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 the would-be home based entrepreneur. It created it’s 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 allowed people to list their used and unwanted items alongside the 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 previous seller program (which you can still use), sellers listed their items and then shipped them directly to the buyers when they sold. In Fulfillment by Amazon, you list your items and then ship them to Amazon, which then delivers them to the buyer when they sell.

FBA offers many perks including:

  • Less work on your end. Yes, you need to research products and list them, but once you’ve sent the items to Amazon, your job is done.
  • No need to inventory your product in your home.
  • You’re selling in the largest online store in the world.
  • Your items are eligible for Amazon Prime benefits.
  • It’s affordable. If you have less than 40 products a month, you can use the free program, paying for $0.99 per sale plus storage and handling. Or if you plan to sell more than 40 items a month, you can choose the Pro-Seller program for  $39.99 a month plus storage and handling fees.
  • Amazon will handle returns.

There are a few downsides to FBA you’ll want to consider, such as:

  • Fees can eat up your profits if you’re not buying at discount and selling at a high enough price.
  • You have to prepare your items to Amazon’s specifications.
  • If you have several different items, they may each need to be sent to different Amazon Warehouses.
  • Market research and finding profitable items can take time.
  • You need to collect and pay sales tax.

Getting Started With FBA

Like eBay and Selling on Amazon before it, the FBA program might be worth a test run to see if starting a business selling on Amazon is for you. Here are steps to getting started.

1) Find items to sell. If you’re taking a test run, start by searching your home for new items you haven’t used. This can be anything from clothes and toys, to cosmetics and  household items and more, although there are some prohibited products, such as illegal items, alcohol, gift cards, and more 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 Seller Account. If you already have a seller account, you can add FBA to it. If you don’t have a seller account, you can sign up for one.

3) Add your product listings. If you have just a few items, you can add them one at a time. If you decide to start a business with lots of products, Amazon allows bulk uploading, or integrating your inventory management software with Amazon’s API.

4) Prepare your 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 for clearance and discounts items. You can search online, such as eBay for items as well. The trick to making money in FBA is to buy products on sale so you can sell them for a profit. The challenge is in whether or not the product is reduced enough that you can sell it for a profit after your fees.

There are many smartphone and browser apps, and online services that can help you determine this.

2) Wholesalers. In this case, you buy items from the 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 good condition. So if you’re visiting thrift and second-hand shops, your goal is to find items in their package or with tags, that are unused and good quality.

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

Important Consideration: Sales Tax

Most states have a sales tax on tangible items. It’s possible you’ll need to collect and pay sales tax in many of these states. How do you know which 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) has 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 (i.e. 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 your items are stored at. Amazon may ship some of your items to its other warehouses. This means you’ll need to find out from your Amazon account where your items are stored and if sales tax is required. There are tax services that can help you with this for a fee.

The good news is that Amazon allows you to set up sales tax in your seller account, so it can collect it on your behalf. The bad news is that you have to remit sales tax to each state you have a nexus in on the states’ tax schedule. Again, there are resources, such as TaxJar, that can help you with this for a fee. You can get a free guide from TaxJar to learn more about FBA and sales tax.

Many people have built successful home businesses using Fulfillment by Amazon alone or along with their other sales and distribution sources. Amazon has made it easy to list, sell, and deliver your products. However, there are important tax ramifications to consider. Further, finding a quality resource for products you can sell for a profit requires thorough research.