Amazon FBA Is Officially Dead
Look elsewhere for a sustainable business model.
In 2016, I made $200,000 selling iPhone Audio Cords on Amazon, all while working full time as a software engineer.
As a 26 year old, this was life changing money and was my first dance with entrepreneurship — I was hooked.
Some people don’t realize how Amazon works — most products are just sold by people.
You don’t have to be some huge company with millions of dollars to get started.
The business model of Amazon FBA (Fulfilled By Amazon) is simple: find a product to sell, purchase it in bulk from China, ship into Amazon and let them handle the shipping and handling.
I found a supplier in China on the popular sourcing website Alibaba, and after a few rounds of conversations, I wired over some money and my first order came a few weeks later.
I’ll never forget the day the 5 massive crates with obscure Chinese lettering showed up at my house, with thousands of cords inside. It was too good to be true. I was sourcing each unit, with my brand name printed on each item for less than $1/unit. I was then selling each unit on Amazon for $14.95 (The going rate for an audio cord back in 2017.) Amazon took a cut, maybe $3/unit, but the profits were still amazing.
I struck while the iron was hot, and that made all the difference.
Hard Work Won
At the time, I was putting in a lot of hard word, but it wasn’t “difficult” to accomplish. I was confident that I could have taught any one of my friends or family members how to do this. What I couldn’t teach was the drive or how to work hard.
My friends were impressed at my profits and I felt like it was easy to get started.
I even tried to help a few friends out, showing them how to source from China and how to come up with a niche, using Chrome Browser plugins to determine which products have high volume and low competition.
What I learned is that my friends were lazy.
They wanted the success, but they didn’t want to put the work in. I think success in many areas of life is separated by the lazy vs. the hard working
I even walked one friend through the process of selling Oyster Knives on Amazon, an unbelievably profitable niche that we discovered. But I made the mistake of doing all of the work for them. So when it came time to reorder from the supplier, they had no idea what to do.
An Apple Software update destroyed my business overnight, which stopped all 3rd party hardware devices from working.
My entire business model was obliterated in an instant, over something I had literally zero control over.
But that’s not the point of the article, my point is — I wouldn’t be able to replicate my success again now.
There is WAY too much competition, regardless of the category you try to sell in. Better yet, China has upped their game and are continually undercutting American sellers and gaming the system with spammy reviews.
How is a boy expected to compare with that?
Not to mention, you’re beholden to Amazon’s increasing fee structure and you have to pay (per square foot) for storage space at the Amazon Warehouse. So if you ship something into Amazon FBA, they’re making their money off of you whether it sells or not. If your product sits and doesn’t sell, you’ve paid for a product, shipping, and warehouse costs.
Further, if you want to “remove” or get your unsold products shipped back to you, you pay Amazon a fee per product (This fee is the same fee that they charge you for when a customer buys the product.)
If you currently sell on Amazon FBA and you’re profitable, I am genuinely happy for you. That’s amazing.
But it is increasingly more rare. The reason being: everyone has been talking about how easy it is, which has brought on a stampede of sellers to the platform. The only people that are definitely profiting from this are the Chinese Manufacturers, the Shipping Companies, and Amazon.
Ads on Amazon FBA are a whole other story, getting this to be profitable often requires hiring an expert nowadays that knows SEO tricks, which just dips into any profit that may or may not exist. Be careful here.
Everyone And Their Mom Now Sells on FBA
My friend and his Mom actually have an Amazon FBA store. They sell Onion Goggles and used to do quite well.
The idea of any successful business model is being a “first mover” and being there before the rest of the world, that’s where the advantage comes in. Get aboard while the plane is still on the ground, not when it’s up in the air.
The Amazon search algorithm also rewards older accounts, with high 4 star plus reviews with a long history of high volume.
Back in 2017, you could even make decent sales with a fairly bad product idea. I sold items other than iPhone Audio Cords and had high sales from them.
That’s because I chose a “niche” category where there were few sellers and I did well simply due to the laws of supply and demand. I would be on the 10th page if I tried to do that today. The Network Effect of Amazon FBA has already taken off and it’s just not realistic to make a decent income.
There are some people who excel in RA (Retail Arbitrage) and that’s a slightly different story than the Private Labeling I was doing. RA is a tough industry as you’re essentially just looking for an arbitrage in the market where you buy X product and flip it for slightly more. If you have an insane work ethic and make it your full time job, there’s likely success to be had here. But RA doesn’t “scale” in my opinion.
Social Media Let The Cat Out Of The Bag
There are thousands of videos or TikToks where people show you how to “get rich quick” on Amazon FBA. In any “get rich quick” scheme, the only one getting rich is the person you’re buying a course or book from.
I probably should have focused on building tools for Amazon sellers more than trying to be one.
In the California Gold Rush, the only ones to get rich were the people selling the jeans and shovels.
You can’t go on any Social Media platform without seeing someone you know peddling products. I respect the hustle, I do. My point is that it’s unbelievably difficult to start selling high volumes of product at a profit on Amazon FBA now.
I’m sure you’ve seen the videos.
I recently hopped on Instagram and was shocked to see countless users showcasing their Amazon FBA journey in 2020. When I started, it was a smaller group of dedicated individuals. There was literally one guy with a podcast back in 2016 that was talking about it, called The Amazing Seller (Looks like he’s rebranded a bit here.)
The Money Is Now Made Elsewhere
In 2024, I’ll be saying “I wish I had started (X Activity) back in 2020, I would have made a killing.” The opportunities are out there, but the competition has never been so high. Is it Gumroad? Making your own Podcast? What product or service does the world need?
E-commerce obviously isn’t going away. It’s just harder for the little guys to succeed in the industry now. But if you’re doing what everyone else is doing, it’s time to take a good look in the mirror.
With the advent of Shopify and Etsy, it’s never been easier to sell your own products. It’s this incredibly low barrier to entry that has been making the competition sky rocket.
I think there’s a lot of value in getting off any one platform. If your entire income is based off a single website or system, and they change up the rules on you or become increasingly greedy with their fee structure — there’s nothing that you can do. You must take control.
Also, try to stay away from receiving your income on PayPal. They’re famous for locking up funds and giving people zero reason why. There’s something unsettling about the endless stories I’ve heard about how sketchy PayPal is and their lack of transparency. Try to instead go direct into your bank account, or use Stripe.
My goal now is to find what Amazon FBA was back in 2016. A highly profitable industry that’s not over saturated, where merit, creativity and hard work are rewarded.
I hope you were able to learn something from my story.