Selling on Amazon Can Widen Your Customer Reach and Build Sustainable Income
Fact checked by Vikki VelasquezReviewed by Andy SmithFact checked by Vikki VelasquezReviewed by Andy Smith
More than 60% of sales on Amazon involve independent sellers, most of them small and midsize businesses, the ecommerce giant says. If you’re looking to become an Amazon seller—as either a new business or a new sales channel for an existing business—here’s what you need to know to do it successfully.
Key Takeaways
- Almost anyone can become an Amazon seller.
- Amazon offers two sales plans, with different price levels and sets of services.
- In addition, Amazon charges a referral fee on every sale as well as fees for optional services, such as advertising.
- Amazon also provides a lot of free information for sellers on how to build a successful online business.
What Do You Need to Become a Seller on Amazon?
To sell on Amazon, you first need to be a resident of one of the countries listed by Amazon on its registration website. The list includes many, if not most, of the countries in the world, with certain exceptions. For example, as of July 2024, the website says, “We are currently not accepting registrations from Russia or Belarus.”
You will also need to have a valid phone number and an internationally chargeable credit card.
In addition, Amazon has a variety of account registration requirements that vary by country, as we explain below under “Create an Amazon Seller Account.”
How to Sell on Amazon
Selling on Amazon is a relatively straightforward process, and the company explains it in great detail on its website. Here are some basic steps you’ll want to consider.
1. Create a Business Plan
As with any type of business, it’s helpful—and often essential—to have a well-thought-out business plan before starting to sell on Amazon. If you currently own a business, you may already have a business plan in place. In this case, you’ll want to think through how adding Amazon as a sales channel will complement your existing channels.
In general, your business plan should include details on:
- The products you plan to offer and any competitive advantages they might have over similar products already available on Amazon
- How you intend to source those products (manufacture them yourself, hire another company to make them for you, buy existing products from a wholesale supplier)
- Financial projections (taking into account Amazon’s fee structure, discussed below)
2. Find a Profitable Niche
If you’re an Amazon shopper, you have no doubt noticed that virtually every product imaginable is available for purchase on the site, with the exception of some that are forbidden by law or by Amazon’s own rules. Not for nothing was a popular book about Amazon titled “The Everything Store.”
Even so, some categories are more popular than others. As of 2022, Amazon says, the top five product categories for independent sellers were:
- Heath and personal care
- Beauty
- Home
- Grocery
- Apparel
Would-be sellers can draw a couple of conclusions from that. On one hand, those are the categories that draw the most buyers, suggesting a large potential market. On the other hand, they also may be the categories where sellers will face the most competition.
Finding your niche on Amazon will require some market research and probably some trial and error along the way.
3. Do Your Market Research
In addition to the many other market research tools available both online and offline, Amazon offers some exclusive ones. For example, its Product Opportunity Explorer provides data on what customers are searching for on the site, the products currently available there, and how well they are selling.
Note that Amazon prohibits the sale of certain products, specifically those that are illegal or unsafe, or that require a prescription. It also maintains a lengthy list of products it refers to as “restricted.” If a product is on that list, the seller may need to receive preapproval from Amazon before listing it for sale. Among the categories with restricted and/or prohibited products are alcohol, explosives, human parts, medical devices, and “offensive and controversial materials.”
4. Find a Product Supplier
Unless you are making your products yourself, you’ll need to line up a supplier that can provide them. You have two basic options: Hire a manufacturer to produce them to your specifications, often referred to as white label products, or buy products that are already being produced from a wholesaler.
Working with a wholesaler is probably the easier of the two options, unless your business plan calls for offering totally new or unique products. Wholesalers are middlemen that typically buy products directly from manufacturers in large quantities, then sell them to retailers who, in turn, make them available to the public.
“If you want the flexibility to select products for your business instead of working directly with a manufacturer, consider working with a wholesaler,” Amazon suggests on its website. “Wholesalers already have products for you to choose from, so you don’t have to handle product development or obtain raw materials.”
5. Place an Order with Your Supplier
Ordering from suppliers should become easier over time as you learn more about the demand for your products, whether they sell better at certain times of year, and so forth.
Initially, though, you’ll want to give some careful thought to the quantity of products you order, based on how many you can reasonably expect to sell and other practical factors, such as whether you have the space to store them in the meantime.
Many wholesalers have minimum order requirements and provide discounts if you order more than a certain number. As Amazon points out, “With wholesale, the goal is to purchase enough to benefit from the wholesale discount, but avoid ending up with more product than you can distribute.”
6. Create an Amazon Seller Account
Amazon offers two types of seller accounts: individual and professional. The major difference between the two is their fee structure, although professional accounts also provide some additional services.
With an individual account, you pay Amazon 99 cents each time you make a sale. With a professional account, you pay $39.99 a month regardless of how many sales you make. If you sell 40 or more items a month, the Professional option makes a lot of sense.
To open either type of account, you’ll need to supply the following in addition to your name and email address:
- A bank account number and bank routing number
- A chargeable credit card number
- A government-issued national ID number
- Certain tax information
- Your phone number
In addition, there are specific registration requirements that can vary from country to country. In the United States, for example, Amazon says, “You will also need to go through an online step-by-step interview that will determine whether you will need to complete a W-9 form (as a U.S. taxpayer) or a W-8BEN (as a non-U.S. taxpayer)…. You might also be required to provide additional documentation such as scanned copies of a passport, national ID, bank account statement, or credit card statement.”
If you decide at some point that you want to switch from one type of account to the other, you can always do so.
In addition to the monthly or per-item account fees mentioned above, Amazon charges a “referral fee” on each sale. The referral fee is a percentage of the sales price and varies by product category: consumer electronics vs. clothing and accessories vs. lawn and garden, for example. In many categories, the referral fee is 15%, but it can be as low as 3%, in one instance, or as high, also in one instance, as 45%. In all but a few categories, there’s a minimum referral fee of 30 cents.
Another expense to keep in mind, though optional, is advertising fees. Advertising on Amazon provides more prominent placement on the site and greater visibility to potential customers.
According to the U.S. Federal Trade Commission (FTC), which is suing Amazon, the advertising fees “have become virtually necessary for sellers to do business.” The FTC alleges that, “Combined, all of these fees force many sellers to pay close to 50% of their total revenues to Amazon. These fees harm not only sellers but also shoppers, who pay increased prices for thousands of products sold on or off Amazon.”
The FTC, which was joined in its September 2023 lawsuit by 18 state attorneys general, accuses Amazon of being a “monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.” The case was unresolved as of March 2024.
7. Create an Amazon Product Listing
To begin selling on Amazon, you need to create a listing for each of your products, using a behind-the-scenes portal on the Amazon site called Seller Central.
Amazon has very specific requirements for the information you’ll need to supply in your listing, such as a product identifier (for example, a UPC, ISBN, GTIN, or EAN code) and a SKU number to track your own inventory, as well as a description of the product and its price, shipping options, and other details. Amazon also provides technical specifications for any images you want to include.
In addition to the basic requirements, Amazon offers a lot of information on best practices for seller listings with guidance on what works and what doesn’t.
8. Manage Inventory
You have several options for handling your inventory when you sell on Amazon. One is to take advantage of (and, of course, pay for) Amazon’s inventory and fulfillment services, in which your products are stored in an Amazon warehouse and shipped from there to your customers. Amazon says it has more than 400 fulfillment centers and other facilities, adding that “Many centers span the equivalent of 28 football fields and can hold tens of millions of items on any given day.”
You can also handle the storage and shipping of your products yourself, if you have the time and other resources to do so.
Whichever option you choose, managing your inventory requires striking a balance between maintaining a too-large inventory of a particular product (much of which may never sell) and not having enough of it available to ship out promptly (disappointing customers and possibly leading to negative reviews). Amazon has a number of tools available for keeping track of your inventory and reordering if supply starts to run low.
9. Advertise and Optimize Your Listing
Amazon will—for a fee—help advertise your listing to get it greater exposure. There are also things you can do to optimize your listing and draw more traffic to it.
Here again, the Amazon website has an abundance of advice. For example, “Product titles are a great place to use the primary keywords,” Amazon says. The title should also begin with the product’s brand name (if it has one) and ideally be about 60 characters long. Items are best described in clear and concise bullet points, preferably no more than five of them. And so on.
Amazon also has a variety of tools for assessing your listings, such as its Manage Your Experiments tool, which allows for A/B testing—creating differently worded or designed listings for the same product and seeing which is most effective.
Do I Need Money to Become an Amazon Seller?
Selling on Amazon can be more economical than opening a store or building your own ecommerce website, although it also means giving Amazon a cut of your revenue. There’s no upfront investment beyond the cost of your inventory.
How Much Does a Typical Amazon Seller Make?
According to Amazon, U.S.-based sellers had average sales of more than $250,000 in 2023. Of course, that average encompasses everything from part-time, one-person operations to big corporations that use Amazon as a major sales channel.
Do You Need an LLC to Sell on Amazon?
No, anyone can become an Amazon seller as a sole proprietor. Sellers might want to start a limited liability company (LLC) to protect their personal assets from lawsuits, but it’s not a requirement.
The Bottom Line
Selling on Amazon is a way to start and run a business or expand an existing one by adding Amazon as a sales channel. It isn’t free, however, so would-be sellers should take a close look at all of the costs involved.
Read the original article on Investopedia.