A Guide on How to Sell on Amazon Without Inventory
Getting started as an FBA Amazon seller can seem daunting at first. For those who do not have an established e-commerce business but want to enter the world of selling, the question is: how to sell on Amazon without holding inventory in-house? The good news is in today's world of online retail, it's actually less stressful than you may have thought to start your own inventory-free home based business. Today, we'll focus on the main methods: FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant).
Fortunately, the Amazon FBA platform is set up to help an Amazon seller at any point in their business journey. There are ways to sell on Amazon without having any in-house stock, plus there are several tools and reports to guide you on what selling option might work best, the pros and cons for each, and how to source and price products for your Amazon store.
In this article, we outline several options for operating your Amazon business without holding inventory in-house. Continue reading to understand how to sell products online without inventory to reach your e-commerce business goals.
Comparing FBA vs. FBM
In the world of e-commerce, there are ways to build a brand without holding any stock yourself. Amazon sellers have the option of being an FBA seller (Fulfillment by Amazon) or a FMB seller (Fulfillment by Merchant).
Amazon FBA involves the individual seller sending products directly to Amazon’s warehouse. These products can be sent from the seller’s home, storage source, or directly from their chosen supplier. Amazon then manages all storage, packaging, shipping, and customer support.
Alternatively, FBM sellers list their products on Amazon but manage all logistics, including storage, shipping, and customer support themselves. There are certainly pros and cons for each of these options. However, once a company begins to grow, outsourcing logistics to a third-party allows you to focus more time on product sourcing, marketing, and growing your business.
How FBM Works
In order to scale and establish a smooth operational workflow for your ecommerce store, there are two ways to handle shipping and handling as a FBM seller. The first is by working with a third-party fulfillment center and the second is choosing to dropship products instead.
Navigating Third-Party Fulfillment Centers
Third-party fulfillment centers offer outsourced product management programs where a company stores your stock, packs orders, and handles the shipping, tracking, and customer service process. This option is best for sellers who are not selling merchandise from their home, or sellers who have expanded beyond their home operations and require additional help to manage high order volumes.
Although there are several local and regional fulfilment centers to meet your needs, Amazon FBA is by far the most popular option, due to its brand notoriety, reliability, and in-depth resources.
Pros and Cons of Third-Party Fulfillment Centers
Most companies benefit from selling products online with third-party fulfillment centers, particularly if they anticipate a high sales volume during a certain time of the year. Also, companies experiencing rapidly increasing year-over-year growth may find their current infrastructure isn’t able to keep up with demand and seek out a fulfillment center as a solution. Another benefit of using third-party fulfillment centers is that it limits the time sellers have to dedicate to logistics and frees it up to focus on other parts of growing an Amazon FBA business.
The cons are that you’ll have to be ready to relinquish control to the fulfillment center, as they will be in charge of all logistics. It also takes an upfront investment to maintain storage and service costs. However, the pros well outweigh the cons when you’re in the position of growth and scaling your online business. Being able to sustain customer demand and a high quality of service is essential to your business, and is better maintained through Amazon FBA.
Dropshipping allows you to fill customer orders when you don’t own or carry the product. When your store sells products online using this model, you purchase the item directly from a supplier and have it shipped directly to the customer.
As the seller, you neither own the inventory nor store it, as with using a third-party fulfillment center, but rather purchase the product as needed to fulfill customer orders. Amazon allows you to dropship products, as long as certain criteria are met as per the terms of the seller agreement.
Essentially, you must always be identified as the seller of record for the products and remove all third-party seller/supplier information from any packaging or invoices that are sent to customers. Plus, it’s your responsibility as the dropshipper to accept and process any returns, an area that’s taken care of when choosing the fulfillment center route.
Pros and Cons of Dropshipping
Dropshipping offers several benefits. First, you can maintain lower overhead costs since you aren’t storing or shipping the products. Second, the starting costs are low, since you don’t need to invest in facilities or buy inventory prior to selling. Since you don't own or carry the physical product, this also means you won't be dealing with any excess inventory.
Dropshipping also allows you to sell through multiple sales channels including Amazon, your e-commerce website, or social media such as Facebook Marketplace to better reach your customer base. Also, because all transactions and logistics are handled online, it allows you to operate your business from virtually anywhere, giving you the flexibility and scalability to build a business at your own pace.
On the other hand, cons include competition, fulfillment timeline, and inventory management. Since dropshipping is a low-cost investment, it’s also a popular option for many sellers who want to enter the e-commerce space. This competition can make it harder to source products, may force you to lower prices to stay competitive, and make it hard for shoppers to distinguish your merchandise from other sellers.
Additionally, dropshipping doesn’t allow you control over your timeline in terms of when items will be selected, packaged, or shipped. There’s also lag on real-time updates on available stock, which can be discouraging for customers if your store is consistently out-of-stock or slow on delivery.
How FBA Works
According to Jungle Scout’s 2021 State of the Seller Report, 92% of Amazon sellers use FBA, either selling through FBA alone or in combination with FBM. Only 9% of Amazon sellers rely solely on FBM.
Simply put, Amazon defines its FBA program as “you sell the item, we ship it.” The FBA program works by storing your products in Amazon fulfillment centers, where their associates then pick the items as they’re sold, pack and ship them, and provide any customer support necessary.
Amazon FBA also helps sellers succeed through its various tools and perks, including fast, convenient shipping, global recognition of the Amazon brand, and in-depth reporting. For sellers wanting a comprehensive solution for their e-commerce brands and access to Amazon Prime customers, FBA is the way to go.
How Amazon Fulfillment Centers Manage Amazon FBA Inventory
There are several methods that will assist you in finding the types of products your customers are most interested in and price them to be competitive with others online. Our 5 Best Tips for Sourcing FBA Inventory blog post covers an in-depth look into how to build a successful inventory model through finding reliable suppliers and identifying product trends to maximize profits. It all starts with determining the best method of sourcing, which may include retail arbitrage, buying wholesale, and through an online marketplace.
Retail arbitrage involves buying products at discount from retail stores and reselling them on Amazon for a profit. With this method, sellers hunt clearance and liquidation sales where retail prices are dropped significantly on items that can then be sold for a profit. Though this process can be time-consuming, it is one of the more cost-effective methods of sourcing FBA inventory, because it doesn’t typically require buying in bulk. This is a good method for those first starting out in the Amazon FBA space to get an idea of the program and services work.
Buying wholesale involves buying a large volume of products at a discounted price directly from the manufacturer. The key is to find reliable suppliers you can build long-term relationships with to create a steady flow of supply and demand for your customers. Rather than having large order amounts directly shipped to your home or office, you can have them shipped and stored at an Amazon fulfillment center, where all logistics are handled.
When using this method, it’s important to integrate Amazon inventory management tools to track sales and forecast product popularity to make purchasing decisions. In addition to the built-in tools available through Amazon FBA, there are other online tools that can integrate with your sales channels, such as Sellics.com, JungleScout.com, and InventoryLab.com. Each of these allow you to see the balance of goods coming and going out during any given time period.
Another method of sourcing FBA inventory is through online marketplaces, like Alibaba.com. As with buying wholesale, this method involves buying in bulk at discounted prices from online marketplaces overseas. Some of the most visited are ThomasNet, IndiaMart, and eWorldTrade. When performing product research and sourcing through these online markets, it’s important to be aware of possible counterfeit goods. Consider the pricing and quality of items as you source products and monitor customer service responses to gauge satisfaction.
Profiting from Amazon FBA
Deciding how to sell on Amazon without inventory depends on what stage of your business you’re in and how quickly you want it to grow. At Forum Brands, we buy Amazon FBA businesses and build them into world-class consumer brands. We offer passionate entrepreneurs fast and efficient payouts equaling years’ worth of profits based on their e-commerce business valuation. Part of the criteria to qualify includes having a business that receives 70% or more of sales through Amazon FBA with at least $200K in net profit in the past year.
By delegating logistics to Amazon FBA, it gives you more time and resources to strategize for growth. No two journeys are exactly the same, but if your end goal is to sell your Amazon business, it requires establishing a strong operational foundation and then optimizing and scaling it to maximize the profit margin.