On my way to becoming an experienced and profitable Amazon FBA seller, I certainly had my own reservations when I first started out. One of my biggest questions was “Can you lose money with Amazon FBA?”
So in this article, I’m going to go through the areas in which you might lose money with Amazon FBA, and how to avoid doing so. Knowing these details is critical to getting your business running profitably and staying that way.
First, here’s the quick takeaway answer, then we’ll get into the crucial details.
To avoid losing money with Amazon FBA, you need to aim for:
- Speed and efficiency of process
- Using logic over emotion to select the right products
- Reducing costs wherever possible
- Delegating tasks
If you’re completely new to how Amazon FBA works, there are a lot of different things to understand. FBA is an acronym that is short for Fulfillment by Amazon. This is a service where you enable Amazon to be your order fulfillment and warehousing logistics.
That means Amazon handle everything such as warehousing, packing, shipping, and even handling returns.
A full discussion of the basics of Amazon FBA is outside the scope of this post, but you can find out more here.
10 Ways You Can Lose Money With Amazon FBA
Amazon FBA is a great service that allows many small to medium-sized businesses focus on their product procurement and brand, without the extra operational hassles that come with storing products and fulfilling orders.
Yet utilizing Amazon FBA alone doesn’t guarantee success, and there are several areas where you can lose money if you’re not careful.
1. Not Making Full Use of Amazon FBA
Fulfilling your own orders (merchant fulfilment in Amazon-speak) is right in some circumstances, but it also means a lot more time and effort spent by you on fulfillment, storage, returns, and more. Effort spent fulfilling your own orders could be better spent on growing your business, so you could be losing money by not letting Amazon handle these tasks for you so you can focus on more important things.
2. Using Emotion Instead of Logic and Data
Having a product that makes you money on Amazon isn’t about selling what you like, it’s about selling what customers like. You should make data-driven decisions based on what sells, not on what you love or think others would love.
Gut feelings can be useful sometimes, but they’re usually borne out of experience. Until you have that experience, learn to rely on the research and data to avoid losing money by selecting the wrong product.
Using software tools such as Helium 10 or Jungle Scout will enable a data-driven approach to selecting products to sell.
3. Making Decisions Based on the Wrong Metrics
Amazon sales rank, also called Amazon Best Seller Rank (BSR), can be a great tool, but you need to properly interpret it to make the best decisions on what to sell. It’s not always about the top 100 ranked products!
I rely on a software tool called Keepa to review the sales rank history of products on Amazon. This tool has prevented me losing money on many products over the years, so I highly recommend it.
4. Unproductive Product Sourcing
Spend time on sourcing your products wisely. Buying the right product at the right price will make you money (and avoid losing it). So research smart by using software tools, refine your research process, and get quicker and better at it.
5. Miscalculating Your Costs
Amazon’s fees are something you always need to keep in mind, and there are a number of them that can fluctuate and vary. Not taking account of these fees, or miscalculating them, can quickly erode your profits and send you into the negative region. You can find a full discussion of Amazon’s fees here.
6. Overspending on Advertising
When you first begin, you can be forgiven for not necessarily seeking the lowest prices for Amazon pay per click (PPC) advertising. In fact, you will likely have to spend a lot on advertising a brand new product to get initial traffic, buyers, and reviews.
After several weeks or months, you can reduce your ad spending to be proportionate to the data generated from your advertising campaigns.
The price of the product, or the amount of profit per product, will affect how much you spend advertising that product. After the initial burst of spending on advertising, you don’t want all your profit to be spent on unnecessary advertising.
7. Not Actively Reducing Your Overhead
We tend to comfortably buy the same supplies, use the same processes, software, and other methods to maintain our business. Saving a dollar on a roll of tape can really compound when you start to scale your business. Always look for ways to reduce your overhead costs.
8. Unforeseen Costs
Every business eventually incurs costs that they didn’t see coming. Sometimes products will not be profitable, especially in the early days of learning Amazon FBA.
There will be inventory losses and hold ups, unexpected Amazon prep fees, etc. A single big unforeseen cost can quickly lose you money.
You can mitigate these costs by expecting to be surprised by an unknown cost or fee, and setting aside a contingency amount of money to cope with these unexpected costs.
9. Not Reducing Lead Times
Having products in storage and slow delivery and/or receiving times is the same as money being held and not made. So consider speeding up these processes.
For example, I always send my products to Amazon using UPS, even though I could save shipping cost by sending products to Amazon on pallets via LTL (less than truckload) freight carriers. Amazon receives product shipped using UPS much faster than they receive products on pallets. I’ve even heard stories of people sending a pallet of products to Amazon only to have it sit for over a month before being received.
Also, you should prioritize sending goods to Amazon as soon as you receive them. This will increase your inventory turnover rate, which reduces the storage fees you pay to Amazon, keeping more money in your pocket.
10. Doing Too Much Yourself
Maybe you’ve heard the saying “work on your business, not in your business”, and Amazon FBA is no exception. When you start to scale your business up, the amount of work you’re doing will also scale up. Be ready to hire help to delegate tasks once you notice daily operational tasks are consuming all your time and energy.
Hiring people will cost you, but ultimately if you don’t, you will lose money on Amazon FBA by not growing your business as fast as you could.
I hired my first employee in 2020 to prep, pack, and ship products to Amazon for me. This freed up my time to focus on growing my business. For example, I’ve launched new product lines and established several new distributor relationships. I wouldn’t have had the time for these tasks if I was still packing and shipping all my products.
The over-arching theme from much of the above is that you need to be super-efficient and analytical in your approach. If each of the above areas are not managed properly, then you can easily lose money with Amazon FBA.
Aim to Run on Autopilot
There is a lot of hard work starting a business, especially in the beginning, and Amazon FBA is no different. Correctly selecting and sourcing your products, managing costs and fees, and properly handling inventory is all to be expected.
Once you’re business has matured and grown, then you should hire help to delegate tasks to put more of your business on autopilot, so you can focus your time and effort on growing your business.
So – can you lose money with Amazon FBA?
While everyone’s results will differ managing a business, success ultimately comes from efficient operational flow, making sound decisions based on data, managing costs and fees, and eventually delegating tasks.
Remember, Amazon FBA is not a get rich quick scheme. You need to work hard, aim for efficiency, cost reduction, and scale. Ultimately, look to work on the business, and not in the business.
If you do not go into Amazon FBA with a proper plan and efficient processes, then Amazon FBA will cost you money in both the short and long term.
Want to see which tools I use to keep my business running efficiently? See this page.
Interested in how my Amazon business has grown and changed since 2015? See the full story here.