We usually focus on success stories. But it’s fair enough to say that a lot of FBA businesses do just about okay, and some are really quite epic failures.
We’re not going to be negative. We’re actually being quite positive here, because the really big failures usually stem from one of a relatively small number of problems – and when you know what the mistakes are, you’re much less likely to make them!
Let’s take the two most dangerous mistakes first. (This is our version of learning how to put the brakes on before we let you out on the highway.) They are the dangerous mistakes because they can lose you a whole lot of money. Other mistakes will usually just stop you achieving a profit or a worthwhile profit (working for a year to establish a business turning over $100 a month is pretty sad).
First, spending on PPC advertising without setting some targets and some limits. If the problem lies elsewhere, no amount of advertising is going to get you sales – but it will cost you money. Setting a limit is easy to do, so do it!
Secondly, ordering too much stock to start with. Some people try to do FBA as a get rich quick scheme. It can certainly be a “get rich” scheme, but the “quick” part is over-hyped. Start small, and build up.
Now let’s look at product mistakes. These are responsible for a lot of problems.
• Not realizing how competitive the market for a product is. For instance if you look for notebooks, there are literally thousands available. Unless you an differentiate, or have a brand name like Field Notes or Paperblanks, you’re sunk. You really need to do your research.
• Not realizing how limited the market for a product is. If the top three sellers, added together, aren’t making enough volume sales every month for you to be interested, you’re wasting your money buying stock.
• Picking a product when you don’t understand the buyer. Even if your cat toy has few competitors in a high volume category, if you’re a dog owner you probably don’t really ‘get’ what buyers are looking for. If you’re a singleton and hate kids, don’t try selling baby products.
• Wrong pricing. Amazon is driven by two things – search and price. If you’re trying to sell for more than the top sellers, you’re not going to win. Either reduce your price, or offer a free gift (if you have stock of another product that’s not moving, you could solve both problems at once here).
• Poor quality. Poor quality gets bad reviews, which damage your search results and sales, and also results in returns, which damage your margins.
Managing inventory is another area people make mistakes. If you run really low or even have a stock-out, Amazon won’t show your product in the search results. On the other hand if you have too much stock and the market slows, you’re paying Amazon to store a product that’s not selling. Keep a tight control over stocks, or pay someone to do that for you.
Forgetting about Amazon fees. Would you believe some people have started off by pricing their products without allowing for the delivery costs? Fortunately that’s a mistake you don’t make twice! Equally, don’t forget about paying tax. Uncle Sam will want some of your profit, too!
Forgetting important dates. Thanksgiving, Black Friday, Valentine’s Day can all be top selling dates – make sure not to miss them. Equally, when you’re sourcing, remember to check holidays in the country you buy from. Chinese New Year can hold your product up by a month or more if you have multiple slippages.
Paying before you’ve had your product checked. Use a third party inspection company and make sure you’re getting quality!
Finally, not diversifying. You’ll want to have at least five and preferable ten good products, all selling well. And when you’ve established your brand, make sure you develop another platform, like eBay, Etsy, or your own site using Shopify, so if Amazon ever suspends your account or changes its algorithms, your business will survive.