to planned price.
We sold the first 5 units at £23.99 with a £4.50 profit a unit and the remaining units at £19.00 with a profit of £2.11 per unit. We reduced the price significantly because another seller came in and priced at a lower price, at which point we decided to settle for less profit.
We made £22.50 from the first 5 units and £31.65 from the 15 remaining units, giving us £54.15 in total profit. Still a good profit.
Shipping inventory to Amazon
The process of sending inventory to an Amazon fulfilment warehouse includes listing, labelling, packaging, and then shipping inventory. It’s involved but easy.
Listing inventory
In order to sell on Amazon, we first need to list our inventory — which is easy, as most products on Amazon already have a product page. All we have to is find the product we want to sell on Amazon’s catalogue, using its ASIN number or name.
So what’s an ASIN number, anyway?
An ASIN number (or Amazon Standard Identification Number) is a unique 10-character alphanumeric identifier assigned to every product on an Amazon marketplace.
You can find the ASIN number of a product in two places: a product’s web address or near the bottom of its detail page.
Here is a product I found on Amazon.co.uk. Its ASIN number can be found in the browser’s address bar, after its name and “dp.”
Alternatively, scroll down to the bottom a product’s page until you see “Product Information.”
Once you find the ASIN number of the product you want to sell, find it on Amazon and list it.
To find a product you want to sell on Amazon, click “Inventory” on Seller Central. Then from the drop-down menu select “Add a Product.”
On the “Add a Product” page, go down to “List a new product” and in the search bar enter ASIN number (or name) of the product you want to sell. Then hit “Search.”
Then, find your product’s listing and click on “Sell yours” button.
Depending on the product you want to sell, it might have multiple listings or none at all. If the former is the case, make sure to select the one that matches your product. And if they all do, select the one with the highest number of offers and BSR. If you can’t find the product you’re looking to sell, then it’s not a good product to resell. Move on.
On the “offer” page, set your price and add a Seller SKU (optional) and select a fulfillment channel.
Your product will be assigned a unique barcode associated with your account so that it’s trackable. Therefore you will need to label every unit that you plan to sell on Amazon.
Creating a shipment
But if you want to use FBA, you have to notify Amazon of all the products you want it to fulfil.
Therefore, shortly after listing, I created a shipment. To do this, I went to Manage Inventory page, selected the items that I wanted Amazon to fulfil and chose the Send/Replenish Inventory option from the drop-down menu.
Here’s the process I went through.
Following the instructions, I was directed the Send/Replenish Inventory page, on which I chose to create a new shipment, and specified the number of units I was going to send.
I also chose to label our inventory myself. You don’t have to, though. Amazon would do your labelling for a fee, but I would recommend doing it yourself; it works out a lot cheaper.
Labeling products
Next, I downloaded and saved the labels document I was provided. Printing these labels proved to be easy because I already have everything set up.
To print labels, open your labels document and, from the Edit option, select Take a Snapshot:
Doing this allows us to capture a label. Highlight the whole barcode of a product and right click. Then print.
Then, enter the number of labels you want to print and continue.
To actually print labels, I use a thermal printer specifically designed for printing labels. Amazon recommends using a thermal or a laser printer instead of an inkjet printer because barcodes get smudged.
I personally prefer a label printer to a laser printer because it’s a lot smaller and as effective. Labels are cheap, too. I use 57 mm by 32mm labels, which costs £29 for 10,000 labels. That’s £0.0029 a label. This is why it works out insanely cheap to the labelling yourself.
Oh…Products that are loose or that are bundled require poly bagging. I use a range of poly bags, depending on what I’m poly bagging, and use an impulse heat sealer to seal them.
Pricing
Products at Amazon have a single product page, which sellers use to sell the same product. So how does a buyer choose who to buy from?
The seller who has the Buy Box.
Let’s have a look at what the Buy Box is and how it works.
About the Buy Box
The Buy Box is just a reference to the Add to Basket call-to-action button on a product’s page, just like the one in the screenshot below.
The holder of the Buy Box in this example is a third-party seller called games_connections; in this case, they don’t use FBA, they fulfil their orders.
Most shoppers don’t browse all offers. Instead, they purchase through the Buy Box, through which, according to Amazon, 80% of sales are made at Amazon. Therefore understanding the factors that influence the Buy Box is an important part of trading on Amazon.
No one knows exactly the variables that the Buy Box algorithm uses to determine who gets the Buy Box for a product. But it is widely believed to be based on a number of variables (of varying importance), including:
- Fulfillment method. As FBA sellers we benefit from using Amazon’s logistics, meaning FBM sellers cannot compete with our scores for variables such as shipping method and on-time delivery rate.
- Landed price. The price of an item plus shipping charge is called the landed price.
- Feedback rating and count. Having a large number of positive reviews increases the chance of winning the Buy Box.
- Customer response time. Sometimes as FBA sellers we will get customers messaging us directly, and our response time is judged by Amazon, who recommends responding to customers with 24 hours.
My pricing strategy
My pricing strategy is simple. I always match the lowest FBA offer and never undercut. Some sellers do undercut (and I hate it). You shouldn’t though; it will lead to price wars and no one will profit. But by matching, everyone will get a piece of the pie as the Buy Box would be rotated.
In cases where there are no FBA sellers, I price at 10 to 15% higher than the lowest FBM offer and still get the Buy Box. But you’ll have to experiment because, sometimes, you can price much higher than the lowest FBM offer and still get the Buy Box.
Repricing
On Amazon, prices are always changing because most products have multiple sellers offering them. Sellers reprice often to increase their chances of winning the buy box position for their inventories and can be done manually or automatically through a third-party software.
The task of manual repricing is repetitive and dull. But if you don’t have many products in your portfolio, say less than 30, it’s more economical. Besides, it isn’t difficult to reprice and manage a small portfolio of products manually.
We price manually at the moment and are in the process of automating it using a repricer. I like repricing, though. I think it’s educational but it takes up valuable time that we could be spending on sourcing new products; a repricer would make things is a lot more efficient.
But until we find a suitable repricer, we will continue to reprice manually.
Summary
- Prepare/set yourself up for business.
- Find in-demand products on Amazon.
- Contact and build relationships with manufacturers.
- Calculate profitability and go through the rest of their products.
- Order the profitable products and send them to Amazon.
- Reprice often
- Bank the profits. Repeat.
Mindset
I wasn’t sure about including this section but decided to do so because it’s so important.
The wholesale model is a serious business, and you should approach it just like any other business. Also, the logic behind the model is very simple but the path to succeeding is a long and difficult path; it takes a decent amount of capital, a lot of hustle and time to get it off the ground.
But it is worth it.
And remember, this is not a get-rich-quick scheme; it’s a very simple model that requires a lot of hard work and focus – no one (including any courses) can make it work for you, except you. Sometimes necessity is the biggest driver of success. You must NEED, not want, it to work.
Conclusion
If you’re selling books or doing retail arbitrage, then you should definitely consider the wholesale model. Those models are great but they require a lot of work and have limited opportunities for serious growth.
In terms of scalability, the wholesale model trumps them. Once you find replenishable products, all you have to do is just order and ship them to Amazon every month until they become unprofitable. It’s the closest thing to owning your own brand with a breadth of lines.
But if don’t have any experience of selling on Amazon, I would recommend reselling books and/or retail arbitrage – they are the easiest ways to learning Amazon and building capital with little risk.