This is part one of a five part series addressing concerns around, “Is an FBA business profitable.”
In April 2020, Coronavirus lockdowns began around the world. Businesses faced a dire situation—transform or die. Small businesses were particularly susceptible to the potential of insolvency because they lacked diversity in how they were able to generate revenue. Business strategists quickly forecast the impending failure of “old-model” businesses and the growth of “new-model” businesses.
As lockdowns began in April 2020, unemployment in the US skyrocketed to 14.8%. Businesses in the travel and entertainment industries saw revenue decreases of 90+% in a matter of days. Health Departments forced Hair Salons to close their doors and prohibited stylists from seeing clients. As the government desperately tried to curb the spread of the virus, citizens desperately tried to survive under a “new normal.”
Business owners and employees saw first-hand that they were susceptible to a different class of business risks – lockdowns. They also saw real-life examples of how eCommerce or digital delivery of services could help strengthen or diversity their revenue or income streams. The idea of “selling online” was no longer something to put on the back burner until they had time.
Selling online became imperative.
One avenue of selling online that many businesses and individuals have turned to is Amazon’s FBA service. Amazon FBA is Amazon’s Fulfillment by Amazon. In addition to allowing other people to create listings in the Amazon marketplace, Amazon enables people to send inventory into the Amazon warehouse. Amazon will effectively treat that inventory like their own. Amazon will shelve, pick, pack, and ship the third-party products and provide the same level of “Prime” service to their customers.
It makes selling online easier for small operators—but does it make it profitable?
I have seen five warning signs in my research that may lead to an FBA business not being profitable. If a business venture isn’t profitable, it will lead to either bankruptcy or burnout over time. Being aware of these signs allows you to make course corrections.
If these signals exist in your FBA business, it doesn’t mean that your business will fail. However, the existence of multiple signals should give you a reason to be concerned. If you take note of them and do something about them, you can correct the course and plot a different direction.
Created a hustle vs. building a business
Most businesses start as, what I refer to, as a “hustle.” There are many different meanings of the word “hustle” that can apply in this context. The first is the most negative—being a fraud or a swindler.
They do exist on Amazon.
The bad type of hustle
One case is a seller who will create a merchant fulfilled listing on Amazon at a high price. When someone places an order, they will go to an alternate site like Walmart.com, place an order, and have it shipped directly to the Amazon customer.
You may think, “What’s wrong with that?” Well, it’s a violation of Amazon’s terms of service.
When a customer buys from Amazon, Amazon wants their customers to know it is from Amazon. They don’t want their customers redirected to other marketplaces or businesses.
Is that fair?
It doesn’t matter because the seller agreed to when they applied for a seller’s account in terms of service. When Amazon finds out, the seller will be banned, and their “FBA business” will be shut down.
In another case, a seller will create a merchant fulfilled listing as in above. This time, however, they will use Amazon to send a “gift” to their customer. After the order has been delivered, the seller will contact whoever they bought the product from on Amazon and claim it was lost in shipment and request a refund.
This scenario may work for a while. But Amazon keeps track of people who submit too many A to Z claims. Eventually, that person’s account will be blocked, and their hustle will be brought to an end.
In both of these cases, it may work for a while, but it won’t last. Eventually, you will flop.
The better type of hustle
Stepping out of the mud involved in the types of hustles discussed below is a better alternative. With this type of hustle, you obtain something with forceful action or persuasion.
This type of hustle is how most businesses start.
make things happen;
earn every penny you make.
Creating a hustle-based FBA business can be profitable, but it can also become exhausting. A common situation with a hustle of this type is when your dollars per hour of work is low compared to your reference point.
Your reference point usually is your salary from a full-time job. If you are currently earning $35/hour at your full-time job, a hustle where you earn $25-$45 per hour may be very satisfying. However, if you are currently making $75-$80 per hour at your full-time job, earning $35/hour in a hustle may be frustrating. Frustration leads to burnout. Hitting that burnout stage will likely lead to your FBA business being a flop.
Building a business
Even with businesses that began as a hustle, there was a transition plan. The transition is to bring additional people or technology into your hustle to remove the need for forceful action or persuasion.
The goal is to make your FBA business profitable in the long haul.
It’s about finesse rather than force.
A typical signal to determine if you have a hustle versus a business is to take a month off and see what happens to your income.
If even the thought of taking a month off sends shivers down your spine – you have a hustle. But, if your view is, “Ahh, the team’s got this!” You likely have a business.
Making the transition from creating a hustle to building a business can be lengthy—and it should be prolonged. Getting the right people and processes on your team can take a while. But, when you have them in place, you will have a new sense of freedom.
If you are blessed to be someone making $75+ per hour in a full-time job, setting up an FBA business making $25 per hour operated by a virtual assistant that you pay $10 per hour becomes much more tolerable. Absentee owner small businesses exist all over America. There is no reason why an online business can’t manage in the same manner.
Hustle versus Business
In this first sign that your FBA business could ultimately lead to being a flop, I’ve shown how being a fraud or a swindler can result in your Amazon seller account being disabled. I’ve also demonstrated how approaching your business solely through forceful action may result in burnout. Both of these avenues would lead to an FBA flop.
I have also shown how building a business can create freedom.
Freedom comes from creating options.