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Is Amazon FBA Still Worth it in 2021?

April 20, 2021 by Andrew Minalto
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How to Compete with Listings with 100s of Reviews? How to Compete as a New Amazon Seller in 2021?

You may wonder, “Is Amazon FBA business profitable?” Well, let’s look at the numbers. 2020 was a phenomenal year for my Amazon FBA business. In November alone I hit just under £200,000 in sales with a NET PROFIT of £57,020.50 – without spending a penny on PPC! I did a full blog post going over exactly how I achieved this, including how I actually left a lot of money on the table by not being optimistic enough with my inventory planning, which you can read here.

And many of my Amazon Sharks members have been setting their own sales records throughout 2020 as well as I describe here.

Now I’m not saying this to brag but to illustrate the huge growth that e-commerce and Amazon FBA in particular have seen in the last year or so. 

This, coupled with the fact that many people have seen first hand how risky it is to rely completely on one source of income, has led to huge interest and an influx of people looking to start their own online business. 

But this growth also brings a big question, and it’s something I’ve been asked countless times already this year – “can I still compete on Amazon as a new seller or am I too late?” 

Too Many Amazon Reviews Does not Mean too Late

Here’s a recent email I received about getting started with Amazon FBA:

Hello, I purchased the secret fba products course way back in September! I have been looking at the products and have decided I’d like to pursue the [EDITED] – I have done the product research etc that you suggest. My only problem is I’m worried about the amount of reviews the rival products have 3 or 4 have 400 plus reviews. Would I be able to compete with them? Thanks! Peter

And my honest answer is – absolutely you can compete as a new seller! BUT only if you do things the right way. 

I’ve always prided myself on being honest and upfront with my blog readers, so much so that I started warning people when I thought eBay was dying as a platform for UK sellers, even though my whole business was built around it. 

I’m not one of those fake online gurus posing next to a rented Lamborghini with their photoshopped screenshots, telling you how if you follow these 5 simple steps you’ll be an Amazon FBA millionaire overnight. 

I wish it were that easy but nope, it’s not. You do have to set yourself apart from the other sellers, many of which are much bigger than you or are even Chinese companies cutting out the middleman and selling directly on Amazon.  

If you’re expecting to just go onto Alibaba, click on the top ranking list, order £1,000 worth of stock and then sit back and watch the money roll in, well then I’m sorry to say you’re in for a rough surprise.  

Let’s take a second to think about it logically. 

Say you’ve found a product you want to sell on Amazon. And it really doesn’t matter what this is – we’ll just call it widget X for our example. 

Now widget X sells for £14.99 on average on Amazon with a Referral fee of £2.25 and an FBA fee of £2.57, leaving you with a net sale price of £10.17. 

After checking on Alibaba and speaking to a few suppliers you can get it for £3.50 with a MOQ (minimum order quantity) of 500 pieces. 

So £3.50 x 500 = £1,750. Shipping is £500. So, all in = £2,250. And then finally 25% in import tax (VAT + import duty), which gives you a final landed cost of £2,812.50 and a per unit price of £5.63 

For simplicity’s sake we’ll ignore any shipping costs to get your products to Amazon’s fulfilment centres, which means:

Sale Price – £14.99 

Amazon Fees – £4.82

Product Cost – £5.63

NET PROFIT – £4.54

So you’re left with just over £4.50 profit for every unit sold, giving you a good net margin of 30%. 

Not bad at all right? 

But not so fast… 

What happens when another company finds the same product on Amazon, goes to Alibaba and finds the same supplier just like you did. But instead of ordering 500 pieces they order 5,000 and get a reduced price of £2.75

And then even though they’re ordering 10x more, for shipping they only pay double what you did, so £1,000. Add on the 25% import tax (as that doesn’t change) and they get a final landed cost of £18,437.50 and a per unit price of £3.69

At the same sale price as you, that leaves them with: 

Sale Price – £14.99 

Amazon Fees – £4.82

Product Cost – £3.69

NET PROFIT – £6.48

That £6.48 profit per unit sold is a huge £1.94 more than you. And this is why I always stress how important buying power is! Even though initially the difference didn’t seem huge – you were getting £3.50 vs their £2.75 – and you might think ah that’s just 20% it’s not that big a deal…

But as you can see in the end it meant a 43% higher net profit! 

And it doesn’t stop there! The real problem comes when seller B decides that they can reduce their price down to £11.99, cutting their net profit per unit to £3.93, which still gives them a respectable 33% net margin. 

But what does that mean for you? 

With a £11.99 selling price your figures now look like this:

Sale Price – £11.99 

Amazon Fees – £4.37

Product Cost – £5.63

NET PROFIT – £1.99

Reducing your price to compete with seller B has cut your net profit in half, leaving you with a tiny and unworkable 17% margin. 

Now this part is very important as I don’t want you to take away the wrong message from this example. A lot of people who hear this automatically think it means you need a huge starting budget to compete – but that’s completely wrong!

The key point wasn’t seller B coming in and undercutting your price, it was the fact that you had to match them. And why was that? Because you were both selling the exact same product which you found from the same supplier on Alibaba! 

And this is the whole key to success on Amazon and in e-commerce in general. You have to differentiate and improve the product you’re selling

I can’t stress enough how important this is – it’s the key to my entire model for creating a successful Amazon FBA business and exactly what I teach in my Amazon Sharks course. 

If you’re selling a product which you have a personal interest / knowledge in then the improvement process is very intuitive and straightforward. 

For example let’s say you’re a big golfer and the product you’re interested in selling is golf club head covers:

Then maybe you know that people want longer covers, or covers made from a different material, or they’re bored of the usual black and blue and want something more fun and colourful. 

Don’t be discouraged by competition for Amazon Sales

There are many different ways to improve and differentiate a product and this is something I personally love. It’s safe to say I have the “tetris effect” hard when it comes to selling on Amazon! Basically every item I buy I check the Jungle Scout data and start thinking about how I can improve the product and compete with the current listings. 

This is one of the reasons I always suggest selling products in a niche you’re personally interested in as it just makes both product research and product improvement so much easier. 

But if not and you’re selling a product that you don’t personally use, that’s not a problem at all. It’s 2021 and you have access to more market data than you could ever need… 

Forums, Twitter, Facebook, Amazon itself – everything you need to know about a product is there. What people like about it, what they don’t like, what can be improved. 

Say you’re interested in selling dog beds and you notice a lot of people saying they wish the cover was removable and washable – there you go! A simple improvement you can make. 

Or you’re selling paper like iPad screen protectors and a lot of reviews on Amazon mention it was hard to install – so you can create an installation guide to be sent with every product. 

There’s really no excuses here. Take any product there is and within one hour of research you should have a list of ideas on how to improve it – setting you apart from the competition on Amazon and allowing you to charge higher prices. 

And what I love about Amazon is that it’s the perfect platform to be able to do this. 

Good products are rewarded and quality is emphasised. This isn’t eBay where it’s a race to the bottom and all about the lowest price wins. 

Having a better product with better reviews is what matters on Amazon. 

Do Listings With More Reviews Get More Sales?

I know that’s what you’re thinking. But, no! There are so many factors and for me the number of reviews just isn’t as important as people think. There are countless listings on Amazon pulling in thousands and thousands in sales every month with no reviews! 

Would they sell more with more reviews? Yes of course… 

Reviews are important, especially those first few when you’re just starting out. It goes without saying that the difference between having 0 reviews and 1 review is a thousand times more important than having 99 or a 100. 

But there are a few different highly effective methods to getting those crucial first reviews in, which I’m planning to cover in detail in a future blog post. 

Just remember that while reviews are important, they’re far from the be all and end all, and in fact there are other factors that are way more important. When I’m doing product research the number of reviews is only the 3rd or 4th most important piece of data for me.

I know I’m repeating myself now but this is so important to understand. 

The Amazing Amazon FBA Cycle of Profit

Create a better product = your listing converts better = you get more sales = your listing gets better search ranking = you get more sales! 

It really is an amazing cycle of profit when you get this right.

Take the time to create a better product – outdo your competition where it matters and you can easily compete with established listings on Amazon and get your share of the growing Amazon sales pie! 

And on that note we’ll end today’s post. 

However there is another part to this amazing business model. Not only do you have to improve the product but you also have to show customers that it’s better, which you do with branding! And this includes your packaging, product photography, listing and more – all of which will be covered in detail in future blog posts.

Until next time!

All the best,

Andrew.


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