Fortunately, getting started is pretty easy, and you don’t need to manage tons of inventory. This article will explain how to sell on Amazon without inventory and what to expect from this endeavor. Here’s what you need to know.
If you’re interested in making money online, opening a digital storefront is an excellent way to do it. However, while you can set up your own site and build your own audience, it’s often much better (and more profitable) to sell on Amazon. The Amazon marketplace dominates the online retail industry with a share of 37.8 percent. If you hope to make it with online selling, your best bet is to participate in this network.
A Brief Intro to Selling on Amazon
Amazon marketplace has over 1.5 million active sellers, each selling products in various industries and niches. A big reason why there are so many active sellers is that Amazon makes it super easy to set up a merchant account and sell directly to customers.
However, if you want to make it as an online business, you need to do a lot more than just have an account. With so much competition, making a splash with customers can be pretty hard. Also, keep in mind that you’re selling against Amazon itself as well as all other Amazon sellers. So, it can take time to build an audience, but with so much demand, it’s possible.
There are two primary ways to sell on Amazon without inventory. The first is Fulfillment by Amazon (FBA), which requires that you have your own products and let Amazon take care of inventory management. The second option is Fulfillment by Merchants (FBM), and you don’t need physical items to sell in the marketplace.
Here’s a quick breakdown of each method.
FBA vs. FBM
For most online sellers, Fulfillment by Amazon is the simplest way to go, offering a higher level of autonomy. Broadly speaking, you store your products in an Amazon warehouse and let the company manage and ship your items to customers directly.
As you can imagine, you need to pay Amazon for these services, but since the brand has all the infrastructure necessary to deliver products to consumers, it can often be cheaper than shipping items yourself.
With FBA, you need to do the legwork to secure products and send them to an Amazon warehouse. However, as we’ll discuss later, there are several ways to source your items, so you aren’t wasting time hunting them down. Over 92 percent of online retailers in the marketplace sell using FBA.
Fulfillment by Merchant means that you handle all shipping logistics yourself rather than outsourcing it to Amazon. However, you can work with a drop shipper or a third-party logistics (3PL) provider to cut down on your costs and time requirements.
With a dropshipper, you don’t have your own inventory. Instead, you purchase a product as necessary and then have it shipped to a customer directly. Dropshipping requires the least startup capital, but you can’t verify product quality before it goes out.
Third-party logistics companies offer more control but can also have their ups and downs (more on that later).
The other downside of FBM is that you have to handle all returns and customer issues yourself. With FBA, Amazon can take care of refunds and returns, but with FBM, the buck stops with you. Overall, you’ll spend more time on your business logistics with FBM, which is why only nine percent of online sellers use this method exclusively.
Now, let’s break down how to sell on Amazon without inventory, step by step.
Step One: Setup an Amazon Store
The first thing to do is to create your business profile on Amazon. However, before you can even do that, there are some foundational elements to create, such as:
Unfortunately, with so much competition on Amazon, most customers don’t pay attention to the names of retailers. Usually, consumers will assume that each one is the same as the other, so they focus more on the price than anything else. However, developing a strong business name will make branding and marketing easier, especially if you promote your company off Amazon.
At the same time, it would help if you created a logo to go along with your name. Fortunately, online logo makers allow you to do this quickly and easily by using AI software to generate different ideas.
This component should go along with the business name because the two are often related. For example, if you want to sell dog-related items, your brand name may have “dog” or “canine” in the title.
Finding a niche is the best option because it allows you to focus on your target demographic. While it’s tempting to sell different products to expand your operations, doing so could end up hurting you in the long run. However, broadening your product listing might make sense if you only want to make money through Amazon.
No matter what, though, focusing on a single niche is wise when you’re first building your business. From there, you can decide whether to expand your niche or keep it the same. Examples of product niches include:
- Video Gaming Equipment
- Pet Supplies
- Baby Clothes
- High-Tech Gadgets
- Cooking Equipment
There are virtually endless possibilities, and you can choose a niche that reflects your interests. For example, if you’re a new parent, you may be comparing baby supplies already, so it makes sense to sell them since you know what other parents would like. Consider finding a niche, like developing your Amazon seller business model.
Once you’ve developed these elements, you can create your Amazon Merchant account. Fortunately, the company makes it easy to get started, and you must follow the prompts. You’ll need to decide whether you’re an individual seller (selling around 40 products per month or less) or a professional. T
he latter option often works better but can cost a little more, so be aware.
Setting up your Amazon account will ask for various business details, such as an address, name, and payment information. If you don’t have a payment method, you can process transactions through Amazon Pay. However, setting up an account with other payment processors often makes sense, so you have options.
As an Amazon seller, you must pay various fees to sell through the marketplace. These fees can add up if you’re not careful, so let’s break them down:
- Referral Fee – This is the base charge for selling on Amazon. Typically, this fee is about 15 percent of the product’s resale price.
- Individual Seller Fee – If you opt to be an individual seller, you must pay $0.99 per item once it’s sold. Since these costs can add up quickly, it’s better to go with a professional account once you start generating higher revenue.
- FBA Fees – You need to pay for the privilege of storing and shipping your products through Amazon’s infrastructure (if you use FBA). On average, the fee is around $3.00 for small items and goes up from there. You can either add these fees to items as “shipping costs” or include them within the sale price.
- Storage Fees – Amazon charges online retailers for storing their inventory for long periods. Also, if you have perishable items or electronics, you may need to pay extra fees because they require unique storage processes.
Overall, it can take a while to set up an Amazon Merchant account, and it helps to know what kind of shipping and inventory methods you’ll be using. However, remember that you can provide some information upfront and then change it once you’ve figured out the details.
Step Two: Source Your Products
There are a few ways to secure inventory to sell items online. There’s retail arbitrage, wholesale, dropshipping, private label, and handmade. Here’s a breakdown of each option and how they work. Also, keep in mind that you don’t have to be exclusive to one or the other. For example, you may dropship expensive items to cut down on your overhead costs, then use arbitrage to sell high-volume items.
This option is where you find items on clearance at different retail stores (i.e., Wal-Mart) and sell them online for a profit. For example, let’s say you found a batch of toys marked down to $2 each and sold them on Amazon for $6.
You could still make money overall with the company’s various fees. This process is a bit more time-consuming, and you can’t control which items go on sale. However, you don’t have to make products yourself, and you can leverage the “limited quantity” aspect to drive up demand.
In this case, you’re buying products from a company in bulk to resell on Amazon. One advantage of wholesale selling is saving money on individual items, increasing your profit margin. The primary downside, however, is that you might get stuck with a lot of inventory. So, if there’s no demand for the products, you can’t offload them very easily.
This method is popular with Amazon sellers who don’t have a lot of investment capital to manage their own inventories. In this case, you work with a dropshipping company to fulfill orders as they come in.
You’re a middle person between the drop shipper and the customers, taking a small transaction cut. While your overhead costs are minimal, you don’t get to verify product quality before sending it to a customer.
This option is similar to wholesale selling, but instead of selling products with the manufacturer’s branding, you sell them as your own. Private label selling is often worthwhile, but you need to build a relationship with manufacturers to make it work. You’ll have to start with a different method and work up to private labeling.
You can hand-make items to sell on Amazon if you’re a crafty person. While sites like Etsy are more geared toward this niche, you can supplement your other inventory with unique, one-of-a-kind products.
The primary downside of handmade items is that you must spend time and energy making them yourself. However, if you wind up with a winning product, you can look into scaling up your manufacturing options to produce more in less time.
Finally, if you want to know how to sell on Amazon without inventory, you can skip physical items and create digital products. Examples include graphic artwork, e-books, webinars, video content, and more.
Selling digital products works well because you can resell the same item without expensive manufacturing or inventory management. Also, it’s usually much easier to create these items at home.
The challenge, however, is making something valuable enough that people will want to pay to access it. Unfortunately, digital products can be copied more easily, making theft more likely.
Step Three: Determine Your Shipping Method
As we mentioned, once you figure out how to get products, you can mix and match your shipping methods accordingly. Depending on your startup capital, you may need to rely on something more cost-effective upfront (like dropshipping) and then switch to a different method later on.
Let’s break down the top three shipping methods and the advantages and disadvantages of each one.
Since most Amazon merchants use FBA, this option is the most popular and easiest to use. The best part about FBA is that Amazon already has the infrastructure to deliver products to your customers quickly and efficiently.
Also, because Amazon has your items in stock in its warehouses, it can fulfill orders without direct oversight. Customers can buy products, and you can make money without having to view or approve each transaction.
FBA sellers still have to manage inventory on the back end. This usually entails paying attention to how many items you have left in stock and refilling them as necessary. You may also add or drop different products based on seasonality, availability, and demand. Fortunately,
Amazon is good at notifying you of inventory levels, although you might not get updates on product quality. For example, if some items have damaged packaging, Amazon may not tell you about them. In those cases, you’ll only hear from irate customers.
Another advantage of FBA is that Amazon can handle returns and refunds. As with shipping, the company often takes care of these details without seeking approval first. However, this expediency might be a little detrimental when it comes to refunds because it can affect your bottom line.
One last thing to know about being an FBA seller is that if your product is widespread enough to be accessed across Amazon’s warehouse network, you can qualify for Prime delivery.
This option works well because customers want fast shipping, and Prime offers next-day or two-day shipping on almost all products. So, you can deliver more items in less time and build a stronger audience.
- Access to Amazon fulfillment centers
- Faster order fulfillment
- Easier to qualify for Prime shipments
- No direct inventory management
- Automated notifications about low supply levels
- Must purchase and supply inventory for Amazon’s warehouse
- May not be notified about package or product damage
- Competing against Amazon products
If you’re short on cash and need to supply products to your customers quickly and efficiently. Dropshipping offers flexibility and cost savings.
Plus, if you can build a relationship with a high-quality dropshipping company, you can make products on-demand instead of ordering them wholesale and managing inventory.
As with Fulfillment by Amazon, dropshipping allows you to utilize a built-in delivery network to get your products to customers. With this business model, you’re bringing orders to the drop shipping company and getting paid a commission for facilitating those sales.
You don’t have to touch any of the products you sell to make this option work.
The downside is that you can’t verify product quality before selling them to customers. So, if some items are shoddy or broken, you’ll get blamed, and your brand could take the hit. So, you need to take the time to verify your drop shipping companies before creating a contract with them.
- Low startup costs
- Access to more products
- No inventory management
- Faster shipping times
- Easier returns
- No product quality control
- Only access to products available through the drop shipper
- Higher costs per order, reducing your profit margin
Third-Party Logistics (3PL)
3PL companies are very similar to drop shippers, but they can give you more control over your inventory and customer relationships. Working with a third-party logistics company makes sense if you want to take a hands-off approach to selling online. However, the drawback is that you have to pay extra for their time and effort.
One primary advantage of working with a 3PL business is that you don’t necessarily have to connect with drop shippers directly. Instead, you can tell the provider what you want to sell and who you plan to sell to, and they can help fill in the details.
- No inventory management
- Don’t need to find suppliers or drop shippers
- Detailed reporting and analytics
- Adapt your business to the marketplace
- Higher overhead costs
- Lower profitability
Step Four: Start Marketing Your Products
The final step in being an Amazon seller is building your audience and marketing your products effectively. While you can tap into Amazon’s vast user database, the best options are usually to focus on search engine optimization (SEO) and social media marketing.
Since you don’t have inventory, creating sales content (i.e., product photos) can be harder, but you can often find these from manufacturers directly.
When marketing your products on Amazon, be sure to use compelling language and optimize each product listing for SEO purposes. Also, if you’re using third-party logistics companies, you can let them optimize your pages to capture a user’s attention faster.
FAQs About Selling on Amazon
Do You Need a Minimum Inventory to Sell on Amazon?
No, you don’t need to maintain a minimum inventory to sell on Amazon. You won’t have anything if you’re working with a drop shipper. But, keep in mind that if products run out, you’re responsible for telling customers so they don’t expect a package that won’t come.
Can You Resell Products Purchased at a Retail Store?
Yes, reselling is legal on Amazon and other online retailers. However, make sure to remove any packaging that might reflect the retail store from where it was purchased. Also, you may get into sticky situations by selling private label items (i.e., Wal-Mart’s in-house brand).
Do You Need a Registered Business to Sell on Amazon?
No, you can be an individual seller without a registered business to sell products on Amazon.
How Much Inventory Do I Need to Qualify for FBA?
Amazon states you need around 300 to 500 units to qualify for FBA services. The specifics can vary, so it’s best to check with Amazon directly.