Dustin and Kris discuss what FBA means, how it can increase your sales, get you more reviews, and rank your product higher in search results.
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– Welcome to episode 11, of Two Amazon Sellers and a Microphone. I’m Dustin Kane, and with me as always, is Kris Gramlich. Kris, how’s it going?
– Good, Dustin, how are you doing?
– I’m good, how was that Chiefs’ game last night?
– It was good, it’s nice to be out there at the stadium. It was kinda a bore-fest there for a little bit, but it got better.
– Yeah, I watched it at home, I was jealous. Like I mentioned yesterday, very, very jealous that you were at the game. But let’s not bore everybody with our Chiefs’ commentary. Even though they won, it was great game. But today we’re talking about the Amazon FBA business model. And I’m really excited to talk about this, for many reasons. I mean, we’re gonna talk about sort of what FBA means. It means obviously it means Fulfilled by Amazon. So Amazon will do all the work for you. What advantages there are, how if you’re currently selling on Amazon as FBM, why FBA might be something you that wanna take a look at? And also if you’re not selling on Amazon, just what FBA allows you to do. I mean, it allowed me to start a business, a very successful e-commerce business as a one-man show. I didn’t have to touch every product, fulfill every order, get my own warehouse, all the things that can add costs and time to our business. The Fulfilled by Amazon model changed that game. So this is a really exciting podcast for me, and a topic for me. I’m ready to dig into it.
– Yeah, let’s do it.
– Yeah, so let’s first talk about what FBA is, and how you can, how you can get that setup. So, Kris, it’s Fulfilled by Amazon, that’s what it means, what does that entail?
– Yeah, so what that really is, in a nutshell, is, Amazon is going to fulfill the order for your products when you get an order. So you don’t have to ship it, you don’t have to go to post office and drop it off, you don’t have to package it, none of that stuff. All that you do as a seller, is you are going to ship items, to Amazon’s warehouses, they’re going to store them, and then when you get an order, they will fulfill that to that customer. They also handle all the returns, so you don’t have to worry about that. That’s another big bonus there, but essentially it’s, Amazon is allowing you as a seller, to kind of benefit off of their warehouses. And you don’t have to do anything else, but to ship items to a warehouse, and Amazon takes care of the rest.
– Yeah, and so you and I we’re considered third-party sellers. So we’re using Amazon’s distribution network, and their unbelievable platform, where millions of shoppers come to every day. We’re able to get our products in front of that audience. And then let Amazon, like you said, handle all of the warehousing and the fulfillment of those orders. When I started back in 2013, this fascinated me. There was nothing like this before, every like mom-and-pop retail store, or mom-and-pop product, whether you created your own product, you had to go to Bentonville, Arkansas, and sit in a meeting with the Walmart executives, and see if they will take purchase orders for your product. And you’d have to have all this capital and prove, you know, your production levels. Amazon changed all that. You could just have a few products, send them in, never touch them again, and Amazon will sell them. So the ability to like prove concept of a product, and test things, and then be, like I said, a one-man show, or a small business with virtual assistants, they exist, it’s amazing.
– No, it’s great, and you start to see other e-commerce platforms, kinda transition into this fulfilled by question, whoever. Walmart, whatever. I know, Walmart is the one that’s coming up, but yeah, you’re starting to see this model kind of filter out for other marketplaces. But I remember when I first heard about it, I was like, what? So I take items and I ship it to Amazon’s warehouse, and then they ship it. It’s like, the light bulb went off, you know, it’s like, well, that is a no-brainer. ‘Cause I don’t wanna be packaging stuff.
– Daily, so that was an easy, easy, like, yes, I’m gonna do FBA, especially when starting out at the very beginning.
– Plus I saw right away, the ability to scale quickly. So in a normal business, as soon as, I mean, if I had, working by myself, if I had 100 orders come in a day, and I had to package them, label them, ship them, I’d quickly become, get to my maximum where I was working. So I couldn’t go over that. But FBA allows, I can have a million orders today. And as long as I have the inventory there and the product there, it’s fine. So yeah, unbelievable business model. There’s fees involved. I mean, you’re definitely gonna your, if you had your own store or your own website, you might be more profitable per sale, but you certainly wouldn’t have the volume, and you certainly wouldn’t be able to scale without hiring multiple employees. So real quick, just in order to get started selling FBA, all you have to do is create an Amazon account, a Seller Central account on Amazon. Essentially, if you’ve got products already, you can list the products you wanna sell. You choose FBA as your fulfillment method, you ship the products into Amazon and create the listing, and off you go, you’re set. Those products will sell. And as long as you can continue to send in products to Amazon, you’re set, you’re set up.
– Yeah, and we touch bases on this on a few episodes in the past, but if you wanna get familiar with the process, there’s things you can do now, as you’re waiting for your product, so that you know how to ship items into FBA, once your product comes to your house, or warehouse, wherever you’re having it come to. If you already know how to, if you’re already shipping it directly to Amazon’s warehouse, that’s great. That’s a good step forward, but if you’re willing to kind of learn this process first, things like doing retail arbitrage, or doing some wholesaling or selling like used books. I know you and I both have done that. That’ll kinda teach you the process of taking an item, and sending it to FBA, and watching the sales hit, and having Amazon ship it, and not you have to worry about it. So once you learn that, once your product is here, you’re ready to go. ‘Cause you’ve already kind of tested it out on a few things around the house, or some used books or local thrift store finds. Check all that out first, do all that first, so that when your product gets here, you already, have already got those kinks ironed out, and now you can kind of get your products going and get them live.
– Yeah, that’s a great point Kris. I mean, there’s essentially four ways, where you can utilize the Fulfilled by Amazon business model. Retail arbitrage, like you, just talked about, where you’re buying something from somewhere below price and reselling it higher on Amazon. Used books, I mean, Amazon started as a bookstore. So books is a very popular way to sell on Amazon. I currently have books listed right now, in my Amazon account. If I read something, and I finish it, I’ll sell it on Amazon, ’cause it’ll sell almost immediately. You can do wholesale, where you’re you find, you know, brand name products, where you can become a supplier of those products, I mean, you sell them on Amazon. And then private label, is really where you wanna get. That’s where you and I have been for a long time, selling private label products. They are our own products. We control the listing, we can, you know, we can build our off Amazon, branded, following our website, drive traffic there as well. Private label is really where you wanna get to, with your business. But, and that’s where you’re able to scale, really, I mean, almost entirely by yourself. You can just scale to the sky’s the limit. So in terms of setting up your business, and you choosing the fulfillment method of FBA, what are some of the benefits? What are some of the pros of that model?
– First one is definitely fast shipping. Like you’re gonna be able to, or your customer is gonna be able to get the product faster, than you doing it by yourself, or Fulfilled by Merchant. ‘Cause your listing is now Prime eligible, which gives that customer, you know, one to two day shipping times. So the customer is gonna get the item faster. You don’t have to, you don’t need a fulfillment center. We need to have FBA, they’re your fulfillment center. So you don’t have to use your garage, as a way to ship stuff. You’re gonna have to, Amazon’s going to take care of all that for you. And they’re gonna store it, and whenever a customer orders it, they’re gonna ship it. And then another positive thing is, you get to sell anywhere. It can be anywhere where FBA is enrolled in. So you can, and they just came out with, I don’t know if you’ve seen this in your account, but it’s, oh gosh, I forget the name, like marketplace fulfillment. It’s a newer feature, they used to call it NARF, North America Retail Fulfillment. But now, like if something sells in Canada, my listing is Prime eligible in Canada. And they’ll just take the inventory from the inventory here in the United States, and ship it to somebody Canada. So it’s only getting better and you can sell anywhere. So again, I don’t know why you wouldn’t do this with fast shipping. They’re gonna be at your warehouse, and you can sell anywhere.
– Yeah, this was what was super attractive to me when I was getting into this. And I remember I read a book, it’s Tim Ferriss’s book, “The 4-Hour Workweek.” I don’t know if you read it. And he wasn’t necessarily talking about the FBA model. He was talking about e-commerce in general. And I was like four-hour workweek, big, nah, there’s just, I don’t buy that. That seems hocus pocus. The FBA model actually really is the embodiment of that. I mean, you really can spend a little bit of quality time on your business and have everything else automated. And like you said, it’s just getting better and better. I mean, Amazon is now worldwide. They have all of Europe, all of Australia, they have all, have like the Middle East, India. It’s every, Japan, you go, you go on and on. It’s just gonna be everywhere eventually. And you can do this business from anywhere. I mean, I do it from my home in Kansas City. I was living in Tennessee before, I move across the country, and it made zero disruption to my business whatsoever. I could be on a beach right now, running this company. So yeah, those are some really big pros of this business. And when you model that business around that, you can scale without being tied down yourself personally, to anything. And that to me, should, I mean, anybody out there who’s looking to start a business, or if you have a great product idea or whatever, the FBA model is the way to go. So now there are negatives. There’s a few negatives. They’re way by a mile, outweighed by the positives. But we, you know, you talk to enough people, and I talk to people that are currently selling on Amazon or wanting to sell on Amazon. And these are concerns they have, where, you know, one of them is, there’s a fee. I mean, Amazon charges you a fairly hefty fee, for doing all this stuff that they do, fulfilling it, and all that. In my estimation, if I did it myself, you know what I mean, I would incur some of those fees anyway, I mean, on Amazon, you’re not paying for shipping. You know, if you sell on yourself, you’re charging customer shipping, and there’s some other things that are happening there, but the fees can be big. So if you have a retail store now that successful like an e-commerce store, when you go to Amazon, and your first sale is you make less profit than your current e-commerce store does, that can be discouraging. The flip side of that, of course, is does your e-commerce store get a billion people coming to it, you know, every month? Can you fulfill your order to Australia, on your e-commerce store profitably? No. So, I mean, you got to, taking those fees, is you know, just part of the game, I feel like part of the, it’s almost like your chance to play on the Amazon Sandbox, is how I feel like it is. Also, you have to prep, there’s some certain prep things you have to do, that maybe you don’t do currently if you’re selling, if you’ve never if you’re not selling before, and you’re starting your business, I mean, the prep is gonna be automated. You’re gonna have your supplier do it, to make the cake. You’re gonna have it set, you’re gonna have that set up from the get-go. And then the last real con is controlling your inventory in Amazon’s warehouse, if it stays too long, they start getting hit with some overage charges on the warehouse. There’s lots of ways to control that for sure. It’s not too hard to get it shipped out of there and get it back to you. But as you learn the business model, you will be able to manage those three things, no problem. I think a lot of people that notice these cons, are people that are already successful on another channel.
– They’re moving, they wanna be on Amazon, and they’re like, “Ah, I make more money per sale over here.” But they’re missing the big picture of what they could grow to, what that sales velocity could get to.
– Yeah, I mean, it’s literally changing their product to FBA, will double your sales, in my experience. And we talk with sellers, again, we talk to sellers daily, and they’re, some are doing some Fulfilled by Merchant. And, you know, we just ask, you know what, “Have you ever tried FBA?” And they’re like, “What’s FBA?” You’re like, “Well, you took an item, you ship it to Amazon’s warehouse, and they ship it, you don’t have to ship it.” And so, you know, we’ll send them some articles, or give them some feedback, and get on a few calls with them. But as soon as they go to FBA, they’re amazed on how much time they got back. And their sales are still continuing to come in. So it helps you win the Buy Box. It helps your product get found in search, especially with your ads running. But you do lose a little bit of control over the inventory. That’s why you gotta know, like, you can’t just send in 1,000 units every time. You got to send in you know, maybe a couple 100 here and there, and then feed it slowly. ‘Cause if you send in too much, you’ll get stuck with long-term storage fees, like you just mentioned. And that’s something you don’t wanna do, ’cause it can get kinda costly really fast.
– Yeah, absolutely. So, people I talk to, there’s a lot of, sort of basic questions that I get when we’re talking about transitioning, either starting a business on Amazon and choosing the fulfillment method, or somebody who’s been selling on Amazon as FBM, sort of, and they wanna consider transitioning to FBA, is some questions I have is, I get a lot of times is, you know, and we touched on this, can I sell in countries other than the US? And the answer is, yes.
– Yeah, I mean you can. So right now, you just mentioned a new feature where basically, if you’re in the US, you can sell to all the North American markets, Canada, Mexico, US, and have those products shipped from the US marketplace. But you could easily, if you’ve got a supplier, you can easily ship, like they do the same thing in Europe. You could ship directly to the UK, you may pay whatever tariffs and all that stuff to get your products into the UK. But from there, they can fulfill to all the European marketplaces, like Germany, Italy, Spain, all the places, all the different marketplaces there. And they can all be fulfilled out of the UK warehouses. So the sky’s the limit, in terms of what you can do with that model. And there’s just no way you can do that, without that incredible distribution network, that Amazon has. You can’t do that profitably yourself. Then the other thing is talking about, you know, what you need to price your product at, to be profitable on Amazon selling FBA. What are your thoughts on that?
– Yeah, this is a good one, ’cause there’ll be some sellers, we talked to, they’ll charge like 12.99, and will charge like 4.99 shipping, and it’s like, why don’t you just sell the product for 19.99, and do FBA and get free shipping.
– And so they don’t, they understand that, but it’s hard for them to like, imagine the idea of raising their price ’cause they’ve always been at 12.99. And they think that they’re raising the price, they’re gonna lose sales, but raising your price and being FBA eligible, is gonna get you more sales, ’cause people are gonna look for that FBA listing. If you’re merchant fulfilled and you charge shipping, and you have a lower price, you still won’t get sales, you’ll get some, but you won’t get as much as you would as FBA. The Amazon customer is trained for like Prime, and no shipping. I want free shipping and I want Prime, ’cause I know I can return it whenever I want. So I would suggest doing it and just raising your price, more than what your Fulfilled by Merchant price is, so that you can kind of offset those fees, that you will incur with FBA, but you’re gonna get more sales in the back end. You’ll start to see that revenue increase month over month.
– Absolutely, absolutely. I mean, you can, what Amazon charges you to be FBA, is dramatically outweighed by all of the benefits that you just mentioned for sure. And also you’re talking about the shipping, but there’s a trust factor too. When, as a shopper on Amazon, when I see Prime, I know I’m getting that product in two days. I just know it. And I would pay more for that product, than I would for something where, it’s like, if you could order from Prime on Amazon, order the same product, for a dollar cheaper off some guy on eBay. You’re paying the dollar extra, for sure.
– It is the convenience, right? Like, you know, if you get it, and it’s not what you expected, it’s easy to return it. It’s easy to like get, you know, get that back to Amazon, and you can get a refund. Whereas if you buy off eBay, or some other people’s websites, you gotta fill out a form, you gotta submit an order number. Then you gotta take the item, and they’re gonna send you a prepaid label. Then you gotta take the item, but the Amazon return, I don’t know if you’ve seen it, but now, you can go to Kohl’s and just drop it off at Kohl’s. And all they do is just give you like a QR code, I can take the item in there, it doesn’t have to be in the box, and they just scan it and it goes back. So the convenience of that return process is another thing Amazon customers like, and that’s part of the FBA program. Is having that or increase your sales. People will feel more comfortable buying from you, and then they always know they can return it. And most cases when they return it, it wasn’t even used. So it just goes back into your inventory.
– Exactly, my wife buys a lot of clothes on Amazon, and obviously, clothes get returned. But we have a UPS store, that’s literally like two blocks away from us. If she wants to return something, she just hits the return button on the order’s tab, on her Amazon account, we drive over to the UPS store and just hand them the stuff. A box, they scan a little QR code on the phone, like you’re talking about. I mean, she’s ordering stuff all the time with confidence. I mean, you know clothes aren’t gonna fit half the time. So if they don’t, you return them. And that’s, yeah, just giving your customer. That is something you could never replicate, that well on your own, without employees, and you know, really good. I mean, even on your website, you’d have to have so many things that you plugged into your website, to even print labels and the whole bit for your customers, but it’s a more of a pain for them. So yeah, there’s so many benefits to this business model, in terms of what’s able to do in terms of scaling, and just the ease of doing it, your ability to start small test products, abandoned products when they don’t work, move on to the next thing. And then when a product hits, you can quickly grow with it, because everything is built-in. One thing I talk about a lot with Amazon is on their web services side, which is the other part. That’s what’s attractive to a lot of companies who decide to go to Amazon’s web services, is they have the bandwidth. So if all of a sudden your website gets, you know, 1,000 visitors that day, they don’t cut you off, they expand with you and then charge you accordingly. And if it shrinks and shrinks, they charge you accordingly. Well, essentially, that’s, what’s happening with this model, with your product is, you, what if you do this on your own, let’s say, you bought a warehouse, in your city, and it’s whatever $5,000 a month, is your cost on that warehouse, and all of a sudden your sales tank. Well, now you’ve got a fixed cost that sunk. This is not the case here. When I started, I went from selling like one product every few days, to selling hundreds a day. And it scaled with me. So that’s where I feel like this is, it’s attractive. It’s just getting better and better by the day. If you’re not selling on Amazon right now, if you’re not in this model, I highly encourage it. There’s just unlimited amounts of things to sell, and unlimited amounts of growth. And it’s a great model.
– Yeah, no you couldn’t, you said it really well there. And the thing to remember is, just know your fees, know how much you’re being charged, and that’s things like we talked about in our last episode, with the free tools or a couple of episodes ago, where you know, do the FBA calculator, and see how much a product is gonna retail for, retail your price, and see how much margin you’re making before you go in there and start to mess around with your price, and then know all this, while you’re testing that out, doing other things like retail arbitrage, or doing some wholesaling, or doing whatever. This is a good way to use, to know what your profit is going to be so that you can, you know, be ready for when your product hits, you’re able to go live with it and send it off.
– Absolutely. Yeah, this is fun, Kris. That mean, again, there’s some of these podcasts. Take me back to when I started, and just what it’s done for me. It’s exciting. I think we’ve covered a lot in this one, and anybody out there who’s listening to this, you need the tune in tomorrow. We got a great podcast tomorrow. We’re bringing in an expert on Amazon’s terms of service. So this’ll be our first interview podcast. And I can’t wait, it’s gonna be a lot of fun.
– Yeah, it’s gonna be a good one, and it might be longer than 30 minutes. So we’re definitely gonna try to get a lot of questions answered, and it’s gonna clear up a lot of confusion out there, ’cause I know you and I have some thoughts on some things going on, so yeah, should be excited.
– Yup, I can’t wait, Kris, that was fun. Everybody out there, thanks for tuning in, go to Sellozo, on Facebook and like our page, you’ll be able to get notified when we go live. ‘Cause, we live stream every podcast. So Sellozo, S-E-L-L-O-Z-O on Facebook, like the page, do whatever you gotta do to get notified when we go live, and you’ll get those notifications, you’ll see this, and then we will see you tomorrow, when we are talking about Amazon’s terms of service, with an expert. Can’t wait, Kris, that was a blast.
– And we’ll see you tomorrow.
– See you.