How To Start A Wholesale Amazon FBA Business in 2021
The wholesale ecommerce market generated over $2.64 trillion in 2018 and it accounted for nearly 1/3rd of all wholesale sales. These trends will only continue to grow as the wholesale market globally starts to adopt ecommerce. Many of the successful wholesale industry leaders aren’t leveraging ecommerce properly and this is a huge opportunity for sellers to enter the market.
Sellers are not directly competing with big wholesale distributors, they are partnering with Amazon to compete in the market. By leveraging Amazon’s fulfillment and customer networks, new sellers can enter the market and scale their business to six and seven figures within a matter of a few years.
Even with popular reselling strategies like retail arbitrage and private label, a growing number of sellers are shifting to wholesale as their primary selling business model. Wholesale empowers sellers by giving them the flexibility of retail arbitrage with the scale of private label. This allows wholesale sellers to experiment and test many products and stick with what sells best. Since wholesale has certain requirements, there’s a higher barrier to entry and that makes competition less for wholesale sellers.
Additionally, sellers who use other strategies like retail arbitrage and private label can pivot to wholesale with some work. With wholesale, there’s already existing demand for a product. All sellers have to focus is finding a good niche, supplier and shipping into Amazon. By doing this, sellers can launch one successful product after another and build their Amazon wholesale business.
Selling wholesale products on Amazon is a great business model because you can get bulk orders and repeat orders. Wholesale businesses often have a major portion of their revenue coming from a few clients that make a lot of repeat orders. Amazon provides this for sellers and wholesale customers can easily reorder from the seller once they run out of inventory.
Wholesale selling on Amazon gives sellers real-life experience with managing a wholesale business. Sellers can use Amazon as their launchpad to build their own wholesale business. By selling on Amazon, you will gather the necessary knowledge and suppliers. You can then leverage this to build your own customer base outside of Amazon and grow your business.
Starting a real wholesale business is very tough, especially without prior experience. Ask anyone you can find who grew their distribution or wholesale business. They will likely inform you it took several years to even be profitable, let alone succeed.
Amazon also has a thriving B2B (business to business) marketplace. Instead of the common consumer marketplace that everyone is aware of, Amazon has a lot of business customers that are willing to buy products in bulk. Since launching a few years ago, Amazon B2B is already making over $10 billion in sales annually. Sellers make up nearly one half of the sales for B2B customers.
With Amazon, you can find products with existing demand, find suppliers, use Amazon’s fulfillment network and make sales. By using Amazon for wholesale, Amazon basically handles all of the hard aspects of running a wholesale business. This includes finding a niche (Amazon has many to choose from), finding a customer (Amazon already has millions), fulfilling orders to the customer (Amazon has the FBA network).
Wholesale sellers on Amazon only have to focus on finding good products to sell, finding a supplier and shipping to Amazon. Once sellers find a good product, all they have to do is keep reordering and this will generate sales.
Now that you are familiar with the opportunity of selling wholesale products on Amazon, let’s dive into what you actually need to get started with a wholesale Amazon FBA business. This will be the real requirements you need to do step-by-step to go from where you are now to actually having a real wholesale Amazon FBA business.
Requirements needed to get started
Professional seller account: The first step of starting your wholesale Amazon FBA business is to actually get approved to sell on Amazon. It’s important to do your seller application correctly because if Amazon rejects your application, it will be harder for you to get approved. As a wholesale seller, you should set up a business first (LLC, S Corp, etc) . Not only will you make the seller application easier, you’ll be prepared to provide similar information when a supplier asks you.
In your seller application, you can select two selling plans: the free individual plan or the professional $39.99 per month plan. You should select the professional plan because you’ll be selling more than 40 products per month. Amazon charges $0.99 selling fee for individual plans, so if you sell over 40 products per month, you should get the professional plan.
Money: When it comes to starting a wholesale Amazon business, some business models like retail arbitrage require very little money to get started. You can get started with retail arbitrage with a few hundred dollars or less. In contrast, selling wholesale will require cash up front. The more you have the better, but it’s going to be difficult to get started with less than $1,000.
This is because you’ll need money to set up your business, your professional selling plan, buying your first order from a supplier and more. Having cash in hand to pay for these required expenses will allow you to grow your business faster. Can you do wholesale with little money? Yes, but it will take much longer and suppliers may not take you seriously.
Wholesale license: Depending on where you’re located or the supplier you’re doing business with, you may be required to get a wholesale license. Some suppliers may ask for a Sales Tax ID and some may require you to show your wholesale license.
You’ll likely need the wholesale license just to do business at some point, so it’s best to get it early to be as legitimate as possible. You can get a wholesale license from your revenue office or state tax office. There are some perks to getting a wholesale license. Some of the benefits include not paying tax on wholesale items and more.
Now that you are familiar with what you need to get started on your wholesale Amazon business, let’s cover what you will need to launch your first wholesale product. You will need to follow each of these steps as best as possible to maximize the chance of your wholesale product succeeding.
How do you launch your first wholesale product?
Product research: Product research is one of the most important, if not the most important aspect of selling wholesale products. Sellers need to really take their time to analyze potential products for several requirements prior to submitting their first invoice.
What are some characteristics good wholesale products share:
Low competition: Products with wholesale potential often have a lot of sellers competing. The goal as a wholesale seller is to find products where you can make the lion’s share of sales. If a product has Amazon selling it, completely avoid it.
You won’t be able to compete with Amazon and they’ll make you lose money. Also, if a product has many sellers on a listing, it’s best to avoid it also. Low competition allows you to maximize your profit while ensuring you’ll have a stable product that generates sales over a long period of time.
Demand: Low competition isn’t worth anything without a product having demand. As a wholesale seller, you don’t need to find products that sell thousands of times per day. You need to find a product that has decent demand that you can dominate in. You should check the sales per month of a potential product on JungleScout.
If you input the information for the product on their sales estimator, it will give you an estimate of how much sales it’s making per month. A good rule of thumb when starting out is to select a product that makes between 10-50 sales per month. This is good enough demand where you can get a good idea of how wholesaling works with your first product.
Cost: The product you sell should not be less than $10. This is because Amazon has FBA fees and other fees associated with selling products. If you account for that and the cost to purchase the item, you are likely losing money or making extremely little profit.
By having a product with higher costs, you leave room for profitability. You don’t need to choose a $100 item, but picking a product with profitability will decide how truly successful your wholesale Amazon business will be.
Finding a supplier
After doing all of the proper research, you probably have a few products you can choose from to launch. Now, you will need to find a supplier for your wholesale product. Finding a good supplier for your product is essential because that will dictate the margins you will have. For wholesale products, you want to find a reputable supplier within the U.S.
Although international suppliers may offer extremely low prices, you have to ensure your products are legitimate because Amazon can ban your account if you sell fraudulent items. Sticking with a good supplier allows you to keep a record of your invoices and you can produce them to Amazon in the future in case anything happens to your account. There are several ways sellers can find wholesale suppliers for their products. This includes:
Wholesale directories: Wholesale directories are one of the best ways to find wholesale suppliers. There’s tons of directories out there, so you need to explore each one and narrow down what works for you.
From my experience, you can find most wholesale suppliers for free. There are some really great paid wholesale directories that do a lot of the dirty work for you. It’s best to stick with free resources as you start out and invest in other things later. All you need from these directories is an email or phone number and you can reach out directly to them.
Wholesale directories can be found both offline and online. The online wholesale directories are great because you can use the search bar to find a certain kind of distributor. The offline directories are harder to find, but they can be a gold mine if you find a good one. This is because since it’s offline, it’s harder for other wholesale sellers to find them.
Online directories are quickly catching up and finding these hidden wholesale suppliers. Some of the top wholesale directories like SaleHoo, WorldWide Brands and more have extensive directories for sellers. Most of these top directories require a subscription of some kind, but there’s a free trial for sellers to try out.
Contacting brands directly
If you are selling a branded item, it may be best to reach out directly to the brand to get the best pricing. The success of this approach will vary depending on the brand because some brands will require sellers to have huge minimum orders to even sell their products.
This is very typical with big name brands. You can still try to negotiate with these brands and reach a beneficial agreement. If you work with a brand long enough, you may even become a distributor of their product.
If this doesn’t work out, your next best bet is to contact a distributor of their product. Distributors will likely provide the next best pricing and they aren’t generally as strict as the brand.
Make sure that the distributor you work with is a real distributor and not someone posing as a distributor. You can often find distributors directly on the brand’s website. They usually have a section like “Find a distributor near me”.
Google: Sellers often overlook just simply Googling the product they are selling and adding “distributor, wholesale or supplier” to the search. This will pull up a variety of websites. Directories take the time to verify suppliers for sellers.
Since you are taking on that responsibility by Googling the suppliers, you need to make sure you’re dealing with real and reputable suppliers. Just because a company appears on the 1st page of Google doesn’t mean you should trust them.
It’s best to contact each of the suppliers listed and make a spreadsheet of their offers for wholesale. This way you can keep track of the information for the suppliers and use competitor’s pricing to negotiate the best deal. If something feels off or fishy, it’s best to avoid the supplier altogether.
The last thing you need is to lose your money before launching your first wholesale product. Make sure you ask for samples, ask additional questions, etc. Do your best to vet each potential supplier and you can purchase your products with confidence.
To learn more about how to find suppliers for your wholesale business, check out this blog for in-depth information.
Send products to Amazon
Now that you’ve found a product and a supplier, it’s time to send your products in to Amazon and make some sales. It’s recommended that you get some samples of the product prior to making your first big purchase of products. This allows you to inspect the product by hand, send it to Amazon and make sure everything looks good. Once you’ve verified the product, you can make your first invoice order and send the products into Amazon.
You can ship the products via two ways: 1) have the supplier send it to you and you ship it or 2) have the supplier send it directly to an Amazon FBA warehouse. For new sellers, it’s best to have the products sent to you.
Every supplier is not aware of Amazon’s packing and shipping guidelines, so it’s best you ensure everything is correct by yourself. Once you have an established relationship with a supplier, you can explore having the supplier ship the product directly to Amazon.
That covers how sellers can start a wholesale Amazon FBA business. Basically what you need to is to:
- Get approved to sell on Amazon
- Do product research and find potential wholesale products
- Find a good supplier
- Ship the product to Amazon
Scaling your wholesale Amazon FBA business
Once you’ve got your first few wholesale products launched, you can truly reap the benefits of selling wholesale products. A few wholesale products alone can generate thousands of dollars and maybe even tens of thousands of dollars per month in revenue. The business strategies you use at this point will decide how fast you will scale. There are a variety of ways you can automate and scale your business. This includes automating:
Prep and shipping: As a wholesale seller, you will spend significant time with prepping and shipping your products. Getting a system down for your prepping and shipping is important because this will allow you to teach someone to do it for you. By automating the prepping and shipping portion of your business, you will have much more time to find new products that can scale your business.
Hiring a VA: A virtual assistant (VA) is a tactic that many successful Amazon sellers employ. Virtual assistants are people that you can hire as a seller at a low cost to take care of the administrative aspects of your business. This includes managing listings, reordering inventory, handling purchasing decisions and more. Having a VA is a huge hack that lets you focus on growing your business instead of doing the maintenance aspects of your business. Depending on how skilled the VA is, they can even do more complex parts of running the business like doing product research. A great portion of seven figure sellers have a VA or employee that takes the administrative load off of their shoulders.
Finding better suppliers: As you scale your wholesale Amazon business, you will have more capital to start dealing with bigger name distributors and suppliers. These often have minimum order requirements and are very picky about who they work with. With a track record on Amazon and the ability to purchase large orders, you can improve your profitability significantly by working with bigger and better suppliers.
Avoid getting scammed
There are many pitfalls that new wholesale sellers can fall into and one of the worst is to order from a fraudulent supplier. It’s one thing to order from a supplier that’s not a true distributor or manufacturer, but getting scammed is way worse. You need to be aware of the cues that indicate if a supplier is fraudulent or not. Some clues that you may be being scammed include:
Weird payment options: If the supplier you are contacting asks you to send money via Western Union, gift cards, bitcoin, etc., you should immediately block them and seize contact. They are asking you to pay with these options because you can’t track their information back to them. Even if you get the local authorities involved, it’s highly unlikely to get your money back.
Other red flags you should watch out for include:
- No reviews or BBB rating
- Bad communication or indication that English is not their first language
- Not asking for your tax ID or any other business IDs
- Spammy sites and emails
Here’s a link to a blog if you’d like to learn more ways to spot a scammer supplier.
That’s all of the major things that sellers need to do to start their wholesale Amazon business. You can rinse and repeat the steps after product research for each new wholesale product. By following this, you can establish a wholesale business with a few wholesale products and continue scaling.
I’d recommend either joining a free/paid wholesale group with real sellers that are doing wholesale. This can reduce the learning curve significantly if you have access to sellers that are actually succeeding at wholesale. This can help you avoid the common mistakes sellers make when selling wholesale. First, consume all of the free content available in blogs, YouTube, etc. Use that to launch your first wholesale product. Once you have that figured out, joining a group can help you with the logistics of scaling your business, taxes, administrative things, etc. To learn more about wholesale, check out this blog.