What is Amazon Drop-Shipping?
One of my first successful business ventures was through Amazon DS (drop-shipping). I first learned about this business model at a meetup in California. It took little to no upfront investment so that was a huge plus for me starting out. In the next few paragraphs, I will explain what Amazon DS is and how I went about starting out.
To understand Amazon DS you first must know what DS or drop-shipping is by itself. Drop-shipping is when you sell a product to a customer and then you purchase that item from your supplier and tell your supplier the customer address to ship it to. During this process you as the seller never have to see or touch the inventory.
So when you drop-ship on Amazon you are simply selling products and then buying them from the supplier who then ships it to your customer.
There are multiple ways to do this but I’m going to explain a super simple way to go about this first….
There are products on Amazon that are priced higher than they are on websites like Wal-Mart, Home Depot, and more… So all you have to do is list a product on Amazon and when your customer buys it, you go buy it cheaper from Wal-Mart and ship it to them. Then you profit the difference.
Sounds simple enough right?
The concept is basic. Sell a chair for $50 on Amazon and buy the same chair from Wal-Mart for $20 to send to your customer.
Now what you have to do is find more products to sell and scale your business. The key to finding good products is understanding Amazon’s ranking system. This is known as BSR or Best Seller Ranking. The lower the rank, the better, so 1,500 BSR is really good and 375,000 BSR is pretty bad. If you scroll down to the product information section on any product on Amazon you can see this ranking. See below for a Toy that is ranked 18 BSR which is extremely good.
In DS, your goal is to find a balance between profitable products and high sales volume. You will often find that the lower the BSR is, the lower the profit margins are. Especially with how competitive this business model is now.
It take lots of time to find good listings. But once you find a listing on Amazon you just press sell now and that’s it. Your listing is live. Some people don’t know this but the majority of items on Amazon are sold by a bunch of different sellers competing in price. So when your listing is live you will have to change your price to stay relevant against the other sellers you are sharing the sales with.
Your goal is to retain the Buy Box. You will hear Amazon sellers talk about winning the Buy Box all the time. This is how you make the most sales. Highlighted in the image below you will see the Buy Box on the right in the orange square. Currently the Buy Box is occupied by seller “Lullaby Baby.” Out of the 12 sellers on the product (note this by looking where it says New (12) from..) “Lullaby Baby” is winning the Buy Box.
You get the most sales when you are in the Buy Box, because most people press that Add to Cart or Buy Now button on the right instead of clicking New (12) from to see the other sellers and pick which one they want to buy from.
So how do you win the Buy Box?
There are lots of factors that go into this and Amazon keeps this a secret but most sellers have a general idea of what will get them into the Buy Box. Often the seller with the lowest price, best ratings, and fastest shipping will win the Buy Box. If there are multiple sellers who are meeting the same criteria they will share the Buy Box as Amazon naturally rotates the sellers in and out of the Buy Box.
As you master the concepts of DS on Amazon and you want to make more money, you will naturally want to scale. So what’s next? To build farther than you can on your own you will need to hire employees. That might sound scary to you but I promise it’s easier than you think. I know someone who scaled this business to 100k in revenue per month (keep in mind margins in DS on Amazon are usually 7–14% average) by themselves but I doubt most of you would want to grind the amount of hours he did…
Have you ever heard of Virtual Assistants or VA’s? They are basically workers who will work remotely for you. There are lots of different types of VA’s but what you want to use for Amazon is a VA from overseas. You can hire a VA for anywhere from $2–4 per hour on average. This is extremely cheap and no you aren’t scamming them. Most people from America hear that and think you are running your business on slave labor haha. But they couldn’t be more wrong. A VA for example in the Philippines would be happy making $3,000–4,000 a year. That is in fact their yearly average. Google it!
The VA I hired first for this business was making $3 an hour and working 40 hours per week. That’s over $6,000 a year which is over the average so that is great work for them and they are happy for it! I will go in depth on VA’s in another article soon.
As you scale this business you will see it is just like running a real business. You as the owner will have to hire and fire employees, manage finances, and more. The experience you learn from this is invaluable. Soon you will have an automated income stream. I have a manager VA who helps out my other VAs who run my Amazon DS store now and it is mostly hands off for me.
This didn’t come without months of me running this store on my own and working long hours (12–18 hr days sometimes) to get to the point where I could understand the business enough to hire someone. You can’t just expect to hire someone right away. If you can’t run the business on your own, how are you going to manage a team?
It sounds simple enough right? Well I’ll warn you right now, it’s not. Amazon is an extremely competitive environment and a hard platform to sell on. I’ll explain more of the problems I’ve had in other articles so you can avoid them.
PS: If you’re wanting to learn more about Amazon, I don’t currently offer a course but would refer you to my favorite by AmazonLit. It’s actually on a higher level business model than drop-shipping and is what I currently do now. If you have any interest in learning about running an Amazon Wholesale business with FBA then here is my link: https://www.esellersri.com/sales-funnelq2eslb51?affiliate_id=3407231
One of the best courses I’ve taken in terms of detailed information that will actually help you grow in this industry. Check them out, even if you don’t use my link!
