How Much Money Do I Need To Start Amazon FBA?

What Is The Budget For A Successful Start On Amazon FBA?

So, how much money should you budget for a successful start on Amazon?

It's a common and important question that often comes to mind when considering the potential of this platform.

You might think, "Wow, there's a great opportunity here.

It seems interesting and I can envision a bright future.

I believe I can make something happen and earn some money.

Amazon FBA could be the vehicle to help me achieve my dreams."

But how much do you actually need?

Well, that's a fantastic question, and the answer truly depends on several factors.

In this article, I'll delve into the factors that determine the budget needed for a successful start on Amazon FBA.

This question, which is number 2 out of 10 from my video with 10 questions that Amazon FBA beginners ask, was brought up by Lucia Cracogna.

Here's the video version of the article:

And if you'd want to watch the full video, I've embedded it right below. Happy watching!

Is A Limited Budget A Barrier To Entering Competitive Niches?

Let me break it down for you.

When you delve into product research, you'll come across numerous opportunities within various niches that can greatly vary.

In fact, my YouTube channel has many videos on Amazon product research, including one that spans about 12 hours.

Yes, you heard it right, nearly 12 hours of content!!!

It's a treasure trove of information that covers practically everything I knew about the subject.

Want to watch it now? See below! 🙂

Let's imagine there's a product priced at a hundred dollars, and it's experiencing impressive sales in that particular niche.

People are making thousands of sales per month, and there seems to be an opportunity for new products with limited competition and fewer reviews.

This might mean that the niche is not saturated yet.

You can dive deeper into these aspects if you'd like.

But what I'm trying to convey is that in this specific niche, it might not be feasible for someone with a limited budget to enter the market and compete with established sellers.

However, by having great Amazon product differentiation, you might still be well-competitive in those heavy niches.

To illustrate this, let's say the product costs 100 dollars on Amazon, but it only costs around 20 dollars to produce and bring it to the market.

Now, let's imagine you want to reach the top of the sales in that niche, where the leading sellers are moving impressive numbers, like a thousand, eight hundred, six hundred, or seven hundred units per month.

Additionally, there are new sellers who have recently entered the market and are making some sales, which is an encouraging sign.

However, the reality is that you may not have the financial resources to invest in such a product.

Even if you were to order a thousand units of a 20-dollar product, the total cost would amount to 20,000 dollars.

That's a significant sum of money, which may not be readily available to everyone. 

Moreover, when selling physical products, you need to consider the need for extra inventory for future batches.

This is because there is a time gap between when you place an order and when Amazon pays you.

Moreover, there is also a delay in shipping the product.

So, maintaining inventory turnaround becomes an additional expense.

Let's dive deeper into this.

How Can Inventory Turnover Affect Expenses And Profitability?

We know that it's crucial to have enough stock to meet customer demand while avoiding shortages.

However, maintaining a large inventory can be costly.

For those working with smaller budgets, this presents a challenge.

But fear not, there are still options available.

Suppose your budget is around five to ten thousand dollars or slightly more - something that many people can attain with some effort.

In that case, you can explore products with lower price points in the market.

However, it's essential to strike a balance.

Avoid products that are too cheap because Amazon charges various fees that eat into your profits.

When you make a sale on Amazon, they deduct a 15% referral fee from the total sale price.

Additionally, there are pick-and-pack fees, which vary depending on the size of the product.

Typically, these Amazon fees can range anywhere from a couple of dollars for regular-sized items to a bit more for larger or oversized products.

It's important to keep this in mind as we calculate our potential profits.

I also want to suggest you a good tool for inventory management on Amazon. It's called Sellerboard.

What Factors Should Be Considered When Determining The Budget For Starting A Business On Amazon?

Now, imagine you stumble upon a product that sells for $25.

That's pretty good, right?

Let's break down the costs associated with creating and shipping this product to Amazon.

To manufacture and ship one unit costs you around $5 (maybe more maybe less, it's just an example).

So, if you create 500 units, you'd be looking at a total cost of $2,500, including shipping.

Keep in mind that this is just the initial investment.

You'll also need to allocate some funds for product photography and video creation, which might amount to a few thousand dollars.

When it's time to purchase our second batch of products, you might need to spend a little more.

So, imagine that purchasing an additional 500 units would cost you approximately $2,500, which includes both the product price and shipping expenses.

We call this the "landed cost."

Now, let's crunch some numbers.

If you're seeing an increase in sales, it might be a good idea to buy more inventory.

For example, if you decide to purchase 1,000 units, you would need around $5,000 for this order.

Now, you would have some room to work with only if your budget is more, let's say around $10,000.

Aside from the product and shipping costs, there are a few other expenses to consider as well.

For instance, you'll need to create appealing product images, which can cost a few hundred dollars if you hire a skilled designer.

They may not be cheap, but their work would speak volumes.

Additionally, you'll have to invest in compelling copywriting, listing optimization, and possibly a video for your product.

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Another important expense is the brand registry on Amazon and trademark registration.

A person that can help you with this is Alex Vasko. Let him know I referred you, he'll get you a good discount.

By registering your brand on Amazon, you can enjoy several benefits, such as protection against competitors trying to hijack your listing.

It's a worthwhile investment to safeguard your business.

The brand registry does require some money, so factor that into your budget as well.

In general, a starting budget of around $10,000 is reasonable.

However, it's worth noting that some products may have lower costs.

For instance, I and my partner recently entered the barbecue niche with a product that has a landed cost of about $1.

After accounting for Amazon fees, we sell it for $15, resulting in a profit of around $8.

This translates to an incredible 800% return on investment (ROI).

That's a big win!

Now, I know it may seem like everything out there is already being sold, but don't lose hope.

If you keep looking, you'll find something unique.

That's why I made the 12-hour-long product research video.

I want to motivate each and every one of you reading this.

I know it's not always easy, and there are moments when I feel exhausted after spending hours researching and drinking lots of coffee to keep my energy levels up.

But I do it because I want to show you that success is achievable.

You too, with just a little effort and determination, can find great products that fit within your budget.

Take our product, for instance, which had an initial cost of $1 per unit and was subsequently sold for $15 per unit.

If you find such a product, you can buy 300 units with just a budget of 300 dollars.

That might not sound like a lot, but bear with me.

If you manage to sell all 300 units, you're looking at a revenue of $4,500.

And remember, this is from just a $300 investment.

The actual profit depends on how much you spend on ads, but I wanted to give you an example to illustrate the potential.

Your product has a landed cost of just $1. You list it on Amazon and sell it for $15. 

Amazon takes a portion of the sale, around seven dollars or maybe even a bit less in fees.

Plus, there are pick-and-pack fees, which for this product might be around three dollars or maybe even less (or more).

So after subtracting all the fees, you are left with approximately eight dollars of profit (that's in our case).

This means that for every dollar you invest, you get eight dollars back, resulting in an impressive 800% ROI before even considering ads.

With these eight dollars, you have the opportunity to invest in ads to promote your product and bring in more sales.

This is great because you have a lot of room to play with and maximize your profits.

However, it's important to note that for cheaper products, the cost per click for pay-per-click ads on Amazon might not be cheap, and since there is not much room for margin, it might make cheaper products more complicated to advertise.

That's why it's worth exploring other advertising opportunities outside of Amazon. Talk to intelliRANK for such services.

Sometimes, you can even find products that cost as little as 50 cents to produce and ship.

And if you find such a product, as I gave you the real example of my product, that would really be a great position to be in, as most products typically have lower returns.

However, it's important to remember that this is just an example, and other products in this category may sell for slightly less.

Just actively try to optimize your pricing strategy to achieve higher sales at a higher price point.

But does that answer the question I asked in the beginning?

Well, it's a bit complicated, but let me break it down for you.

When it comes to how much money you need to start a business, it really depends on what you're selling.

If you have a specific item or technology in mind, it might require a higher investment.

However, if you're looking to start with a smaller budget, it's definitely possible.

Typically, there's an initial investment involved, ranging from a few thousand dollars to around ten thousand dollars.

Personally, I recommend having around ten thousand dollars because it gives you some flexibility.

It's great when things go well, and you start making profits, but keep in mind that it takes time to generate revenue.

Let's say you start selling these products.

It takes about 30 days to create them and another 40 days to ship them (might vary).

After that, you start making sales.

However, you won't receive your Amazon salary until about two weeks later.

This means there's a cash flow cycle to consider.

The shorter this cycle is, the faster you can reinvest your money in more inventory.

But if the cycle is longer, you may need to put money from your own pocket to buy more inventory.

What Strategies Can Be Implemented To Optimize Inventory Turnover And Cash Flow In An Amazon FBA Business?

To reduce the time it takes to turn around your inventory and increase cash flow, there are a few strategies you can use.

One option is to consider local production of your products instead of relying on slower shipping from overseas, like China.

Another strategy is to explore faster shipping options, such as sea shipping with quicker delivery times.

I'd recommend you talk to UnreaL China, Unicargo, or Proboxx for your shipments. I've worked with all of them, and they know their stuff.

Additionally, it's important to find manufacturers who can produce your product in a shorter amount of time.

Sometimes you'll come across different manufacturers who offer varying production times.

It's worth investigating why there's a difference.

Perhaps one manufacturer has found a more efficient process or is using cheaper materials.

So, when it comes to selecting a manufacturer for your product, it's really important to have clear goals and consider a few factors.

Now, let's talk about Amazon FBA, where you can develop and sell your products.

Product development is actually quite fascinating because each product is unique in its own way.

However, it's best to keep things simple and not get too complicated.

For example, my friend Tal once sold a digital otoscope, which is a device used to clean ears.

Here's my interview with Tal about his Amazon FBA experience.

It was a bit complex because it required an application to connect it to various devices, and people had trouble downloading it.

This led to bad reviews and caused some issues.

So, my advice is to look for simpler products that are still in demand.

Sometimes, even boring products can be profitable because people keep buying them.

However, if you're up for a challenge, there may be opportunities in more complex products.

There could be less competition in that space since not everyone wants to deal with the extra difficulty.

It really depends on your personal preference.

Another strategy you can explore is bundling different products together.

Let's say there's a popular product like a mask.

You could create a bundle that includes additional items like a small light that illuminates in the dark or a unique pattern for the mask.

By adding these extra features, you make your product more special and it helps solve a specific problem.

This can give you an edge over competitors.

The Wrap-Up

In conclusion, when it comes to starting a business on Amazon FBA, determining the budget is crucial.

While entering competitive niches with limited budgets may pose challenges, there are still opportunities at lower price points.

Accurately calculating costs, including manufacturing, shipping, and additional expenses like branding and marketing, is essential.

By adopting optimization strategies and exploring options like local production and faster shipping, you can optimize inventory turnover and improve cash flow.

Simplifying product development and considering bundling strategies can also give you an edge.

Keep your goals in mind and make informed decisions to maximize your chances of success on Amazon FBA.

Until next time,

Best,

Vova :)