While it’s certainly possible to run an FBA business on a tight budget, there’s no doubt that a sizeable investment makes scaling a whole lot easier — and faster.
I started two FBA businesses from a relatively low initial investment (<£4,000 each) and have successfully grown them into profitable, scaleable businesses. It can be done, albeit with a lot of persistence and careful spending over a long period of time.
So here’s what I’ve learnt about starting and growing low-investment Amazon FBA businesses over the past six years.
The Right Product
Much of your Amazon FBA success rides on your choice of product. And if you’re operating on a tight budget, you can’t afford to get it badly wrong.
The good news is, money doesn’t guarantee success in this game. Anyone can throw huge sums of money at an FBA business, wind up sourcing the wrong items and fail to generate a profit. It happens all the time.
Over-populated electronic items — such as phone accessories and chargers — are examples of products that I personally wouldn’t attempt to sell via the FBA program no matter how much money I had to invest. It’s far too competitive. Yet sellers of all kinds gravitate to what other people are already doing rather than what they aren’t.
The point is, you’ve got to be original. Use your imagination. Be innovative. Ensure your product offers some form of advantage before you commit to investing in it.
Products for a Low Budget Seller
- Your peculiar interests: so many of us have peculiar hobbies and interests outside of the mainstream (some of which we may not want to admit). That’s where we hold valuable knowledge and experiences that the vast majority of others don’t have. This is where you’re likely to identify an opportunity to either create a unique product, or compete against existing ones.
- Small, lightweight, compact: the best items for Amazon FBA are the ones which can be cheaply imported from overseas, stored at Amazon, and sent out to customers. Large, heavy items generate more fees. As a rule of thumb, seek items that can fit into a shoebox, or smaller.
- Low competition: if you’re aiming to compete with an existing product, always ensure that your competitors do not have a huge record of positive reviews. As a general rule, I would avoid competing against products with a 5* rating and over 100 reviews; this suggests they’re a long way ahead of a new entrant.
- Profitability: crucially you need to assess the market price for your proposed item so that you can better understand your profit margin. You need to sell an item that’s going to be profitable given the estimated number of sales it generates per month.
- If you’re creating an entirely new item, you’ll need to trust your intuition and knowledge for the industry.
- If you’re competing with existing products, I recommend doing your research using specialist Amazon research tools.
To learn more read my post: What Items Are Best For Amazon FBA?
The Economy Of Scale
When sourcing physical goods for the Amazon FBA program, one thing’s for certain: if you buy in bulk, your profit margins will be higher. And this isn’t unique to an Amazon business by any means.
Many FBA sellers source their products through sites such as Alibaba, IndiaMart, or DHgate. To get started, you simply open a free account and make an enquiry about a particular product you’d like to manufacture (or an existing one you’d like to customise). You’ll be provided with a price breakdown for various quantities of that product, along with the shipping costs, sample costs, and design & setup costs. The larger the quantity, the lower the unit cost. Classic economy of scale.
However, even if your budget allows for you to buy a large supply of stock doesn’t necessarily mean you should. Sure, the potential profit per unit sold will increase — but that’s somewhat meaningless if you’re sitting on that stock for several years to come. Over-stocking is detrimental to growth.
Think how to put those limited funds to the best possible use.
Tips for Bulk Buying on a Budget
- Start slow: buy a small quantity in initial order(s) with the view to buy larger — and more profitable — quantities later on down the line when you re-stock. On the plus side, this will enable you to test out the popularity of your product, and gain some traction (e.g. reviews, social media following) in the meantime.
- Collaborate: work with other business partners, where you each contribute to the cost of the goods and split any profits made. This should enable you to grow your FBA business much faster (provided you work well together, of course).
- Tweak: consider whether your product specification can be modified to reduce costs. Does your product include features which do not serve to increase the overall value of your product? Look at compromising on your design to slash expenses; I’ve had to do this multiple times.
- Reassess: on countless occasions you’ll enquire about a product where the profit margins simply will not work for you on the FBA program. FBA fees, shipping, import duties and other costs eat into the profit. And if other FBA sellers buy that same product in the tens of thousands then it might be impossible for you to compete. Accept it, and explore another product entirely.
Minimum Order Quantities (MOQ)
Suppliers will insist on a MOQ: a minimum order quantity. On Alibaba the MOQ tends to be negotiable, to certain an extent. So don’t be put off by what’s advertised on a listing; it’s rarely accurate.
At times the MOQ will be steep. However, keep in mind that suppliers need to devote their valuable time and resources to the right projects.
Imagine that you run a factory producing customised clothing. It could take staff the same amount of effort to setup the machinery to produce an order of 10 t-shirts as it does to produce 10,000 of the same item. It’s therefore understandable why factories aim to focus on large-scale orders.
If you’re on a very tight budget and cannot afford to place a sizeable order, then don’t worry — it’s not game over yet.
Reducing Your MOQ
- Present your value: you can’t expect factories to substantially lower their MOQ if you do not present a value proposition to them. Let suppliers know you’re serious about your new venture. Link them to previous successes, or related projects. Make sure they understand that you’re aiming high and aren’t simply dipping your toes in (even if you are). This will maximise your chances of striking the low MOQ deal you need.
- Contact multiple factories: you might be turned down by various factories. That’s normal. However, in my experience, if you contact enough companies you’ll eventually find one that’s keen and willing to lower the MOQ to suit your needs. Not every factory can afford to turn away new business on the grounds of the order quantity.
Stocking Multiple Products
Many FBA sellers start out with the aspiration of creating a range of related products within the same niche. While this is a great idea in principle, it’s difficult to achieve on a limited budget.
By splitting your funds across multiple products simultaneously, you’ll be buying less quantity of each product. This alone can lead to stock shortages (as discussed above), and then subsequent delays in re-stocking. I can’t stress how much Amazon sales thrive from momentum — which all starts from your stock availability. Regularly running out of stock will set you back enormously. Take my word for that.
Another challenge you’re likely to face in introducing multiple items at once is that some of your products will sell much better than others. Unfortunately you might not be able to predict which products these will be until you actually start selling them. Unsold, or slow-selling stock will prevent your FBA business from generating funds to re-invest into those products which are selling well.
Building a Catalog on Limited Funds
- Drip feed in new products: launch one new product at a time. Start out with the one you believe will sell the most, and aim to gain enough sales momentum to both maintain stock levels and cover the cost of sourcing new (and perhaps riskier) products. I use this strategy myself.
- Manage stock levels: if you discover that one product is selling better than other, then be sure to re-stock according to demand. I recommend monitoring the monthly sales of each item and estimating the number of months of stock you have available — that way you can prioritise.
- Increase marketing: by upping your advertising spend for slow-selling products, you may be able to increase the rate of sales. The aim should be to rake back more money each month, so that it becomes available for reinvestment. Just keep a close eye on your advertising spend and sales conversions to ensure it’s is economical.
- Price management: offer discounts, or lower the price, of slow-selling items to increase cashflow. Conversely, you might consider raising the price of your better-selling items — or do both. You want to recoup some expenses so that you can put those funds to better use.
- Job-lot sales: in the worst case scenario — where you can’t find any way to offload certain items via FBA — sell them in bulk outside of Amazon. Consider using eBay, your own website or sales channel, or contacting re-sellers (e.g. shops) that might be interested in purchasing a bargain batch.
Things To Remember
- Focus on small, lightweight items within a niche that you have knowledge on.
- Try to reduce your MOQ by negotiating with various factories.
- Ensure your product is profitable given the estimated market price per unit, Amazon fees and product cost.
- Bulk buy a sensible amount of stock (with a partner if necessary), and start out by selling one item.
- Increase marketing, create offers and adjust prices to shift dormant stock.