Have you ever wondered how much money Amazon FBA sellers make?
It’s a question that many people ask themselves when they are considering selling on Amazon.
This article will discuss how much money can be made with an Amazon FBA business, and how each of the potential Amazon business models compares. We’ll also cover where most Amazon sellers see the biggest potential – the lucrative exit!
But first, some thoughts on the potential earnings of an Amazon FBA seller.
In a recent study, Jungle Scout found that most sellers are making money. In fact 70% of Amazon sellers make more than $1,000 per month with one in four (25%) making over $25,000 per month.
Whilst the earning potential is significant, there are many factors that go into the actual Amazon sellers’ profit taken home beyond merely annual sales figures.
So, if you’re still wondering how much money Amazon sellers make, this article will break down all the factors involved.
How do you actually make money with Amazon FBA?
Amazon FBA is a great way to make money. The key to making it work for you is understanding the basics of what Amazon FBA is and how it works.
The first thing you need to know about Amazon FBA is that, in order to use the service, your products must be eligible for listing on Amazon’s website; they also must meet some other criteria such as having a bar code and not being restricted by any rights or trademarks.
Once these qualifications are met then you can list your product on Amazon and start selling! You’ll get access to all of their traffic which means increased sales – without needing tons of marketing experience.
There are a number of different business models you can deploy on the Amazon FBA platform, each with varying earning potential – so let’s take a quick look at them.
Retail arbitrage is a way to sell products from other companies. Amazon FBA sellers can find products at a store, and then buy them for cheap, and then sell them on Amazon where they are more expensive. You take your cost price and any associated Amazon fees, deduct them from your sales price and you’re left with profit.
This is a great way to dip your toes into the world of Amazon FBA, but is very limited in terms of scaling up due to the amount of time needed to visit stores, buy products in small quantities and continue this process over and over.
Whereas retail arbitrage requires Amazon sellers to visit stores in person, online arbitrage allows the freedom of ordering stock online. This cuts down your time investment and helps you search for deals much quicker.
You can also tend to find more units to sell as you aren’t limited to per-location stock.
However online arbitrage still faces limitations of scale as you have to keep finding fresh deals and keep putting in more time to find more products with relatively high profit margins.
The wholesale business model moves away from interacting with retail stores and instead involves contacting brands and suppliers that offer wholesale partnerships.
The key with this business model is to find suppliers that you can source from at a good profit margin, but also with more of a long term relationship.
Wholesale is a step up from arbitrage because it is a much more scalable business model. However, it’s still not the best model to make the most money with.
That is of course…
Private labelling is having products produced by manufacturers for your brand. You find product opportunities and have a branded version made with your logo on that represents your own Amazon business.
Selling on Amazon with the private label model has the biggest earning potential for a number of reasons.
- You only have to do the upfront work once. Once you have found a manufacturer, designed your packaging, and created your listing – you never have to do those things again. You can just keep selling the same product over and over.
- Your average profit margin is far higher. Generally speaking, due to a direct relationship with a manufacturer and not sourcing from a so-called middle man, your profit margins will be greater than that of other third-party sellers not selling their own branded products. You should be aiming for 30-40% gross margins (profit after product costs and Amazon fees).
- Your exit potential is much bigger. It’s highly unlikely you’d be able to sell an arbitrage business, and a wholesale business wouldn’t fetch anywhere near the same multiple as a private label business. A good private label brand can be sold for 4-5x annual profits or more.
Considering lifetime sales – including a possible exit one day – is crucial to having a good understanding of how much money Amazon sellers actually make.
How much money can you make with a healthy Amazon business?
It’s a question like “how long is a piece of string?”.
Some sellers make no money. Most sellers make some money. But some super sellers make a LOT of money.
The key factor is of course the products you sell.
So here’s how to get an idea of how much money you could make selling on Amazon.
1: Get some product research software
Amazon FBA sellers all start somewhere, and this is where you can too.
Helium 10 is a great tool for finding product opportunities and estimating their average monthly sales.
2: Apply relevant filters
If you want to have your mind blown about the potential annual sales of top products on Amazon, filter by revenue. You will find many products with average monthly sales of over $1m.
This doesn’t mean you should target these products when starting.
Instead, target products that are generating per month in revenue what your budget will be. This will enable you to buy enough stock to test the product properly.
Other filters you should set are low reviews (under 1,000), a price point of $15-$50 and small and light products.
These give you the best opportunity of finding products with good profit margins to aid fast growth in your Amazon business.
If you’re looking for further inspiration to get your start selling on Amazon, read about how Jeff Bezos inspires product research within his Amazon team.
An Example Amazon FBA Sellers’ Income
Ok, let’s summarise by mapping out an Amazon sellers’ journey over 3 years.
Year 1: 3 products launched
In your first year, you launch 3 products in a profitable niche. Each product begins to generate $10,000 per month – an achievable target given the volume of retail sales on Amazon.
Your gross profit margin is 30%, then with some other expenses, your final net profit margins come in at 20%.
So at the end of year one, you’re generating around $6,000 profit per month.
Ideally, you’d leave as much of this in the business as possible in order to maintain momentum and make more sales, remembering the biggest payday will come when you one day sell the business.
Year 2: 5 products launched, 8 total
Ok, now your Amazon business is cooking on gas. You’ve hit some momentum and are launching more products all the time. You might have one or 2 duds, but by the end of the year, you’ve got 8 products with an average of $10,000 per month in revenue.
So $80,000 per month in revenue, and $16,000 per month to take home at 20% profit margins.
Now would be a good time to be paying yourself so you can fully focus your time on selling on Amazon. You can also look to hire help – just be sure to keep your business costs as lean as possible as we build towards year 3 and the overall goal of lifetime profits.
Year 3: 7 products launched, 15 total
So many Amazon sellers get distracted, but this is where you keep stepping on the guess. Your monthly sales are growing, your Amazon FBA income is hitting a healthy level and you’re keeping business expenses in check.
This will allow you to keep launching new products to hit $100,000 per month or more.
All things considered, your business should now be worth somewhere in the region of $1,000,000. Remember, lifetime profits.
Instead of looking at how much extra income you can earn in the first few months, consider how much wealth you could create a few short years after starting selling on Amazon.
Whilst it’s impossible to put exact figures on how much you can earn when you start selling on Amazon, it’s clear to see that most Amazon sellers working hard to create their own profitable brand are building something with huge future earning potential.
And, the sooner you start selling, the sooner you can start realizing this potential.
As the old saying goes… the best time to plan a tree (start a business) was 20 years ago. The second best time is now.
If you want to learn how to build a successful business on Amazon, check out our free training that will help you do exactly that.