There are an endless amount of routes for people to take when it comes to investing their time and money on the Internet in hopes of a return, creating an extra income, or opening up a new career path.
Popular ideas for making more money like investing in cryptocurrencies, the stock market, making videos on YouTube, creating and monetizing a blog, and starting an Amazon business to name a few.
One benefit Amazon has among all popular internet investments is that it is a real business, where you build a real brand and sell real products.
Your branding can carry your sales and can sustain you for years to come if you do a good enough job at it, that is.
Other ways to make money online depend on the upswings and downswings of the market, or are done by making a big investment of resources and time with an unclear timeframe of when you'll see a return.
Amazon is straightforward, you create and source a product, put it for sale on Amazon, and eventually realize a profit.
But that begs the question, just how profitable is Amazon FBA?
Every product on Amazon has an associated cost to produce and send to an FBA warehouse to be put on sale, and once it’s sold, Amazon takes a cut to ship that product to the customer and they also take a referral fee (typically around 15% of the retail price), and after that, any cash leftover is your profit.
How profitable your product depends on the cost to produce it, ship it to Amazon FBA, and the price at which you set it on Amazon.
Luckily, there are a lot of tools and different ways to ascertain if an Amazon business will be profitable for you.
Profit Check with Amazon’s Official Revenue Calculator
When looking into the profitability of potential products, one of the biggest costs associated with selling on Amazon is the referral fee and the fulfillment/shipping fee charged by Amazon.
Estimating exactly how much Amazon is going to charge to ship out your product is actually pretty tricky, as the dimensions of your product, the weight of your product, and the product category will all affect the fulfillment and referral fees.
Luckily, the best tool for estimating potential referral and fulfillment fees is free and comes from Amazon officially.
It’s called the Amazon Revenue Calculator, and with it, you can see exactly how much a product costs to fulfill, and even has extra features like estimating storage fees and the overall profitability of a product.
The trick to using it is finding a product already on Amazon that is most similar to the product you’re trying to sell in terms of dimensions/weight and in the same product category, extracting the ASIN from that product.
Once you put the ASIN in the calculator, it will tell you exactly how much it costs to ship, what the referral fee is, and how much Amazon charges to store that particular product.
If you know the cost to produce your product and ship it from the country of origin into an Amazon FBA warehouse, then you can accurately calculate exactly how much profit you can make from a product.
Find out how much it would cost to produce your product
Now that you know how much Amazon will take off the top, you need to find out how much your per unit cost will be to produce your product.
There’s no way to guess how much a product will cost to make, to know with certainty you have to go straight to the source.
The source for most sellers-to-be is the site Alibaba, an online directory of manufacturers from all over the world (but mainly China).
If you have an idea of what you want to make, you can find 10+ factories in China that will make it for you to your exact specifications, and can even help apply any innovations you wish to make to a potential product.
Making an inquiry on Alibaba is straightforward, you would message them as you message any company with a proposal for what you’re looking for.
Keep in mind that when you do message a manufacturer, they are looking for potential clients to work with, and just asking them for unit prices might not make you seem like someone who is ready to start production, and it might take some time to get a response.
You don’t have to lie, but make sure you word your opening message detailing that you are looking to have a product made and how much the per-unit cost will be, rather than explaining that all you care about is individual product costs.
This way, the manufacturer will be more interested in providing you with pricing.
Get quotes from various manufacturers, and if you are so inclined get a few samples of something similar to what you’re trying to have made to judge the quality of what the factory can produce.
By gathering this data, you have another piece of the puzzle to determine overall profitability and can use this information in conjunction with the Amazon Revenue Calculator to know how much it will cost to sell your products.
ROI - The Most Important Profitability Factor for Amazon Sellers
When potentially selling on Amazon, something that’s more important than pure profits and profit margin is your ROI, which stands for Return on Investment.
When you’re investing your money into selling on Amazon, you want to know how many dollars 1 dollar of investment is going to produce for you.
This number is usually expressed in percentages, so if you have a 100% ROI, for every dollar you spend on your Amazon business, it will produce $2… $1 covers your investment, and $1 is your return.
Generally, if you sell on Amazon, a bare minimum ROI is 100% ($2 for every $1 spent), a good ROI is 150% ($2.50 for every $1 spent), and anything over 200% is considered great.
If after calculating all of your costs (production, shipping, fulfillment fee, referral fee, storage fee, and EVERYTHING else), your ROI is under 100%, then you have to increase your pricing.
If increasing your prices will make your products unable to compete with what’s currently on Amazon, you will likely have to re-evaluate your product decision and make an adjustment of some kind.
This could mean making a different product, or raising your prices and positioning your product as a premium product that has a justifiably higher price.
A high ROI allows you to spend more on advertising, restock more easily, invest in new products, and overall grow your business at a much faster rate.
So, when you’re determining if making an Amazon FBA business is profitable, check the ROI of every potential product you want to make, and that it hits an acceptable ROI.
There you have it, with the information in this article, you can find out exactly how much it will cost to produce a product, and how much Amazon will charge you to store, fulfill, and sell it, and you can put it all under the umbrella of ROI to see if it’s a venture worth pursuing.
Once you do this research, you will be able to see if Amazon is worth your time and investment to go after.
In general, though, you will find that Amazon businesses can be quite profitable, and while they are certainly not “passive income” as some may lead you to believe, once you get an Amazon account up and running, you will be used to the internal systems and how everything works to the point where you can match or exceed most careers in the world with a fraction of the time investment.
Good luck in your future endeavors and research!