Top Reasons Amazon FBA Sellers Fail

Top Reasons Amazon FBA Sellers Fail

Did you know that 90 percent of Amazon sellers failed in 2023? By “failed,” I mean lost more than they earned. While most of these businesses will try again this year, those that ran out of funds might quit altogether. 


If you are an aspiring Amazon seller, this article can help you avoid being part of the same statistics next year. You’ve probably done your research and know all the dos when starting an Amazon business. 


But what about the DON’Ts? Have you covered them in your research? If not, read on as you’re about to learn the things you SHOULDN’T do as a new Amazon seller.  


Believing everything self-proclaimed Amazon gurus say


I get it. You want to succeed in online business as quickly as possible. Everyone does. So, instead of learning the ropes of Amazon FBA through extensive research and experimentation, you decided to put your faith in the words of a self-proclaimed Amazon guru you found on YouTube. 


You completely ignored the possibility that they’re just in it for the views, and they probably know as much as you do. The result? You put all your funds into the wrong product, you’re bombarded with complaints and bad reviews, and Amazon is threatening to restrict your account. A few months later, you’re struggling to sell at cost to liquidate your inventory.


It’s okay to watch tutorials from legitimate Amazon sellers with proven track records but take their words with a grain of salt. This is one of those moments when cherry-picking is advisable, as some tips they provide may not apply to your unique situation or may cause more harm than good to your startup. 


Instead of a single channel, follow multiple channels and compare their teachings. List down the lessons they have in common and incorporate them into your strategy. You may also test unique strategies they suggest, but only if you can afford the entailing costs.      


Underestimating the workload involved in building an Amazon business


Let me guess, you decided to become an Amazon seller because you’re tired of your nine-to-five job and want an easier way to earn money. Here’s a little secret that might disappoint you: selling on Amazon can be just as challenging. It can even be more difficult if you choose a high-competition niche.


Imagine this—you wake up each day troubled. Before you can even fix your bed, you’re already in front of your computer, anxiously checking for new sales, managing feedback, analyzing the market, sourcing new products, creating promotions, photographing your products for listing, repricing products, etc. And that’s just the easy part. You also have to prep, pack, and ship orders, which are time-consuming and physically exhausting. That is going to be your life once you become an Amazon seller. No ifs and buts.


Of course, you can outsource these tasks to virtual assistants or prep centers, but you don’t want to do that from the get-go. And your workload will have doubled by the time you can afford to outsource them. So, if you’re not ready to embrace this lifestyle, Amazon selling isn’t for you.


Underestimating the needed capital


Everyone knows starting a business requires massive capital. But somehow, many aspiring Amazon sellers don’t think the same about opening an Amazon store. They’re right about a few things—there’s no need to rent showroom space and hire merchandisers. Additionally, you can start with a small inventory and add more as your business grows.


According to Jungle Scout, new sellers on Amazon need between $2,500 and $5,000 to launch their store. About 60% to 70% goes to inventory, and the rest to operational costs. Some even start with $500 or less and turn profits in less than six months. 


But forking out initial investments isn’t an exact science. Many variables, such as shifts in trend, the emergence of new competitors, and changes in Amazon’s policy, can impact the required capital for starting your business. For instance, if competition increases, you might need to start with a more diverse inventory to drive traffic away from competitors, which could double or triple the required capital.


Another thing most new sellers don’t consider is that they’ll be spending their capital gradually across a pre-determined period. In other words, they have to know their monthly spending and profit to make projections for reinvestment and, possibly, sourcing additional funds.


If you want to increase your profit over time, set and meet a daily or monthly spending goal. For example, if you spend $7,000 monthly to make a $2,000 profit and want to jack up your monthly profit to $15,000, you need to increase your monthly spending to $52,500. This is assuming everything goes smoothly, which is rarely the case. You can increase your monthly budget to factor in unforeseen expenses. 


Not making the right financial decision


Sourcing capital is one thing. Knowing how to spend it is another. As mentioned, 60% to 70% of your capital goes to inventory. Where does the rest go? That’s for you to find out through research. 


The first step is to list the things you need to launch your business and keep it operational until profit starts pouring in. These may include advertising, obtaining samples from your supplier, packaging, and shipping fees. 


Then, research how much each of these processes costs and how you can save money on them. Many new sellers get too excited and don’t take their time in scouring the Internet for cost-efficient solutions. For instance, they spend $2,000 to $3,000 on a branding service they can get for $500 from a different provider.


Refusing to reinvest profits is also a common oversight when building an Amazon business. Most new sellers don’t realize that it’s the only way to expand their business. Using profits to purchase more products or expanding to a different category could multiply their sales within a short period.


It’s all about proper budgeting and spending less than you earn. If you can’t afford to venture into a niche that requires a large inventory for starters, you might want to find a new niche. Being realistic with how you spend your capital can go a long way toward surviving the first couple of years, which is said to be the most critical.


Not having other income streams


Starting an Amazon business with limited capital is okay, but it’s important to note that it takes time to get your money back and start turning profits. Some Amazon sellers wait years before their investment finally pays off. This means you cannot depend on your online business for everyday needs for some time. 


Simply put, starting an Amazon business without other income streams is not wise. These additional income streams are not just for supporting your daily expenses but also to cover unexpected costs in your Amazon business. For instance, if you didn’t account for returns and refunds, you have somewhere to pull money from to pay shipping and administration fees.


Outsourcing tasks too early


With the overwhelming process of sourcing, listing, and shipping products, hiring a virtual assistant or a prep center from the onset can be tempting. But with your limited capital, this may not be a wise decision. 


It’s okay to start small to keep the workload minimal while getting up to speed with Amazon business management. Eventually, you’ll create an efficient process that simplifies work. And once you get the hang of the process, you’ll be able to identify tasks that need to be outsourced.


When choosing tasks to outsource, determine where to spend your most valuable time. For instance, if you’re into arbitrage, you should spend most of your time in market research and product sourcing. If other tasks take up much of that time, you have to outsource them.


Not investing in training and tools


Many new Amazon sellers overlook the importance of using tools like SellerApp and Keepa. They think they can do everything manually, and the results will be the same. In truth, these tools can speed up product research and provide valuable insights into pricing and reinvestments.


Imagine flipping a product, say a water filter, from eBay for $15 and deciding to sell it on Amazon for $30. You doubled the price because similar water filters sell for $30. 


What you didn’t know is that the products you’d seen were just a tiny fraction of all the water filters of the same make and model on Amazon, and most were actually sold for $25 or less. In short, you’ve overpriced your product, making it unattractive to buyers. You can avoid this oversight by analyzing historical data using the mentioned software. 


Start Your Amazon Business Today!


Starting an Amazon business is easier when you know the risks and factor them into your plan. Maximizing your capital while being mindful of your expenses is vital. Investing in tools that can automate some of your processes and facilitate product and market research should also be a top priority. Stay up-to-date with the latest trends on Amazon, and you’ll have a successful launch.

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