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Is Amazon FBA saturated? What recent trends tell us in 2022

August 24, 2022

Market research firm Finbold estimates that approximately 3,700 new sellers sign up to get started selling on Amazon… EVERY DAY. Does that mean Amazon FBA is already too saturated and new sellers stand no chance of success on the platform? Absolutely not. New sellers with the right ambitions can still be successful with Amazon FBA. 

It does mean that selling through Amazon FBA is not as easy as it used to be and as simple as Amazon FBA gurus selling their courses, make it seem. Whereas an online business model like local lead gen is relatively undiscovered and has low competition, Amazon is extremely competitive. If you’re expecting to get rich, let alone make a stable income in a matter of months, think again. 

In fact, many disappointed sellers are starting to quit Amazon FBA. In the following article, we’ll go over some of the most common reasons Amazon sellers are quitting, some tips for new sellers getting started with Amazon FBA, and an alternative online business model that I use to make tens of thousands of dollars in passive income every month

5 reasons people are quitting Amazon FBA

1. Competing directly with Amazon

Competing against other third party sellers is one thing, but having to compete against the largest Ecommerce company in the world on their own platform? Now that’s a whole other ball game! According to a 2022 seller report by Jungle Scout, private label is the most popular business model on Amazon with 59% of sellers using the business model. It’s so popular, in fact, that even Amazon uses it selling products under private label brand names like Amazon Basics and Amazon Essentials. 

Amazon has over 100 of their own private label brands, selling upwards of 7,000 products. As one of the largest companies in the world, Amazon has the resources and ability to operate on the thinnest margins. Furthermore, some sellers even accuse Amazon of foul play and that they position themselves in prime location on the platform. While it’s impossible to say with certainty Amazon is doing that, if we’re being honest, it’s not unlikely.

2. Chinese suppliers dominating the market

According to EcomCrew, Chinese sellers make up the majority 63% of all third party sellers on the Amazon marketplace. Furthermore, Marketplace Pulse highlights that 38% of the top selling brands are based in China. China is absolutely crushing it on Amazon right now, but that’s not surprising. China is the global powerhouse for manufacturing, which is why most products on the Amazon marketplace are sourced from China no matter if it’s sold by a Chinese seller or domestic seller from a high-value market like Amazon US or Amazon UK. 

If you want to sell on Amazon, you can expect to compete with two types of Chinese sellers. There are the small scale third party Chinese sellers like you who can negotiate a superior cost per unit with the manufacturer because they understand Chinese business culture and have no language barrier. Even worse, there are the Chinese manufacturers you may try to source products from, that also sell their own products on the Amazon marketplace directly and can operate on much thinner margins than you. 

3. FBA fees going up, profit margins going down

Although there are various pros and cons to selling through Amazon’s FBA program, the majority 73% of Amazon sellers elect to sell through it. BigCommerce highlights that enrolling in the FBA program increases a seller's revenue by 30 - 50%! Why is that? Online shoppers absolutely hate to pay for shipping, but Amazon Prime members get free shipping in two days or fewer, and the products of FBA sellers are Prime eligible. Plus, if you want to win the buy box over other sellers with the same product, participation in the FBA program is a must. 

However, that Amazon Prime badge on your product listing comes at a cost. Your profit margins are subject to Amazon FBA fees, which only seem to go up as time goes on.

4. Starting with the wrong expectations

Many sellers jump into selling on Amazon with the wrong expectations and either give up or are forced to quit when they don’t make the money they expected to make. According to Jungle Scout, 37% of Amazon sellers aren’t even profitable in their first year of selling. There are many skills required to be a successful Amazon FBA seller, including the ability to do product research, find a profitable place to source products, and an understanding of digital marketing so you can start generating sales. Amazon FBA can definitely be worth it to those who put in the time and effort to learn the necessary Ecommerce skills, but don’t expect it to be easy. Also, don't jump the gun and quit your job like this guy did before making money. 

5. Global supply chain issues

This one shouldn’t last forever, but it’s already gone on much longer than most people expected it to. Global supply chain issues as a result of the lockdowns of the COVID-19 pandemic have caused substantial increases in shipping times and prices. Furthermore, for the majority of sellers that source products from China, it’s even harder to predict when products will be ready as citywide lockdowns affect manufacturing.

Amazon FBA coaching and consulting company Just One Dime explains just how interconnected factory production is in China and how your products are likely to be affected, even if your manufacturer is not in a city where a lockdown is occurring. They note that not all pieces that go into your final product are likely to be made in a single factory. It’s more common that your manufacturer will rely on various factories from across the country to assemble your final product. Therefore, a locked down factory in the eastern Chinese city of Shanghai could affect production time for your manufacturer in the southern city Shenzhen. It’s impossible to predict how much longer this situation will persist, but China’s zero-covid policy is causing FBA sellers to look at alternative sources or quit their business entirely.

Why do people still want to sell on Amazon FBA? 

Despite the challenges, many aspiring online entrepreneurs are still heading to Amazon Seller Central to sign up to start an Amazon business. Without a doubt, there is still plenty of opportunity on Amazon for those who are willing to have patience while they acquire the knowledge and skills to be successful on the platform. 

Strong outlook for Ecommerce and Amazon

Even though Ecommerce growth has slowed from the COVID-19 pandemic boom, it’s still expected to see incredible growth through the 2020s. In fact, investment firm Morgan Stanley makes the case that global Ecommerce could balloon from $3.3 trillion in 2022 to $5.4 trillion by 2026. As the largest Ecommerce platform, Amazon is expected to benefit from a large portion of that growth. Forbes lists three reasons Amazon is likely to continue to gain an even greater share of the global Ecommerce market, which are:

  1. Amazon leads in logistics to put products in the hands of customers faster than anyone else.

  2. Amazon is the default shopping method for many, as consumers often go there first to search for products in the Amazon search engine. 

  3. Amazon provides perks beyond shopping as part of their Prime membership, like access to video streaming in Amazon Video, that create incredible brand loyalty. 

Lifestyle benefits of Amazon FBA

An Amazon seller with an FBA business has enhanced lifestyle opportunities they wouldn’t have with a normal 9-5 corporate job. You have uncapped income potential and can work wherever you want, whenever you want. Amazon even handles half of the work for you in the FBA program as you outsource order fulfillment and customer service to Amazon and their industry-leading logistics and shipping capabilities. Even with a storage fee on each product and the shipping cost from the Amazon warehouse, many people find Amazon FBA extremely worth it because you need to pay for inventory storage and order fulfillment anyway. You might as well allow the best in the business to take care of it for you so you have more freedom. 

New seller tips for starting an Amazon FBA business in 2022

Start by learning the basics with low risk

For most new sellers wanting to get started selling on Amazon FBA, retail arbitrage is the best business model. With the Amazon arbitrage model, you find products at retail stores and online that are selling at a discount to the price of that product on Amazon and reselling it on Amazon for a profit. This is a great way to get your feet wet with Ecommerce before moving onto more complicated and capital intensive models like private label or wholesale. 

Don’t rush product research

If you want to be a successful Amazon seller, you can’t just look at the Amazon best sellers or Amazons choice products, settle on a product category based on your findings and then expect to create a private label product and see immediate success. These are a great starting point to get a product idea, but you should also use a product research tool like Jungle Scout to help you track down the right product. You need to go deeper and identify a niche with low competition and fulfill a need with products that differentiate themselves. Before you use your money to order products in bulk, you should already have clear data that shows why that product has a good chance of succeeding on Amazon’s saturated market.

Optimize your product listings

If you want potential customers to see and click on your product, it’s essential that you optimize your Amazon product listing. Incorporating Amazon SEO principles into your product listings improves the chance that your products will show for the audience most likely to purchase them. Product listings that have high-quality product images and copywriting are always going to beat out those that don’t.

Leverage Amazon advertising

Given that Amazon is a saturated market in the sense that there are millions of products and sellers, almost all successful Amazon sellers use Amazon PPC to get their products in front of potential customers. As a new seller, it’s critical to come up with an Amazon PPC strategy and refine your campaigns with the data you collect over time if you want to achieve a satisfactory profit margin for your FBA business. Many new sellers even have a negative profit margin in the beginning as they spend more on Amazon advertising than they make in revenue in an attempt to improve their organic ranking. The Amazon algorithm puts a major weight on sales velocity, so if you have an excellent product and enough capital to put towards a few months of ad spend, this tactic could work. 

Conclusion on Amazon FBA and a less saturated online business model to consider

Amazon FBA is great and I’ve had success with it and many other online business models like affiliate marketing. However, a few years ago, I stumbled across another online business model that now allows me to generate over $50k in passive income every month. That online business model is called local lead generation. 

When you start a local lead generation business, you are essentially creating a piece of valuable virtual real estate that generates cash by “renting” it out. After experimenting with many online business models, I prefer local lead gen the most because it’s so much less competitive than Amazon, you 100% own your business and don’t have to rely on a third-party like Amazon to generate income, and it’s extremely hands off once you get it established. In fact, I still earn $2,000 every month from a website I setup in 2015 and haven’t touched it since. That’s incredible. 

If you want to create your own passive income business, local lead generation might be a good option for you if you can manage your own time well. However, you may find an FBA business more up your alley if you need more structure in your working schedule to stay focused because Amazon FBA requires more regular attention. 

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Ippei Kanehara
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$52K per month providing lead generation services to small businesses

Ippei.com is for digital hustlers, industry leaders and online business owners.

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