How to Start an Amazon FBA Business on a Tight Budget

Selling on Amazon using FBA is a great way to make money from retail arbitrage. Selling on Amazon lets you reach lots of potential customers and is a great way to start a small business. In this post we are going to explore how to start an Amazon FBA business on a tight budget.

Understanding Amazon FBA

FBA stands for ‘fulfilled by Amazon', and it is where sellers can ship their items to Amazon as a bulk lot, and then Amazon take care of the rest.

Step one – you source and buy your items to sell on Amazon using FBA.

Step two – you prepare your items to ship to Amazon, which could be labelling them or placing them in bags. You can also skip doing this and pay Amazon to do it for you. You also set your items' prices.

Step three – ship your items to Amazon using their flat rate service.

Step four – Amazon handle everything else from listing on the marketplace (at a price you have set earlier) to sending out to customers.

Step five – you receive your income from Amazon.

There are some great benefits to using FBA, as well as some things that you should be aware of.

One of the main benefits to having an Amazon FBA store is that you don't need the hassle of storing stock. You will need to have space to hold new products until you prepare and ship them to Amazon, but you don't need to worry about long-term storage. A downside to this is that if your products don't tell quickly, perhaps because there isn't high demand, then Amazon will charge you a storage fee.

Another great benefit to using FBA is that Amazon is absolutely massive, and buyers trust Amazon, and want to make use of their Amazon Prime membership. That means they expect order fulfillment fast, and Amazon have the logistics in place to send items out and be delivered the next day. If Amazon have your items in their own warehouses then they can do this, whereas the cost and resources needed might mean you can't do this.

A downside to using FBA is that the Amazon FBA fees are high! There is still profit to be made, but for those business sellers who are use to eBay's 10% fees (and now free for private sellers) the fees on Amazon could feel prohibitive.

Setting a realistic budget for Amazon FBA

You don't need a massive budget for starting your Amazon store, but you will need to be able to invest some money into this.

Aside from your stock costs, the other initial costs associated with selling using Amazon Fulfillment Centers are:

• Shipping to Amazon – Amazon have logistic partners who make this much cheaper than sourcing your own delivery courier, but you will still be expected to pay this up front.
• Prep materials – you will need to use specific sized labels for your Amazon products, or ask Amazon to label them for you, which again, is an upfront cost. You might also need particular bags with special warning labels on them.
• Monthly fee – you can sell on Amazon without paying for a Professional Plan, however each item you sell will then charge an additional fee of 75p on top. The monthly fee for the Professional Plan is £25 per month excluding VAT (so £30 with VAT) and cancels out the 75p extra fee per product sold. If you are selling 33 or more items per month then the monthly fee pays for itself.

There are then potential ongoing costs for using FBA. They include:

• Referral fees – a fee that Amazon charge for each item sold. This is generally between 8% – 15%.
• Fulfillment fees – this is the cost for Amazon to ship your orders.
• Storage fees – if your items aren't in high demand and don't sell quickly then you will need to pay Amazon an inventory fee.
• Refund admin fee – if you refund a customer but Amazon have already sent you the payment, they will refund you the Referral Fee that you paid, but they will take a fee or £5 or 20%, whichever is less.

The biggest start up cost when it comes to FBA is the cost of your inventory.

Everyone you ask will have a different idea of how much money you should start your Amazon store with. I've seen people mention figures into the thousands.

In my personal opinion, you want to start with a minimum of £100.

Set aside £20 for your initial costs to Amazon – that's the shipping and preparing your products. If you are buying your labels and bags yourself then you might need to increase this amount.

That leaves £80 for stock. Which to be honest, isn't much! But this is all about starting your Amazon FBA business with a tight budget.

If I were to start an Amazon FBA store today, I would want to have at least £250 available to me.

Let's delve deeper into product research and finding products on a tight budget.

Choosing Profitable Products For Amazon FBA

Product research is crucial for Amazon FBA success because your choice of product impacts your ability to stand out from competitors, maintain a healthy profit margin, and meet market demand.

Choosing the wrong product can lead to unsold inventory and financial losses, especially when working with a tight budget. You could incur additional storage costs or just have stock sitting there not earning you money.

By doing effective product research you can:

• Identify items with high demand and low competition.
• Avoid saturated or overly competitive markets.
• Find products that align with budget-friendly sourcing and manageable logistics.
• Identify which categories are ‘gated' and need you to complete extra steps to be able to sell them on Amazon.

How to Do Product Research Efficiently

Efficient product research involves analyzing market trends, studying competitor performance, and evaluating potential profitability. Here are some strategies:

1. Explore Amazon’s Best Sellers and Trending Categories: Check Amazon’s Best Sellers, Movers & Shakers, and new releases to get an idea of popular products.
2. Analyze Customer Reviews: Look at reviews of similar products to identify common complaints or areas for improvement. This insight can help you create a product that fills market gaps.
3. Check Seasonal Trends: Use tools like Google Trends to see whether a product’s popularity fluctuates throughout the year.

Free and Affordable Tools for Product Research For Amazon

When working with a tight budget, it's important to leverage free or cost-effective tools. Here are some options:

• Amazon Best Sellers & Movers & Shakers: Free sections on Amazon to spot high-demand products.
• Google Trends: A free tool to gauge product seasonality and general interest.
• Helium 10’s Free Chrome Extension: Offers limited product data, but useful for basic product research.
• Jungle Scout: A popular tool that offers affordable plans and a limited free trial, helpful for deep market analysis.
• AMZScout: Has a basic free trial for market and product insights.

Examples of Low-Investment, High-Margin Products

For sellers with budget constraints, the goal is to find items that don’t require significant upfront investment but have a solid profit margin. Consider:

1. Lightweight Items: Products that are light and small help minimize shipping and storage fees. Examples include phone accessories, reusable straws, or yoga straps.
2. Private Label Items: Simple products you can rebrand, such as silicone kitchen tools or bamboo toothbrushes.
3. Niche Products: Items targeting specific interests, such as eco-friendly stationery or pet grooming accessories, often face less competition and can yield better profit margins.
4. Seasonal Trends: Products related to holidays or events, like gift sets for specific seasons, can also be profitable if timed correctly.

Sourcing Products On A Budget

When starting an Amazon FBA business on a limited budget, sourcing your product cost-effectively is essential.

Here’s a detailed breakdown of budget-friendly sourcing options and strategies:

Shop The Sales

When I was selling on Amazon the quickest way for me to source stock was to shop the sales. This could be both in store or online.

I would use the Amazon seller app when doing my weekly grocery shopping and see if any clearance toys or other products would be worth selling on Amazon, and then buy what had a good rank (would hopefully sell quickly) and would net me enough profit. For buying online I would start at Latest Deals and then find deals that would be worth buying to make a profit.

Places I found good for sourcing items in store included:

• Supermarkets, especially checking out the reduced to clear home wares and toys.
• Toy shops, especially during sales and promotions.
• TK Maxx – a complete gold mine for sourcing items to sell on Amazon. I paid particular attention to toys, notebooks and branded home wares.
• Pet stores – especially during sales and promotions.

Options for Sourcing Products: Domestic vs. International Suppliers

As well as sourcing items from every day shops, you can also look for suppliers to work with. These could be wholesalers based domestically or internationally, or could even be Temu!

Understanding the pros and cons of domestic versus international sourcing can help you make cost-effective decisions:

• Domestic Suppliers:
  • Pros: Faster shipping times, higher product quality, easier communication, and simpler returns or exchanges.
  • Cons: Typically higher manufacturing costs compared to international suppliers.
  • Best For: Products where quality assurance and quick delivery are critical (e.g., handmade or specialty items).
• International Suppliers (e.g., manufacturers from China via platforms like Alibaba or AliExpress):
  • Pros: Significantly lower manufacturing costs, a broad range of products, and potential for bulk discounts.
  • Cons: Longer shipping times, potential for language barriers, and the need to ensure product quality through samples or third-party inspections.
  • Best For: Standard products or items that can be sourced cost-effectively in bulk without strict quality demands.

How to Negotiate Better Prices with Suppliers

Negotiation is a powerful way to manage your budget and increase profit margins.

Here are some tips:

• Request Quotes from Multiple Suppliers: Reach out to several suppliers to compare prices and negotiate better terms.
• Order Samples First: Build trust by ordering small samples. Once you establish a relationship, you can negotiate lower rates for larger orders.
• Be Transparent About Budget Constraints: Let suppliers know you're a small business working on a budget; some may offer flexible pricing or discounts.
• Negotiate Payment Terms: Request payment plans or lower initial deposits to ease cash flow. Some suppliers may accept 30/70 payment terms (30% upfront, 70% upon shipment).
• Ask for Discounts on Bulk Orders: Even on a tight budget, ordering in slightly larger quantities can often lead to price reductions per unit.

Leveraging Dropshipping or Print-on-Demand Services for Low Initial Costs

Dropshipping and print-on-demand (POD) are excellent solutions for minimizing initial expenses:

• Dropshipping:
  • How It Works: You list products on Amazon without purchasing inventory upfront. When a customer orders, your supplier ships the product directly to them.
  • Pros: No inventory costs, no storage fees, and minimal risk of unsold stock.
  • Cons: Lower profit margins, potential for longer shipping times, and less control over quality.
  • Best For: Entrepreneurs looking to test product ideas without significant investment.
• Print-on-Demand Services:
  • How It Works: These services allow you to sell custom designs on items such as t-shirts, mugs, or tote bags. The item is produced and shipped to the customer only after an order is placed.
  • Pros: No upfront inventory costs and the ability to customize products.
  • Cons: Higher per-unit cost compared to bulk sourcing and limited control over fulfillment speed.
  • Best For: Creative sellers or niche markets where customized products stand out.

Choosing the right sourcing strategy can make or break your budget. By carefully evaluating suppliers, negotiating prices, and exploring dropshipping or POD options, you can maintain low upfront costs while still positioning yourself for success in the Amazon FBA marketplace.

Scaling Your Amazon FBA Business

Once you have started to see a profit from your Amazon FBA business then it might be time to think about scaling it up.

Scaling your Amazon FBA business is a critical step to ensure long-term growth and increased profitability.

Here's how to expand your operations on a budget while maintaining momentum:

Reinvesting Profits Smartly to Grow Your Business

The key to sustainable scaling is reinvesting your earnings strategically. Here’s how to approach this:

• Prioritize High-Return Investments: Allocate profits to areas that directly impact your business growth, such as restocking popular products, investing in better product photography, or enhancing your listing's copy.
• Expand Inventory Cautiously: Use your initial profits to purchase larger batches of your best-selling items to take advantage of bulk discounts and reduce per-unit costs.
• Set Aside a Reserve Fund: Always keep a portion of your profits as a reserve for unforeseen expenses, like product returns or unexpected storage fees.

Budget-Friendly Ways to Scale Operations

Scaling doesn’t always require a significant financial outlay. Consider these budget-conscious strategies:

• Automate Where Possible: Use affordable tools for inventory management, customer follow-ups, and sales analytics. Automation can save time and reduce the risk of errors as your business grows.
• Leverage Virtual Assistants: Hiring part-time virtual assistants (VAs) for repetitive tasks, such as responding to customer queries or updating listings, can free up your time at a lower cost than hiring full-time staff.

When and How to Expand Your Product Line

Expanding your product line can diversify your income streams and solidify your presence in the market. Here’s how to do it without stretching your budget too thin:

• Conduct Thorough Market Research: Use affordable research tools to identify gaps in the market that align with your budget and expertise. Opt for complementary products that leverage your existing audience and supplier relationships.
• Test with Small Batches: Start with limited quantities of a new product to gauge interest before committing significant resources. This approach minimizes risk and helps you refine the product before scaling up.
• Partner with Suppliers: Negotiate with your current suppliers to produce variations or new products at a reduced cost, leveraging the trust and relationship you’ve already built.
• Use Feedback Loops: Solicit customer feedback on potential product ideas or variations to ensure that there’s a demand before fully committing to a new product line.

Scaling your Amazon FBA business doesn’t have to break the bank. By reinvesting profits wisely, adopting cost-effective growth tactics, and strategically expanding your product offerings, you can achieve sustainable growth and long-term success.

how to start an Amazon FBA business on a tight budget – Common Mistakes To Avoid

When you are starting your Amazon business on a tight budget then mistakes can be costly. Here are some common mistakes to avoid when starting your Amazon business on a tight budget.

Choosing the Wrong Product

The Pitfall: Selecting a product without thorough research can lead to low sales, excess inventory, or even losses. New sellers might be tempted to jump into trending products that require significant investment or face fierce competition.

How to Avoid It:

• Use Data-Driven Research: Utilize free or budget-friendly research tools to assess product demand, competition, and profit margins before making a decision.
• Avoid Oversaturated Niches: High competition often means lower chances of standing out. Look for products with a balanced combination of steady demand and manageable competition.
• Check Supplier Terms: Ensure that the supplier's terms align with your budget. Negotiate for smaller initial orders or flexible payment plans to minimize upfront costs.

Ignoring Inventory Management

The Pitfall: Poor inventory planning can result in stockouts or overstocking, both of which impact profitability. Running out of stock means missed sales, while overstocking ties up your capital in unsold inventory.

How to Avoid It:

• Plan for Lead Times: Factor in production and shipping times to ensure your stock levels remain adequate, especially during peak seasons.
• Track Sales Trends: Monitor your sales data to forecast future inventory needs more accurately.
• Start Small: Order smaller quantities initially until you understand your sales patterns, then scale up as needed.

Underestimating Hidden Costs

The Pitfall: New sellers often overlook the various fees associated with Amazon FBA, such as storage fees, fulfillment fees, and returns processing. These costs can erode profits if not accounted for.

How to Avoid It:

• Factor in All Costs: Before pricing your product, make sure to calculate all associated expenses, including Amazon fees, shipping, and any promotional costs.
• Optimize Packaging: Choose efficient packaging that minimizes size and weight, reducing storage and shipping fees.
• Keep an Eye on Storage Fees: Regularly review your inventory to avoid long-term storage fees that can add up quickly.

Not Reinvesting Profits Wisely

The Pitfall: Spending profits on non-business-related expenses rather than reinvesting them back into the business can hinder growth and scalability.

How to Avoid It:

• Develop a Reinvestment Strategy: Dedicate a portion of your profits to buying more inventory, enhancing product listings, or expanding your product line.
• Avoid Unnecessary Expenses: Be frugal with your business expenses. Focus on what adds value to your operations, such as tools for automation or small-scale marketing efforts.

Losing Sight of Profitability

The Pitfall: It’s easy to chase higher sales at the expense of profitability. Offering excessive discounts or underpricing products can cut deeply into profit margins.

How to Avoid It:

• Stick to a Pricing Strategy: Establish a pricing strategy that covers your costs and ensures profitability, even after promotional discounts.
• Monitor Financials Closely: Regularly review your profit and loss statements to keep track of what is driving profit and what might be diminishing it.

By being aware of these common mistakes and implementing proactive measures, you can navigate the challenges of starting an Amazon FBA business on a budget and build a foundation for sustainable growth.

Frequently Asked Questions (FAQ) about how to start an Amazon FBA business on a tight budget

1. What is the first step to becoming a successful Amazon FBA seller? The first step is creating an Amazon seller account. Depending on your needs, you can choose between an individual seller plan or a professional seller plan. Starting with limited funds? The individual seller plan has no monthly subscription fee, making it a good idea for new online sellers.

2. How much initial investment is needed to start selling on Amazon? Starting an Amazon FBA business doesn’t necessarily require a lot of money. With retail arbitrage or low-cost products sourced from reliable suppliers, you can start with little money. Free tools like the FBA revenue calculator can help you assess potential profitability and additional fees before investing.

3. Is it possible to start selling on Amazon with a small budget? Yes, with limited funds, you can still start an online business on Amazon. By focusing on cost-effective ways to source products and using free tools, you can manage expenses effectively. You may also consider marketing campaigns using social media and right keywords for organic reach.

4. What are the benefits of using Amazon’s FBA program? The FBA program is a great way for independent sellers to leverage Amazon’s warehouses and fulfillment network. This service helps with packing, shipping, and providing excellent customer service, which can result in higher sales and better search results.

5. How can I find the right product to sell? Conducting thorough Amazon product research is an important step. Look for different products with high demand and lower competition. Using relevant keywords and the right product selection will improve your visibility in search results. Private label products can also be a good strategy for building your own brand.

6. Do I need to hire a graphic designer or a professional photographer? While not mandatory, using high-quality images and engaging product advertisements can greatly boost your sales. A graphic designer or professional photographer can help create high-quality content that stands out in the Amazon marketplace.

7. What is Amazon Brand Registry and should I use it? If you have your own brand, enrolling in the Amazon Brand Registry is a best practice. It helps protect your brand name and provides access to additional tools like enhanced brand content, which can enhance your product’s visibility and credibility.

8. Are there any hidden or additional fees I should be aware of? Yes, beyond the monthly subscription fee for professional accounts, you may incur additional fees such as referral fees, fulfillment fees, and potential costs for marketing campaigns, display ads, or social media promotions.

9. Is retail arbitrage a cost-effective way to start? Retail arbitrage is an excellent entry point for those with limited funds. By sourcing products at a lower price from retail stores and reselling them for a profit on Amazon, you can build initial capital with less money.

10. How can I ensure my business grows in the long run? Hard work, continuous learning, and adapting to the best practices are key. Using the FBA program, maintaining excellent customer service, investing in ad campaigns, and exploring new sales channels like your own online store can contribute to long-term success.

11. Do I need a unique product code to sell on Amazon? Yes, having a unique product code such as a UPC is an important step for product listings. This ensures your products are recognized properly in Amazon’s system.

12. What tools can help with Amazon product research? There are free and paid tools available that assist with finding reliable suppliers, analyzing product categories, and estimating costs. The FBA revenue calculator, keyword research tools, and other Amazon seller central resources can be particularly helpful.

13. Can I sell products on Amazon from the United States if I live elsewhere? Yes, sellers from many countries can participate in the Amazon marketplace, including the United States. Ensure you have a reliable shipping method and meet all necessary regulations to ship products efficiently.

14. Should I invest in marketing and product advertisements? Marketing campaigns, such as display ads and the use of social media, are a great way to increase visibility and attract potential customers. If you have limited funds, prioritize organic search optimization by using relevant keywords and high-quality images to stand out.

15. Do I need help to start or manage my Amazon business? Starting an Amazon business can be a complex process. Whether you’re a beginner or an experienced online seller, seeking guidance or using available support can streamline your next step toward success.

Remember, success on Amazon is achievable with a clear plan, the right tools, and consistent effort.