You Hear Them Tell You “More Money,” Didn’t You?
So you’ve heard of Amazon FBA and it sounds like you can make a lot more money that way than being an affiliate?
That’s correct. You also get much more complicated work than when you are an affiliate. Let me explain…
Being An Affiliate is Like Being an Investing Employee
I’d like to make an analogy here.
When you are an affiliate, in a way, you are like an employee. You work on generating sales and everything else is purely automatic.
What I explain on this very website, Becoming an Internet Affiliate, is the concept of Niche Websites. You create a website with valuable content such as this very page. Then you sit and wait for Google and the other search engines to do their work and send you total free traffic. From that traffic you start making money as some people click on your affiliate links, end up on a website with products to purchase, and when some of them do a purchase of that product, you cash a percent of the sale price. With Amazon.com, your share can be between 0% and 10%. (Yeah, you have to make sure you don’t attempt to sell products that bring 0%, such as Alcohol.)
The stock management, the shipping, the payment, the manufacture of the product, all those things are being handled by someone else. So it makes it easy on you. Actually, your Niche Website, assuming it is well done—i.e. it has content that’s easy enough to read, of consequent length, and relevant to your niche and thus your audience—can be dormant, at least as far as you are concerned, since traffic comes automatically and for free and money gets generated without you having to do anything more once your content is in place. Google also particularly likes fresh content, but even that is not a requirement to get permanent traffic. If you have one site for which you like to write fresh content on a daily basis, all the better, that one site will really skyrocket for you.
Okay, so I said in this case you are like an employee… once the content was written, you’re actually much more like a retired employee who had enough stock in a company to ripoff the rewards without having to work anymore.
Evergreen Products for Truly Retired Affiliates
I want to bring up one potential negative for affiliates. Those affiliate links go out of business once in a while. If you point a link to a hot product that goes out of business after two or three months, then your link is going to be broken.
I put broken in italic because pretty much all companies, including Amazon, will continue to give you commissions, only the user will have to find a different product and that does not happen very often. After all, you just vouched for that one specific product and it’s not available anymore… they’ll wait or they will look for another recommendation, possibly on another website (probably if all your links are broken!)
In order to avoid broken links, you want, as much as possible, to point to what in this business we call Evergreen Products. These are long lasting products. They are not automatically the best products for your website, though. But if at all possible, this is a great idea to not have to update your affiliate links all the times. I talk about that on my Evergreen Products post in much greater details.
Being an Amazon FBA User is Running a Business
My website here is about being an affiliate so I won’t go in all the details about this one, but if you are wondering why I do not recommend you to start with this method of making money, there is why.
To continue my analogy, when you start as an Amazon FBA User, you become an employer who is not making enough money to hire people to run his company (and trust me, I know about that guy!) When you are an employer, the last thing you want to do is work 60 hours a week. Instead, you want 2 or 3 employees each working at least 40 hours a week and getting everything in place so they could themselves start their own business one day.
Why Do I Say That?
Well… Let’s see… You need to get many potential buyers to go to your product page on Amazon for a few of them to start buying your product. Notice the emphasis on your. This is a very important point. If you are an Amazon Affiliate instead of an Amazon FBA User, you get commissions whether that user purchase the product you sent them to or any other product. If you are that Amazon FBA User, then the user could purchase a product from one of your competitors and you make nothing (unless you’re smart and use an affiliate link, but make sure that you are allowed to do that. You may be able to do it if you have two separate companies, but as yourself it may not allowed…)
Okay, that is a first problem. But that’s not just it…
Stock Management and Costs
When you are an Amazon FBA User you are responsible for the stock of your goods.
So for example you want to sell garden hoses. For Amazon to be able to provide those hoses to your buyers, they need to have enough of them in stock. You are the one responsible to refill said stock.
If you are the manufacturer of a unique product, it may be less of a problem because you just cannot have any competition. For example, the Dungeons & Dragons Player’s Handbook Fifth Edition (5e) book is created and sold by Wizards of the Coast and they are the only ones who are going to sell it on Amazon (although of course you can resell your second hand copy too, but that’s not directly considered competition since that’s the exact same product being sold.)
In any event, every single day, you have to check your sales. If they were such that your stock is nearly gone, you must resupply as soon as possible. This is true whether you already got paid (it takes two weeks to get paid with FBA) or not. So you must make sure that you have a way to pay for that additional stock without first getting paid from Amazon for the first set of items you sold. In other words, if your product gets extremely successful, you could end up not being able to keep up the supply and lose everything in the process.
Sales Have to Come Through
Another problem with your items. You own them, but they are sitting in an Amazon.com warehouse. They have a problem with that: if they do not sell fast enough, they do not want to keep them there. Warehouse space has a cost and they cannot just keep all those items that do not sell in there. They will send them back to you, of course, but then your stock drops to zero and your Amazon item does not show up in any searches so in effect you are going to get zero sales when that happens. If that was an incredible seller, that’s going to be a really sad story.
Costs (it’s not free!)
When you are an affiliate, you make money each month. It’s like an employee receiving a check. You get your Amazon checks at the end of each month, but while waiting for it, you do not have to pay anything to Amazon, to a manufacturer to get a stock, etc.
However, as an Amazon FBA User you have a monthly fee for keeping your account in good standing. This is similar to having an e-Commerce website where you have a monthly fee to keep the ability to have an e-Commerce capability on your website (on top of the website hosting, although in some cases it could be included as with Shopify.)
Note that affiliate or Amazon FBA User, you should have a Niche Website so those costs will remain the same (i.e. your own domain name & hosting from Bluehost.) But as the Amazon FBA User, you have that additional costs.
Of course, $29/mo. or so is nothing if you make thousands in sales. Actually, it is definitely worth it. However, it is certainly difficult when you get started to have yet another fee to support your business, especially if you do not have much traffic yet (although you can generate traffic using Facebook Ads, AdWords, and other similar ad systems when you have an Amazon FBA User account, but keep in mind that ad costs decrease your ROI.)
But I Heard I Can Make Millions?!
It’s just that this is 100% like running a business. It’s the difference between investing (Business) and sitting around to make money (Niche Website) and managing a stock or people to run a profitable operation.
Now, don’t get me wrong, you can make a lot more money if people buy your product rather than the competition’s products. I will provide a quick example. The garden hose I mentioned earlier… There would more or less be the steps:
- Find a supplier (Alibaba comes to mind)
- Determine the costs per hose
- Hose itself: $2
- Spray Nozzle: $2
- Shipping: $2 1
- Determine the best price on Amazon.com, say $40 (it’s higher than normal because it includes a spray nozzle)
- Calculate cut that Amazon.com takes (if I’m correct, that’s around 20% of the sale price, so $8)
- Return on Investment (ROI) per hose: $40 – $6 – $8 = $26
Say you are able to sell 1,000 such hoses per month, now you make $26,000/mo. after expenses (but note that I did not include the other fees: the monthly Amazon FBA User account, taxes, CPA fees, lawyer fees, corporation fees, something to always keep in mind… running a business is not free.)
At $26k a month, you’ll make $312k a year.
WARNING: the numbers presented here are just examples, it is likely completely different. I am not the one selling these hoses on Amazon.com, however I’m an affiliate and if you purchase one I will likely get a small commission. Thank you!
Is it Scalable?
As we’ve just seen with the garden hose example, you can already reach a good $312k/year. Find 3 or 4 products that sell that well and you are at the $1M mark. You should be able to handle 3 or 4 products by yourself, although really at that level of income you should also be able to pay a few people to take care of all the mechanics: sourcing items, watching stocks, returns, chargebacks, support, etc.
So you can easily reach the $1M mark, but you won’t have $1M on your bank account because you will probably spend half of it in operation costs. I’ll say, making $500k is already marvelous if you were an employee all your life before that. But now you may have a better sense of what it takes: a real business with stock management problems, employees problems, sourcing problems, potential shipping problems… If you’re ready to put up with all of these on a daily basis, that job’s for you! If not, stick to affiliate marketing.
What Do You Think?
What I am currently thinking of doing is get my affiliate Niche Websites to start making enough money to where I can employ one person to help with the Amazon FBA User feature.
What about you? Please feel free to comment below about your own thoughts now that I gave you pretty much all the cons (and a couple pros) of that business… What are you going to do about it in the next 12 months?
1 You’ll have to divide the total cost of shipping by the number of hoses you purchase at once to know the cost of shipping per hose. This is an important point because if you can ship 100 at a time, your cost of shipping will decrease dramatically.