If you’re looking for a quick “number,” we recommend having $15,000-25,000 devoted to starting your FBA business in the first year. This allows you to source higher quality products and see momentum quite a bit sooner than if you start with less.
Selling through Amazon FBA (Fulfillment by Amazon) can be a great business model, but it’s essential to understand the associated costs to manage your profitability effectively. If you’re in our Mastermind, be sure to search the word “budget” and “profit” in our course and watch all the budgeting and profitability lessons for an in depth overview.
Here’s a breakdown of the key expenses:
1. Amazon Fees
- Referral Fees: A percentage (usually 8%-15%) of your product’s sale price, based on the category. Think of this like paying Amazon for bringing you their customer.
- FBA Fees: Covers packing, shipping, and customer service; depends on item size and weight. This is based on how BIG your product is, be sure to know your size tier as it can affect the FBA fees drastically.
2. Inventory Costs
- Sampling: The cost of purchasing samples of products before placing your “bulk order” – Budget $50-500 here depending on the product.
- Market Research: We recommend a market research tool that costs around $50-100 to ensure you have a winner before placing your bulk order
- Product Sourcing: The cost of manufacturing or purchasing items to sell. We’ve had students spend as little as $500 here and as much as $100,000. Again, it varies greatly depending on the type of product you’re selling.
- Shipping to Amazon Warehouses: Freight costs to deliver inventory to Amazon fulfillment centers. International shipping could land anywhere from $1,000-$5,000 per shipment depending on size, weight, and destination.
- Photography: Amazon is a very visual platform and we recommend professional product photography for your product. If you’re in our Mastermind, we have a partnership with a company that’ll take your first two photos for free, however likely you’ll want more than those. A budget $50-500 per product is recommended.
3. Storage Fees
- Monthly Storage Fees: Charged per cubic foot for storing inventory in Amazon warehouses. Rates increase during peak seasons.
- $0.87/cubic foot for standard-size items (Jan-Sep).
- $2.40/cubic foot for standard-size items (Oct-Dec).
- Long-Term Storage Fees: Applied to inventory stored for more than 365 days.
NOTE: If you’ve done your product research on how much inventory you should send to Amazon and have launched correctly using our Rainmaker method, you should not be paying for long-term storage.
4. Advertising Costs
- To boost product visibility, sellers often invest in Amazon PPC (Pay-Per-Click) campaigns or external advertising. As you track your conversion rate and optimize your listing, the amount you spend on ads may decrease over time.
- PPC spend varies depending on how competitive a product is. There are some products with low search volume and low competitors that don’t require any PPC spend. There are other products where everyone is fighting for spots on the first page and PPC will be an essential part of the sales strategy.
- Amazon over the last 3-4 years has been increasing the number of “ad spots” on the front pages of keyword searches so we recommend going through Phase 4 of our curriculum and learning PPC! When starting out most spend $10-50/day in advertising to get more sales to their products and help them launch strong.
5. Account Fees
- Professional Plan Fee: $39.99/month for sellers who list more than 40 items monthly – this is the plan a majority of our students are on.
- Individual Plan Fee: $0.99 per item sold if you’re a low-volume seller.
6. Returns and Refunds
- Amazon charges a processing fee for refunds, and returned items may not always be resellable. If you’ve done your market research and put your product through quality testing, then you should have minimal returns. However Amazon as a platform makes returns so easy, it happens! Allocate 1-5% of sales revenue to be safe.
7. Miscellaneous Expenses
- Labeling and Packaging: Costs for preparing products to meet FBA requirements. Note: If you pay your manufacturer to add all label requirements, it will significantly decrease this cost than if Amazon were to directly do it for you. You can also do this yourself to save on costs.
- Software Tools: For product research, analytics, and inventory management, software like Helium 10 is highly recommended. Typically our students are investing $50-100/mo in software like this.
- Business Legal & Startup Costs: LLC formation costs could be $50-1000 depending on your state. Trademarks are also beneficial to protect your brand and you’ll likely spend $250-$1000 per trademark.
- Taxes and Import Duties: Depending on your country and the origin of your products.
- Accounting Software: Many of our top students manage their budget using programs like Quickbooks, Xero or similar which could run you around $20-50/mo.
- Insurance: General liability insurance is required when your storefront starts making $15k/mo or more, it lands between $300-$1,000 annually
8. Education and Training
- Investing in a solid curriculum, mentorship and accountability coaching is key to longevity in business. According to various studies, a significant majority of successful entrepreneurs have a mentor. A proper business mentorship could be upwards of $10,000, especially if you desire ongoing coaching and support throughout a multi-year entrepreneurship journey.
Tips for Managing Expenses:
- Watch our detailed budgeting and “profit first” lessons in our Mastermind curriculum
- Conduct regular financial reviews to avoid cash flow issues.
- Regularly monitor storage and advertising costs to optimize your budget.
- Track product performance to discontinue underperforming listings quickly.
- Don’t spend money on things you don’t need at the beginning. If something is outside your budget, use the “how can I?” mindset to think outside the box. Possibly there’s an alternative or way to save you haven’t discovered yet.
- Follow our Mama Entrepreneurial Type Disclaimers to stay out of unnecessary debt
Understanding and preparing for these costs ensures that you can maintain profitability while scaling your Amazon business. If this sounds like a business you could see yourself diving into, there’s nothing like getting 1-on-1 advice from a “how can I” expert.
If you’re considering working with us more in-depth, getting higher levels of accountability, training curriculum, resources, and our full suite of business tools, click here to book your FREE Family Freedom Design Session with one of our Rainmaker Certified Advisors. Our promise to you is that you will walk away with a clear plan and resources to help you get to where you want to go.
