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October 4, 2022
by Ippei Kanehara
How I make $52K per month
Have you ever wondered why so many Amazon FBA sellers fail? A saturated market, changes to Amazon’s Terms of Service, and difficulties getting the right product and keeping it ranked are all common reasons that 83% of sellers fail. In this article, 6 real sellers share their true stories about the risks and disadvantages of selling on Amazon that ultimately led them to stop selling.
Any business model has its challenges, and Amazon FBA is no different. Local lead generation also has its own challenges, like learning the specialized skills needed to rank a digital asset to the top of Google. But, with local lead generation, there is no worldwide market of competition to fight, no physical product to inspect, and not giving over control of your business to a big brand or selling platform.
Suzanne: “Amazon was almost the death of me in a lot of ways.”
Suzanne started selling on Amazon in 2009, just as Amazon opened its gates for third party sellers. She followed a retail arbitrage Amazon FBA business model, focusing on toys around Christmas, books, and seasonal or regional grocery items like cereal and coffee. She was making around $70K a month in sales.
Can You Sell Drinks on Amazon?
Yes, you can sell drinks on Amazon, but there are many rules. If you want to sell alcohol, only some specific wines, beer, and spirits are allowed. You will need a personal alcohol license and specific documentation depending on your country.
According to Suzanne, from 2010 to 2013 there was a massive movement from eBay to Amazon because of changes in eBay’s platform. This led to thousands of sellers, new to Amazon seller central, saturating the market. This meant lower prices for everyone, causing Suzanne’s profits to shrink continuously. New sellers- or hijackers- would follow successful products and recreate them, further lowering prices (including Amazon itself). Finally, Amazon repricing tools, with automated features that lowered prices further and further, led to a lot of uncertainty and anxiety.
Will Hijackers Start Selling Successful Products You Sell and Eliminate You as Competition?
Yes, hijackers often follow successful products and try to recreate them, beating these successful items on price and ultimately pushing them out of the buy box. For example, this is the best selling Amazon listing in the pet supplies category:
And look at all of the similar products listed in competition to it:
Suzanne also didn’t like that she could not correspond with Amazons customers and handle issues herself. Instead, Amazon “solved” customer issues, leading to charges that could have been avoided. Amazon would move her inventory to warehouses all around the country. Her products got lost or broken, and it was up to her to keep track of this and request refunds. This took up a significant amount of both time and peace of mind.
Amazon also began to gate products. Suzanne’s major category, groceries, became gated. This actually helped a little, because it kept out new sellers from further saturating her market. However, she was also required to become ungated, and prove that she had a right to be in a space after selling there for many years.
Brands also soon became restricted. Suzanne had about $700 worth of Dunkin’ Donuts coffee in various warehouses when out of nowhere, Dunkin' said Amazon was the only merchant allowed to sell their products. Suzanne immediately became an unauthorized seller, and she wasn’t allowed to sell her inventory, and had to pay for its return herself.
What Brands Do Not Allow Third Party Sellers on Amazon?
Acer, bareMinerals, GoPro, and many other brands do not allow third party sellers to push their products on Amazon. Before you sell another brand’s products, you can reach out to the brand owner to find out what documentation you’ll need to sell their products.
If Items on Amazon are Restricted, Why are you Finding Them for Sale from Multiple Sellers?
Some Amazon sellers go through all the red tape to sell certain products. Others are actual big brands selling their product on Amazon, like Suzanne mentions with Dunkin' Donuts. However, selling restricted items is often a road to failure for a new small business. Those still selling this way most likely have years’ experience navigating the Amazon platform.
Is There a Complete List of Restricted Brands for Third Party Sellers on Amazon?
No, there is no official list of all the restricted brands for third party sellers on Amazon, simply because there are so many brands out there and not every seller shares their experience online. Always reach out to a brand before selling their product to become an authorized seller, or consider selling your own products instead.
Then, Amazon announced that all purchases made from November through December could be returned for free in January. Many customers would purchase gifts at a higher cost and return them once they found it cheaper in a retail store after the holiday season. Amazon takes out returns automatically.
Also, there were general issues Suzanne noticed. For example, Amazon retail arbitrage is a lot of work. You must print out a special bar code for every product you ship into the warehouse. Then, you package the items so that they don’t break along the way.
And finally, Amazon FBA is expensive. You need a lot of startup capital to get ahead of Amazon fulfillment and inventory costs. Suzanne went into business credit card debt. She finally left Amazon in 2014, and it took her 3 years to recover financially.
Do You Have to Pay Taxes on Reselling?
Yes, you must pay taxes on any income you earn. No matter what you are selling on Amazon (wholesale items, private label items, etc.), you will need to report your earnings during tax season. Moreover, you will have to charge sales tax whenever a customer orders.
Suzanne’s Story: Why I Quit Selling on Amazon
Caeleah: “For me, it just wasn’t calling my name.”
Caeleah’s story starts out similarly to other Amazon FBA sellers. She had a 9-5 job at a dental office, constantly felt belittled by the dentist, and ultimately realized she hated it. She heard about Amazon FBA by listening to a conversation in the waiting room, went home, and searched “passive income”.
Caeleah always knew that Amazon FBA wouldn’t be her passion. Yet, she brought in $7K-$8K per month, and sold for 2 years. She didn’t like how your customers aren’t really your customers- they are Amazon’s customers. To get your own customer base, you’ll need your own website and email marketing list. By not keeping all your eggs in the Amazon basket, you preserve yourself and your finances from sudden changes on the Amazon platform.
How Much Does the Average Amazon Seller Make a Year?
Average sellers bring in around $3500/month profit.
Ultimately, Amazon FBA became the gateway for Caeleah to find her genuine passion for health and fitness. She switched to helping female entrepreneurs with work performance, weight loss, and muscle and energy gain.
Caeleah’s Story: Why I Quit Selling on Amazon
Retro Gaming Guy: “My issue with Amazon was the payout schedule.”
Retro Gaming Guy sold gaming items and consoles on his Amazon store inconsistently for about 2 years. During the last 5 months he really focused on making it work, but there were big roadblocks that ultimately led him away. He didn’t have a problem with the high Amazon FBA fees. To him- they make sense, as paying these fees for a mainstream marketplace gets your products in front of the Amazon shopper, and can result in far more sales.
However, the payout schedule definitely wasn’t for him. Whenever you sell something, Amazon releases your funds in seller central 30 days later. This can be a huge issue for anyone selling other brands’ items because they can run out of inventory quickly and have no capital to purchase more inventory for 30 days. eBay is only a 2 day payout.
For example, he might have 10 gaming consoles in stock and sell out in 2 days, making a lot of money. But that money wouldn’t enter his account for a full month. So, there was no way to purchase more inventory and keep making money before that time was up, without using credit cards. But, if he used credit cards, he would have to pay off those cards before using the money for more inventory or taking a cut. This resulted in a ton of stress and feeling like he was running on a hamster wheel.
Is It Safe to Use Debit Card on Amazon?
Yes, if you’d rather not use a credit card, it is safe to use a debit card. But this won’t help you with buying more inventory if you don’t have enough capital in your bank account. Make sure you are prepared for all costs, and expect to continuously reinvest your money to keep your Amazon business going.
The ever-lowering price competition also affected Retro Gaming Guy. He might have the best price over competitors at the beginning of the day, yet a few hours later, someone else would lower theirs to beat him. He could only raise his prices and make a better profit margin when his competitors sold out of inventory.
What is a Good Profit Margin for Amazon Sellers?
According to PIRSCapital, most Amazon sellers are reaching a 16%-20% profit margin, and 32% of sellers reach higher numbers.
Finally, Amazon and the big brands have the final say. If you’re selling another brand’s products, you must get approval from them and make sure it's not in a gated category on Amazon. Some brands only allow you to sell old items if you are selling brand new items as well (much lower profit margins). Ultimately, the hidden fees and competition from other sellers, big brands, and Amazon make this business model super complicated.
Retro Gaming Guys’ Story: Why I Quit Selling on Amazon
Shane: “Do I really wanna do this?”
Shane operates as the Rise N Grind Picker on YouTube, documenting his retail arbitrage finds and sales for Amazon, eBay, and Walmart. At one point, he had 450-550 ASINs listed on Amazon, and was making close to a half million dollars before he pulled his inventory 5 months early.
Why did he pull his Amazon inventory? At the start of the pandemic, he had a $70K month. But, Amazon sent out an email to every person that had purchased something, explaining that it would take longer to arrive, and provided a link for customers to initiate an automatic return. Shane lost $11K from this move alone, and he realized just how much control Amazon had over his business. Shane doesn’t believe things like this will stop- in fact, he believes Amazon will always be behind, and claims that they are only at 50% to their hiring expectations.
Does Amazon Itself Take the Hit on Costs Incurred from the Return?
According to PIRSCapital's Amazon statistics, most Amazon sellers are reaching a 16%-20% profit margin, and 32% of sellers reach higher numbers.
Shane also doesn’t like the restrictions Amazon has added. He thinks that they are designed to push RA sellers out, and that eventually Amazon will only allow wholesalers (which is a smaller profit margin). Some of the new rules that Amazon has added to make things harder on retail arbitrage sellers includes:
Presenting business insurance
Skype calls with Amazon sellers
Child protection certifications
Price errors (where Amazon lowers your prices for you so that they can keep up with Walmart)
Letters of authorization needed for certain brands and categories, especially supplements and health and beauty. Retail arbitrage sellers cannot get these letters. Shane has dealt with a few intellectual property complaints, to which he submitted a receipt. Unfortunately, they did not accept these receipts and stated that he would need documentation from the wholesaler to continue.
Will Amazon Take Action Against Unauthorized Sellers?
Yes, Amazon will take action against you if you are unauthorized and the brand you are selling reports you. This can lead to an account suspension or a complete deactivation
If Your New Item in Stock is Restricted, Should You Pull It?
Yes, you should pull your items if they become restricted, as long as you can avoid the fees Amazon will charge to ship it back to you. The fees will depend on the size and weight of your inventory. Then, you can try to sell it on a different platform, like Poshmark or eBay.
Shane’s Story: Why I Quit Selling on Amazon
Y. Musa: “You learn so much more from a huge loss than an easy win.”
Y. Musa didwhite label, which is very close to private label. With a white label Amazon FBA business model, you purchase a simple product, add your brand, and sell. Some common white label products might be yoga mats, water bottles, or fake eyelashes.
Amazon FBA didn’t work for Y. Musa for a few reasons. First, she didn’t have the right mindset. She thought that she would just try Amazon FBA out and see how it went, rather than being positive and being ready to adjust where needed. So, when the real issues happened, she wasn’t completely ready.
First, Y. Musa faced unexpected marketing costs. Because she was selling a product as the brand owner, she had to do a lot more marketing than a retail arbitrage or wholesale Amazon marketplace seller (this is because these sellers sell established brand name products that already have a following). She used a combination of both Amazon PPC and promoting outside of Amazon. This led her cost of customer acquisition to skyrocket. As a white label brand, she had no following, and so Amazon PPC costs were even higher for her to bring in any sort of Amazon customer.
How Much Money Do You Need to Start Your Amazon FBA Business?
Amazon FBA startup costs differ depending on the business model you choose and the route you want to take. Expect to spend at least $5500 to start your business off right ( but don’t be surprised if this number reaches $13K.
Y. Musa also wasn’t expecting the need for cash flow. She learned that its very beneficial to sell products at a very lost cost just to get reviews at the very beginning. This will help rank a product to the first few pages of search results. Some people do this by giving away products in exchange for a review, but others simply plan on selling about 25% of their inventory at a very low cost.
Will Amazon Insiders Delete Bad Reviews for Payment?
Yes, some Amazon insiders do this, but it’s against Amazon’s Terms of Service and usually involves a bribe around $800 to $2K. Back in 2018, Amazon investigated this and found that some employees (especially in China) were expecting payment to delete bad reviews, reveal information about other third party sellers, and sharing email addresses. I wouldn’t suggest trying this- if you get bad reviews, you will have to get a better product to raise your Amazon metrics. If you notice fake reviews on your account, you can contact seller support- but don't expect a ton of help or to have the review deleted.
In addition to this, Y. Musa didn’t like how high the Amazon fees were, figuring that for each Amazon sale she actually paid around $11 in fees.
Y. Musa’s Story: Why I Quit Amazon FBA
Doug: “ Too many things that could tank our business that were out of our control.”
Doug and his wife sold car seat covers on Amazon for some time, ending in 2020. They followed the private label business model. Here’s why they switched to YouTube and course creation:
- Product research is difficult. You have to find something that will sell, that isn’t too expensive to make. But, it can’t be too easy to replicate. Doug’s car seat covers were easily hijacked because they didn’t patent them, and hoped to get by on their unique patterns instead. Plus, car seat covers are in a very competitive niche.
- Amazon FBA was time consuming. While running a private label business, you have to do product research, order a product, wait for samples to arrive, send in a full order, wait for that to arrive in an Amazon FBA warehouse, conduct marketing, and wait to get sales. There is a ton of work involved and it is not passive, at least until you find something that will sell for a long time. (Although, this is ever-changing and there is no guarantee that a product that ranks right now will rank in a week).
Can You Make Unsellable Amazon Items Sellable Again?
You can make unsellable Amazon items sellable again, but its up to you if its worth it. Sometimes, Unsellable items are in perfect condition. This is why many sellers elect to have returns sent directly to them rather than their Amazon warehouse. They simply do not trust that the person receiving the product at the warehouse will make the right call about its condition. But then, what should you do with the product? Spend more money to ship it back to the warehouse? Another option is to list it via FBM and handle the shipping yourself, or list it on a different platform all together.
- Doug hated the margins. Everyone was competing for the best price, and everything had a cost- from shipping the products to Amazon, to getting reviews by running discounts.
- Finally, Doug was hit by the pandemic supply chain issues. What used to be a quick process is still affected in 2022, and can lead to long shipping times and even lost inventory.
Doug’s Story: Why I Quit Amazon FBA
What are the Major Problems with Amazon that Make People Quit?
- Saturated market, full of competition. There are hundreds of other sellers- and big brands or Chinese sellers with huge factories- doing exactly what you’re doing. And, they’ve been doing it far longer than you have.
- If you’re a reseller, the big brands you sell have a lot of say over your business. Overnight, they could stop allowing certain products to be sold by third party sellers.
- Amazon has even more control over your business. They have the power to shut down your seller central account, make policy changes, and suspend or deactivate your account. Amazon isn’t perfect either, so they may make a mistake that literally ends your business for no reason. The Amazon marketplace is always changing, too. Certain strategies that work for you now may not work in a year due to added red tape.
- Hijackers copy your product, complete fake (permanent!) reviews, and cause other chaos.
- Because of the saturated market, prices between competitors go in a spiral to have the best price and win the buy box. Automated pricing tools help keep up with this, but also encourage the spiral to lower faster.
- Since Amazon is in control, you can only personalize your business as far as they let you, which is basically your product listing, store front, and Enhanced Brand Content for brands that have applied to the Amazon brand registry. You won’t be able to provide customer service exactly how you’d prefer, and it will be very difficult to gain loyal customers. This is because the people buying from you are not really interested in buying from you; they are interested in buying from Amazon.
- Gated and restricted products make it much more difficult to start selling. Moreover, any ungated product can become gated whenever Amazon or a brand decides.
- While typically a helpful service, using an Amazon warehouse gives over more control. Plus, it’s expensive. Amazon can put your products in any warehouse they decide, and often lose or break products in the process
- Selling on Amazon takes far more time than you’d think. Yes, you can spend a few hours every day on it and bring in an income. However, depending on your specific business model, you may have to spend time driving to buy new products, waiting for product samples to come in, or vet tricky suppliers. You probably won’t make significant money for a few months to a few years.
- Amazon FBA is expensive, and profit margins are low (around (10%-20%). FBA fees continue to rise (expect about 15%).
- The payout schedule is long. Amazon won’t release your funds for 30 days after a sale.
- Marketing through Amazon PPC is also expensive, especially if yo uhave to get that sponsored products spot at the top of search. So, you might want to get creative with promoting your product. Giving away products or selling at an extreme discount for reviews will eat at your margins, but may get a customer base.
- Product research is difficult- you need to find products in the right niche with not too much competition. Even if you find the right product, it may not remain ranked for long.
- Physical products were slow to arrive during the pandemic era. There’s no guarantee this can’t happen again, and the supply chain is still feeling the lasting effects. Plus, since you’re ordering products from elsewhere, quality control is difficult to maintain without spending more time and money vetting suppliers and products.
CONCLUSION: Should You Use Amazon FBA For Your Business?
The dangers of selling on Amazon aren’t a make or break scenario. Many sellers are successful on Amazon, and I was too. But ultimately, you have to find what works for you and what you’re willing to do to find that success.
That’s how I found local lead generation. Local lead generation doesn’t compete on a global level like Amazon, rather, there are 50-100 niches in almost any small town that you can choose from. There’s no physical product, and sites continue to make money far into the future because people will always need the services we promote. In the end, local lead generation might be a good business model for you if you’re looking for a way to make consistent passive income online without having to fight a ton of competition.
$52K per month providing lead generation services to small businesses
Ippei.com is for digital hustlers, industry leaders and online business owners.
His #1 online business recommendation in 2023, is to build your own lead generation business.
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