Guide to Starting a Fulfillment by Amazon Home Business

Pros, Cons, and Basic Steps to Selling on Amazon

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Amazon has pioneered many income-producing programs for would-be home-based entrepreneurs. It created its Amazon Associates program to pay affiliates who send customers to Amazon. It was the first big book retailer to allow independent authors to sell their books, and also created the platform and services from which to create their works. The original sellers program allows people to list used and unwanted items alongside new ones sold in the online store.

The most recent Amazon program that many small-time entrepreneurs are taking advantage of is Fulfillment by Amazon (FBA). In the original sellers program (which you still can use), sellers listed items and shipped them directly to buyers. In Fulfillment by Amazon, sellers list items and ship them to Amazon, which then delivers them to buyers.

FBA offers many perks including:

  • Less work. Yes, products need to be researched and listed, but once sent to Amazon, the job is done.
  • No need to inventory products at home.
  • Items are listed with the largest online store in the world.
  • Items are eligible for Amazon Prime benefits.
  • It’s affordable. Selling fewer than 40 products per month costs 99 cents per sale plus storage and handling fees. The Pro-Seller program, which involves selling more than 40 items per month, costs $39.99 per month plus storage and handling fees.
  • Amazon handles returns.

There are a few downsides to FBA to consider, such as:

  • Fees can eat up profits if products are not purchased at discount and sold at a high enough price.
  • Items have to be prepared to Amazon’s specifications.
  • Different items may need to be sent to different Amazon warehouses.
  • Market research and finding profitable items can take time.
  • Sales tax must be collected and paid.

Getting Started With FBA

If you think the FBA program might be worth a test run, here are steps to getting started.

  1. Find items to sell. Search your home for new items you haven’t used. This can be anything from clothes and toys to cosmetics, household items, and more. There are some prohibited products, such as illegal items, alcohol, gift cards, and others you’ll want to avoid. If you don’t have any items around your home, check out the clearance section of your local stores or a discount store for deeply discounted items.
  2. Sign up for a Selling on Amazon account. If you already have one, you can add FBA to it. If you don’t, you can sign up for one.
  3. Add product listings. Items can be added one at a time, but Amazon allows bulk uploading for businesses with many products. You also can integrate your inventory management software with Amazon’s.
  4. Prepare items for Amazon. Be sure to follow Amazon’s directions for how to label and ship your items. When Amazon receives your items, you’ll get a notice that your listings are live on Amazon.
  5. Amazon takes care of payment from and shipping to the buyer, as well as customer service (i.e. returns).
  6. Get paid. After your first 30 days, Amazon will pay you every two weeks if you have sales.

Building an FBA Business

If your test run goes well and you decide to build an FBA business, you’ll need to develop a source of inventory. There are several ways to find products to sell:

  1. Retail arbitrage. Essentially, arbitrage is buying low and selling high. Search local stores or online for clearance and discounts items. The trick to making money in FBA is to buy products on sale so that you can sell them for a profit. The challenge is finding cheap enough products that can be sold for a profit after your fees.
  2. Wholesalers. In this case, you buy items from a wholesaler and sell them as a reseller.
  3. Thrift shops. Note that FBA isn’t about selling used items. Your items should be new and in good condition. So if you’re visiting thrift and second-hand shops, your goal is to find items in their packages or with tags—unused and of good quality.

When buying items, find ways to earn money or rewards for even bigger savings. For example, many successful FBA business owners use cash-back websites when they shop for FBA items to sell to earn discounts and cash back. Consider using credit cards with rewards programs to earn gift cards and other perks.

Sales Tax

Most states charge sales tax on tangible items. It’s possible you’ll need to collect and pay sales tax in many of these states. The rule is that if you have a “nexus” in that state, you need to collect and pay sales tax if that state has it. You have a nexus if you have an office, employee, or warehouse in the state. If the state you live in (and run your business from) charges sales tax, you’ll need to apply for a sales tax permit and collect sales tax on sales in your state. If you have an employee (e.g., an assistant) in another state, you’ll need to collect sales tax there as well. The tricky part is the warehouse. Amazon has many warehouses, and the one you sent your items to may not be the only one where your items are stored. Amazon may ship some of your items to its other warehouses. You’ll need to find out from your Amazon account where your items are stored and if sales tax is required.

The good news is that Amazon allows you to set up sales tax in your seller account, so Amazon can collect it on your behalf. The bad news is that you have to remit sales tax to each state where you have a nexus, although tax services can help you with this for a fee.