The (Real) Investment and Time Needed to Start an FBA Business
You’ve undoubtedly heard the horror stories.
Sellers not knowing exactly what they are getting into when it comes to the level of investment required to bring their product to market. And, in truth, for a brand new sellers there’s a lot of hoops to jump through in what can be a steep learning curve.
So it goes without saying it’s important to know exactly what you’re getting into.
The article will serve as a resource to provide you guidelines, takeaways and insights for the associated time and cost to bring your product to the Amazon marketplace – with a distinct focus on 3P or private label.
With that let’s dive in.
First, let’s take a look at sourcing.
Rule of thumb for time needed: 90 days coming from China / 30 days coming from USA (assuming a US-based company/brand)
What’s desirable from a sourcing and cost consideration on a per unit basis for your product can be identified by using the following guidelines:
Retail Price X 20% = Desired per unit cost (at or under)
So if a product costs $20 you want to source it ideally at $4 (or less)
For this example we are going to use $4 as our per unit ‘to Amazon‘ cost. That’s the cost of having the unit be at, and order-ready, an Amazon fulfillment center.
Let’s walk through some of the quick things we will want to keep in mind for quantity units needed for our first order.
Keep in mind, for our example, we are sourcing our product from China.
For a US-Based Supplier
Take your top 3 competitors add up all their sales divided by 3 to come up with the average daily sales. And then multiply that by 30 to arrive at units needed.
For a US based product you could generally assume the following time requirements:
- 14 days manufacturing
- 3 days shipping
- 7 days FC Transfer
24 days total
Let’s safely say 30 days as a conservative estimate for domestically sourced products.
For Chinese-based supplier
Take your top 3 competitors sales together and divide by 3 to come up with the average daily sales. And then multiply that by 90 to arrive at units needed.
For a Chinese based product you could generally assume the following time requirements:
- 30 days manufacturing
- 30 days shipping (sea)
- 5 days customs
- 4 days on truck
- 7 days FC Transfer
76 days total
Let’s safely say 90 days as a conservative estimate and accounting for extenuating circumstances.
With these insights in mind, we’ll continue with the example of our $4 product.
Also, let’s be clear with some assumptions for our example before moving to next steps:
– You’re targeting a low volume keyword for this particular product
– The average of the top 3 competitors is 10 sales per day
– The margin for error is rather slim and assumes a level of know-how so there is no hiccups and delays in the process (we can’t assume the unforeseen but keep this in mind for your unique case)
With the assumption of 10 sales per day and our rule of thumb for Chinese-based products (multiply daily sales by 90) I have 900 sales or units as a target.
Based on my $4 per unit cost inventory investment is $3,600 (or $4 X 900 units).
To safely and more conservatively budget we are going to bump that up to $4,000 in capital needed for sourcing.
Next, we need to take a look at costs associated with effectively marketing our new product.
We’ll want to gather Giveaway numbers for at least 1 targeted keyword. We took a look at suggested LL numbers in Seller.Tools and found this to be 100 units for our keyword. At $4/unit that is $400.
Don’t forget you’ll have Amazon fulfillment fees when you launch. It’s the cost of getting that needed sales velocity (and page interactions as a rank factor – read more here) and to effectively earn a top spot on the largest commerce platform to ever exist. So of course the ROI is insane but don’t forget it. For our example we used the FBA calculator to confirm $1,080 needs to be budgeted in Amazon fulfillment fees for our product.
To more quickly and effectively launch this product for our desired keyword we are going to utilize Last Launch. This will cost us $297.
We’ll want to budget some amount of spend for PPC. A short hand for this could look like 10% of our total first order. So if we order 900 units we would want to allocate 90 (10%) of those for PPC and assign a cost to that as well. At $4/unit, this is $360.
Before jumping into reviews we are at $2,137.
Reviews are and will be a crucial part of the equation as our product enters the market. To assign a value to the level of investment needed we can back out the means with which we plan to capture reviews and a reasonable amount of reviews (and associated units) we need:
Early Reviewer Program (ERP) – $60 to start + 5 units
Friends & Family – 10 units
FB, Outreach & Hustle – 10 units
For reviews we are a looking at $60 for ERP and 25 units (at $4/unit) bringing our total to $160.
In total, we arrive at $2,297 for our all-in marketing spend ($160 for reviews / $2,137 for sales/ranking)
To safely and more conservatively budget we are at $2,500 in capital needed for marketing purposes.
Now what starts to become clear is that we are falling into what could be considered a reasonable range of needed startup capital for our product.
We are looking at approximately $6,500 of capital needed.
Which, prior to running through the specifics for this example was right around where I thought a typical seller would need to be.
My range, when discussing this topic with other sellers, is closer to $7 or $8k to start because the inherent learning curve can produce hiccups, delays and their associated costs.
With really unpacking this example it’s important to make clear what effectively goes into arriving at this number. It allows for you to easily add (or even remove) steps, time and cost along the way as needed.
Also, don’t forget our assumptions in our example.
It would be prudent to view those as metrics or insights on a sliding scale – altering each explicitly for your circumstance. And ultimately keeping in the forefront the major considerations when it comes time to launch your product on Amazon.
Troy Johnston Co-founder, Seller.Tools
Troy Johnston is the Co-founder of Seller.Tools, a robust suite of optimization tools leveraging actual Amazon data. He sold one of his flagship brands for multiple 7 figures and quickly moved to consulting for 8 & 9 figure clients on Amazon.
Troy is obsessed with creating data-driven solutions for Seller.Tools clients by empowering sellers with the best data alongside exclusive features. You can find Troy and an amazing community of FBA sellers through the Facebook community FBA Kings.