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In recent months, we have seen a large surge of investors new to e-commerce under the impression they can run an FBA business using a credit card, line of credit, etc. What’s worse is we’ve seen other agencies continue to feed these lies to investors and once the business starts, it comes crumbling down quickly. We wrote a blog on using credit for FBA and why it’s a very bad decision to do so. The full article can be found in the “News” section of our website. For your convenience, a summary is below:

From the moment you pay for a product, it can take up to 15 days for it to reach Amazon’s fulfillment center and be active for sales. It is impossible to sell out of all FBA inventory, have each order deliver, wait a few days to receive the payout from Amazon, and pay off a credit card bill all in the remaining 15 days until your statement is due. 

The average Inventory Cycle is about 6-8 weeks. From the moment you pay for inventory, you should expect to fully realize the ROI within 30 days of the product reaching an Amazon fulfillment center (estimating a 30 day sellout time, plus 1-2 weeks to receive the last payment).

You do NOT want to pay interest on a Wholesale Purchase which is why FBA is a cash based program. You will pay for inventory by sending wire transfers directly to brands. 

Rare exceptions to this are outlined in the article.

To scale an FBA business, we require a minimum of $20,000 in operating cash, however we aren’t starting the business off with a $20,000 inventory purchase.

First, we need to verify analytics to make sure we have accurate sell out times, then start to scale. The first few months we are ordering a large variety of small batches of products. Every store gets at least a dozen products to start. Larger stores can get up to 2-3 dozen products

Once we verify analytics with these small batches, we can test more products and repurchase previous inventory in larger quantities. At the end of every inventory cycle, we are reinvesting that capital back into the business to reorder inventory so the store can grow organically.

Below is your estimated inventory spend per month during each phase of your business. Remember you can reinvest capital from previous months back into your business:

Operating Budget

Months 1-3: $5000 Minimum

Months 4-6: $10,000 Minimum

Months 7-9: $20,000 Minimum

*This does not include initial start-up cost

In almost all cases, only products fulfilled by Amazon themselves have Prime Shipping. In FBA, we are ordering products wholesale and delivering them to an Amazon facility to Amazon can fulfill each order, hence the name FBA (Fulfilled By Amazon). All products sold in this program are eligible for Prime shipping.

FBA is a bit slower to scale compared to dropshipping due to the nature of a wholesale business model. We need to wait for shipments to deliver to the proper warehouse, product prep, and Amazon must process the inventory before its active for sale.

The plus side of this is we get a larger ROI as mentioned below, but it also becomes a more stable business compared to dropshipping. Since we have guaranteed inventory, it’s impossible to sell “out of stock” products and since Amazon is handling 100% of fulfillment, they take full responsibility if products are damaged in transit, delivered to the wrong address, etc. You don’t get the same protections in dropshipping as you do with FBA.

When you purchase inventory, you take on inventory risk. There is no way around it, however we can mitigate this risk in multiple ways.

1. Contract Terms: Each contract we open for your business includes clauses which allow is to either return products, sell to brick and mortar locations, liquidate on other marketplaces, sell to other Amazon sellers, and more. We never have clients sit on inventory that doesn’t sell.
2. 30 Day Sell Out Time: At no point in time will your business have more than 30 days worth of stock. By limiting inventory to 30 days worth, we can easily adjust and scale up or scale down products as needed.
3. Each product has over 24 points of analytics we review to ensure we mitigate risk as much as possible. These analytics are shared with you inside of the Client Portal before every purchase.

FBA is the most stable form of fulfillment. We are purchasing a set amount of inventory and this inventory is counted and logged upon shipment from the distributor, entrance into our facility (if product prep is needed), leaving our facility (if product prep is needed), and Amazon does a final inventory count before making the listing active.

It is impossible to oversell inventory or not have enough stock for orders. Returns and customers service are handled 100% by Amazon. If your customer has any issues, they will be instructed to contact Amazon Customer Support directly. With Amazon handling this part of the business, it creates stability in the model and makes it sustainable long term.