Many people are mislead into buying an Amazon course, under the guise of being able to miraculously flip $500 or $1,000 into 10x multipliers.
If you actually believe the guru's of YouTube that preach this, please stop and read this article before you shell out any money!
Selling on Amazon FBA costs more than you think!
My intent in this article isn't to break down all of the fees associated with balancing your profit & loss statement - I use JungleScout Sales Analytics for that.
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I want to illustrate a very important concept of how cash flows in an Amazon business that EVERYONE SHOULD KNOW BEFORE THEY START!
Launching & Reordering Products
When you launch a product, you're going to need money for two things:
- Paying your supplier for the goods (you can do 30% up front and 70% when the production run is finished)
- Shipping the goods
When I placed my first ever Amazon bulk order, it cost me $1,600 for the product and another $800 for shipping.
Total cost: $2,400
This is where things get confused though - it cost me $2,400 to launch a product on Amazon, but it cost me 2x that to keep it in stock, before I saw almost any return on investment
^ Re-read this and make sure you understand it! Very few people seem to be transparent about the fact that you will very likely need to re-order inventory again BEFORE you get paid by Amazon for your sales!
This is because Amazon allows a settlement period where they hold your funds as your "Balance" (visible in Seller Central) to allow time for customers to process returns
When your funds are released, it takes around 3-5 days to show up as cash in your bank account!
So if you want to launch a product that costs $1,600 to product & another $800 to ship, and that product takes on average ~30 days for production time, you should have at least a bare minimum of $4,000 cash ready to fund it.
You'll likely see a deposit from your sales before you need to front the money to ship that second order from overseas (assuming you're getting sales).
Advertising Fees
When you launch new products on Amazon in 2019, you're going to need to grease Jeff Bezos' pockets in order to get them ANY visibility from customers.
They made a huge push during 2018 to increase their advertising revenue through both Amazon Advertising & Campaign Manager.
As of right now, many project Amazon to become the 3rd largest media company in 2019 based on current YoY growth
* source: L2inc
Case & point: be ready to spend some additional funds on running ads - it's no longer optional.
I would project that at least ~30% of your investment (cost of goods + inbound shipping) needs to be set aside as funds for advertising.
If you sell at a 30% profit margin, this would be break-even. It's not uncommon at all to delay profitability when launching new products, as they need to be advertised to gain initial traction on Amazon.
That means you need an additional $720 for ads to sell that first order that cost you $2,400
Total investment before initial funds are collected:
- Production #1: $1,600
- Shipping Order #1: $800
- Advertising Order #1: $720 (you likely wont spend this all up front, rather it will be spent over time...)
- Production Order #2 30% deposit: $960 (this figure could be larger based on your sales projections as you sell more & climb in organic rank)
Total: $4,080
Once your product is established on Amazon, you can project to make +$1,224 (30%) on every $4,080 invested... but you have to work to get there!
