Is Amazon FBA a pyramid scheme? Although there are some scammy activities involving Amazon FBA, like people exaggerating its income potential for their own economic benefit, Amazon FBA itself is not a pyramid scheme. Amazon FBA is a service that is trusted by small business owners and large enterprises like The Disney Store alike to support Ecommerce activities. There’s a lot of work involved in running an Amazon FBA business, but it can pay off in a big way if you have realistic expectations and follow the right steps. In the following article, we discuss how you can avoid being scammed with Amazon FBA and what you should do if you want to make millions of dollars as an Amazon FBA seller like Tim Sanders of the Private Label Masters course.
What is a pyramid scheme?
A pyramid scheme is a business model or investment structure that produces income primarily by enrolling others into the scheme instead of supplying investments or selling products and services. A pyramid scheme works by charging new members a fee to participate and then filtering the money up to more senior members of the scheme. Therefore, members make money by recruiting new members into the scheme. However, because a pyramid scheme doesn’t actually provide anything of value, it eventually collapses and leaves the majority of participants at a loss. People who join a pyramid scheme early tend to make a lot of money, which is how they can attract more members to join the scheme by promising unrealistic returns.
Pyramid schemes are illegal in the United States and many other places because they are a type of scam that causes harm to society. An example of a pyramid scheme is Wealth Pools International. Wealth Pools International was a product-based pyramid scheme that claimed to sell English and Spanish language DVDs. However, participants primarily profited by selling a set of these DVDs to new participants, because new sales associates were required to obtain a set of DVDs themself in order to join the program. The Wealth Pools International pyramid scheme ended up costing participants around $132 million in 2007 alone, according to the US SEC.
Is Amazon FBA a pyramid scheme?
Amazon FBA is not a pyramid scheme. Amazon FBA is a completely legal business opportunity that entails selling products through the Amazon marketplace while leveraging Amazon’s efficient logistics systems to support fulfillment. Amazon FBA is a scheme that helps business owners to be successful Ecommerce sellers by allowing Amazon to handle tasks like inventory storage, picking and packing products, shipping, customer service, and returns processing for them. Unlike a pyramid scheme, current Amazon sellers do not make money through Amazon FBA by recruiting new sellers into the program. Amazon FBA sellers only make money by selling real products to customers on Amazon.
Is Amazon FBA legit?
Amazon FBA is legit. Amazon is the largest Ecommerce company in the world and they have served millions of third party sellers through the FBA program since it began in 2006. It’s not uncommon for people who first hear about Amazon FBA to question whether Amazon FBA is real or fake because they find it hard to believe anyone can start selling on Amazon and have Amazon do a large portion of the work for them. Although it’s certainly not as easy as it sounds, many businesses, both large and small, make money selling through the FBA program.
Amazon FBA is real. Anyone with a product to sell can signup for Amazon FBA on Amazon Seller Central, send their product inventory to Amazon, and allow Amazon to ship out the products to customers as the orders come in.
3 Reasons people can mistake Amazon FBA for a pyramid scheme
1. Amazon sellers pay to join the FBA program
A telltale aspect of a pyramid scheme is paying for participation, and joining the Amazon FBA program requires payment, too. An FBA business needs to pay a $39.99/month professional seller fee in order to post products for sale on the Amazon Marketplace. Furthermore, participation in the FBA program requires a range of Amazon FBA fees, like storage fees to store products in Amazons warehouse.
However, all these Amazon fees are attributable to the services Amazon performs for you in the FBA program. This is distinct from a pyramid scheme where the fees are charged solely for participation in the program without actually providing anything of real value in return. Amazon FBA definitely exchanges something of value in return for the fees that are charged. They provide a digital marketplace with active customers, many of which are Amazon Prime members ready to spend a lot, and then storing and fulfilling product orders to those customers on behalf of FBA sellers.
2. Many current Amazon sellers are over-promoting the FBA program
In order to recruit more members, pyramid schemes commonly make outlandish claims about the profit potential of the opportunity they present. Similarly, there are many Amazon FBA gurus that also make outlandish claims about how much you can make selling on Amazon in a short period of time. However, these Amazon FBA gurus you see all over the internet are not actually associated with Amazon the company itself. Instead, they are heavily promoting Amazon FBA for their own financial gain. They are likely doing affiliate marketing for a specific Amazon FBA course or Amazon FBA-related tool like Jungle Scout. They may also be promoting an Amazon FBA course that they have created themself.
About two years are needed to start and run a successful Amazon FBA business. This is if you start with at least $10,000 in startup capital and continue to reinvest your profits to scale your business. Anyone claiming you can start making 5-figures within a matter of months on Amazon FBA with no prior experience is exaggerating, likely for their own financial gain.
3. Amazon automation services promise passive income through Amazon FBA
Another Amazon FBA-related opportunity that often comes with claims of unbelievable profit potential is Amazon automation. Amazon automation services like Wifi Wealth by Jerrika Cox manage Amazon FBA businesses to generate passive income for investors. These services typically require that you pay between $10K and $50K to have a team of Amazon FBA experts run an Amazon store for you. Some of these services even require that you provide them with your credit card to purchase inventory on top of the price.
However, there is a lot of controversy surrounding these Amazon automation services. They make lofty promises about income potential to attract investors, but in reality many investors don’t even recoup the money from their investment. For example, the Amazon automation service called DK Automation by Kevin David Hulse and David Shawn Arnett was shut down by the FTC and ordered to return $2.6 million to customers on November 16, 2022. According to the FTC, DK Automation promised to generate passive income on autopilot, but few investors actually made money. The true monetary judgement of the court order was a whopping $53 million, but this was partially suspended due to the company’s inability to pay.
What is the best way to learn all about Amazon FBA without being scammed?
The best way to learn all about Amazon FBA without being scammed is by taking a highly rated Amazon FBA course. There are a range of Amazon FBA courses for beginners that can teach you different business models like private label or retail arbitrage from Amazon sellers with proven success. Of course, if you want high-quality free information, you can also check out our step-by-step guide on how to sell on Amazon FBA in 2024.
Can you actually make money from Amazon FBA?
You can really make money selling on Amazon FBA. According to the 2023 State of the Amazon Seller report by Jungle Scout which surveyed over 2,600 Amazon sellers, 88% of Amazon businesses are profitable. You can earn over $50,000,000 from Amazon FBA, considering that 1% of the respondents Jungle Scout interviewed reported earning this amount in lifetime profits. However, a more realistic figure is between $0 and $500K in lifetime profits, as the majority 54% reported having earned this amount from Amazon FBA. Amazon sellers make between $0 and $2,500 a month. That’s considering that the majority 54% of Amazon sellers make between $0 and $10,000 in monthly revenue and that the majority 55% earn a profit margin of between 11% and 25%.
Is Amazon FBA hard?
Amazon FBA is hard. Amazon FBA does not do everything for you. Amazon handles many aspects of an Ecommerce businesses like shipping and customer service, but the Amazon FBA seller needs to take care of the most difficult and most important aspects of the business, which are finding actual products to sell and keeping the Amazon business profitable. Amazon FBA fees can really eat into your profit margins, so an FBA seller needs to remain diligent in calculating profits, which can be challenging as there are often unforeseen fees. For example, you pay monthly storage fees to keep your product inventory in the Amazon warehouse. However, if you estimate incorrectly how long you expect the products to remain there, a product that you thought was a profitable product can quickly turn unprofitable if it stays in the Amazon warehouse for an extended period and accumulates too many of those storage fees.
Amazon FBA is also extremely competitive, with nearly 2 million active sellers competing for Amazon sales, most of which go through the Buy Box. For sellers that share an Amazon product listing, the Amazon Buy Box is the seller that automatically gets added to the customer's cart. These are just a few of the reasons selling on Amazon FBA is hard.
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Conclusion
Amazon FBA is considered to be one of the best online business opportunities. However, it’s not as easy as many FBA gurus make it out to be. It requires a substantial investment of both time and money. Amazon FBA is not passive income. If you want to build a successful Amazon FBA business, it takes at least a year or two of putting in solid hours each week to work on your business. Sure, over time you could set up your business to make a passive income for you by hiring a team to carry out all the tasks that Amazon FBA doesn’t already handle, but your business would need to be making a considerable amount of profit before that would be feasible.
An alternative business model with much higher profit margins that can generate passive income much faster than Amazon FBA is local lead generation. A local lead generation business builds websites that attract customers for local service businesses. These websites only cost a few hundred dollars per year to maintain at most, but can generate between $500 and $3,000/month in revenue. Furthermore, once you set these websites up and find a client to send the leads to, the business usually maintains itself, so you generate passive income. There are a lot of scams on the internet, but both Amazon FBA and local lead generation are legit opportunities that you can use to make a living online.
