How Much Investment Required for Amazon FBA?
As your business grows it will need more capital. You can start small but if your product sells well you might need to put in more cash too.
In this article we cover the different stages of your Amazon business lifecycle and the investment required.
Stage 1 Test Order
For your very first product, even if you think it’s gonna be a massive hit you should order the minimum amount possible and ship it to Amazon as quickly as possible, just so you can learn the process of listing and selling an item.
Doing a course is one thing, but actually getting one product into Amazon will teach you the process much faster. I would say, buy $100 worth of any product that costs you less than one dollar per unit, ship it to Amazon and start trying to sell it.
This will teach you what makes a good item. You’ll also learn how to use Amazon’s system and get the basics of things like freight.
You can do this easily for under $500.
Stage 2 First Product
After you’ve done your test, you want to research in detail what will be your first serious item.
The test was to learn, and this first product will make your first profits. Depending on the factory minimum order, you will probably need $3000 to $5000 at this stage.
Check the freight costs before placing your order so you can calculate the total budget and aren’t hit with any surprises. Aim to order around 1000 pieces of your first item.
This will give you enough to cover a promotion of 50 to 100 units and enough stock for 1 to 3 months, depending on how well you sell.
Stage 3 Scaling the Business
Even if you sell 1000 units of your first product and make 100% profit, you’ll have to reinvest nearly all your profit into reorders.
If you spend $5000 and now have $10,000 after three months, you will probably need to buy 2000 to 3000 units of your product to cover the next 2 to 4 months of stock. If all your money is being reinvested you can’t scale the business.
You have to wait 6 months before some of the profits can be used for new items, or find additional capital for new products. Also you are assuming that you will sell all of your first product quickly.
The reality is a few sellers do this, but usually only 20% of products do very well, 30% percent of products do okay and around 50% or more underperform. For each new item, you need $5000-$10,000 of capital, and the more you can commit, the more profit you will make 6 to 12 months later.
Don’t commit more than $5000 for your first item, and gradually use the balance capital you have once the first item is selling well.
If you shoot all your bullets at the same time, you might choose bad products because you haven’t taken the time to learn by optimizing your first product.
Stage 4 Realistic Returns
Doubling your money every 3 to 6 months is realistic.
If you buy $10,000 worth of a product at $5 a unit, and sell it for $15 a unit, after Amazon fees you should be left with around $20,000. If you reinvest the $20,000, after a further 3 to 6 months you should have $20-$40,000.
If you start with a smaller number it will take you longer before your business makes good returns. You’ll hear a lot of success stories about people starting with much less and making much more. But for every one person who brags on Facebook, there are 99 who didn’t do so well.
Amazon is a numbers game, so the more time, effort and money you put in the more profits you get out in the long run. There are no shortcuts.
The best you can do is to minimize big mistakes and to try to optimize every area of the business.
Stage 5 Breakeven
You can expect your products to breakeven in around 3 to 6 months and after that they should start to spit off profits.
If you started with $50,000 you can expect to earn around $15,000-$30,000 a month six months out. If you start with only $5,000 and sell your product for double what you paid, it’s mathematically impossible for you to make $50,000 a month in six months time.
Realistically you’ll make about $2000 to $3000 a month, maybe more if you’re lucky and if your product is extremely successful. I say lucky because nobody except Amazon knows exactly how to rank their system.
There is an element of luck when you are choosing your niche, but the more work you do the luckier you get.
Stage 6 Covering Your Costs
It’s only when you start to sell about $30,000 worth of product a month that your business can cover your living expenses and leave enough profit to reinvest for growth.
This should take you around 9 to 12 months depending on how much capital you start with.
Stage 7 $100K Month
Your business really starts to take off when you hit six figures of sales a month.
You can afford to take a decent distribution, and have a lot of profit left over for expanding your business. Less than 2% of sellers make it here, but you can do it if you consistently work towards optimizing your Amazon business.
If you have 10 products selling $10,000 a month each, you will hit this target. All you need to do is take one step at a time and keep adding on additional products.