• There are an estimated 9.7 million third-party sellers on Amazon selling over 600 million products, according to AMZScout
• Amazon promotes and sells its own brand of products on the platform, such as Amazon Basics
• Amazon has been hosting annual FBA summits in mainland China to teach Chinese sellers how to bypass middlemen and sell products directly on Amazon themself

The only way to be profitable with Amazon FBA in this saturated market is to differentiate your product offer and leverage Amazon PPC advertising to boost product listing visibility. 

If this Reddit post from nearly a decade ago is any indication, people have perceived Amazon as saturated for years already. In that same timeframe, many new sellers have entered the market and generated significant income through Amazon FBA. 

There are many tactics to find selling opportunities and overcome the high competition of Amazon. For example, one 8 figure Amazon seller takes a lower profit margin to attract a higher quantity of sales. Instead of making a 20% profit margin on just 1% of sales, they aim to capture 90% of sales by accepting just a 4% profit margin. 

Even so, many Amazon FBA sellers find that the effort and money required to overcome the high competition on Amazon isn't worth it because profit margins are slim these days. The majority 56% of Amazon FBA sellers make just a 20% profit margin or lower, according to Jungle Scout. An alternative online business model with less competition and higher profit margins is local lead generation. A local lead generation business builds websites that generate customers for local service businesses. You only need to compete for visibility in the search engine with a handful of local business owners, instead of competing with hundreds of sellers like on Amazon. Local lead generation websites can earn upwards of 90% profit margin because website expenses are generally low and each site can generate $500 to $3,000 a month in revenue. 

In the following article, we discuss how Amazon has become saturated and tips you can use to still realize success on the platform in 2024. 

1. Competing Directly with Amazon

Competing directly with Amazon means facing off against the company itself while selling on its platform, which is a huge challenge for third-party sellers. While competing with other sellers is already tough, going head-to-head with Amazon, one of the largest e-commerce companies, makes it even harder. According to a 2022 Jungle Scout report, 59% of sellers use the private label model, the same model Amazon uses for its own brands like Amazon Basics and Amazon Essentials.

Amazon has over 100 private label brands, selling more than 7,000 products. With its massive resources, Amazon can operate with very slim margins, giving it a big advantage over other sellers. Some sellers even claim that Amazon gives its own products better visibility, making it nearly impossible for third-party sellers to compete. Whether or not this is true, competing directly with Amazon’s own brands makes it difficult for many sellers to succeed, leading them to quit Amazon FBA.

2. Chinese Suppliers Dominating the Amazon Market

Chinese suppliers dominating the Amazon market refers to the significant presence of Chinese sellers and manufacturers on the platform, making it difficult for other sellers to compete. According to EcomCrew, 63% of all third-party sellers on Amazon are based in China, and Marketplace Pulse reports that 38% of the top-selling brands are Chinese. Given China’s role as a global manufacturing powerhouse, it’s not surprising that many products sold on Amazon, whether by Chinese or domestic sellers, are sourced from China.

When selling on Amazon, you face two types of Chinese competitors. First, small-scale Chinese sellers can negotiate lower prices with manufacturers due to their understanding of local business practices and the absence of a language barrier. Second, many Chinese manufacturers sell directly on Amazon, cutting out middlemen and operating with much thinner margins than most third-party sellers. This strong competition from Chinese suppliers is a major reason why many people are quitting Amazon FBA, as it’s becoming harder to maintain profitability.

3. Amazon 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.

A Reddit post shares insight into the rising costs of Amazon FBA fees over the years. According to the Reddit user, they compiled a history of FBA fee increases, revealing that while inflation from 2014 to 2024 is around 32%, FBA fees have increased by 60% to 125% during the same period. The user explained they had to do extensive research to gather this data and noted how significantly the fees have outpaced inflation.

4. Selling on Amazon With the Wrong Expectations

Selling on Amazon with the wrong expectations is a common reason why many people quit Amazon FBA. Many sellers expect to make quick money and are disappointed when they don’t see the profits they anticipated. According to Jungle Scout, 37% of Amazon sellers aren’t even profitable in their first year. This often leads to frustration, causing some sellers to give up.

To succeed with Amazon FBA, sellers need a variety of skills, such as product research, finding profitable suppliers, and understanding digital marketing. It takes time and effort to learn these skills and start generating sales. While Amazon FBA can be rewarding for those who commit to the process, it’s important not to expect instant success. Jumping into the business without proper preparation—or quitting a job too soon—can lead to disappointment and failure.

Also, don't jump the gun and quit your job like this guy did before making money. According to a Reddit post, a former Amazon FBA seller shared lessons from their failed business to help others considering e-commerce. The seller’s plan was to buy acrylic paints from China, put their own private label on them, and sell them on Amazon. They even quit a well-paying job, hoping to replace their income in just three months. However, they quickly learned that e-commerce isn’t a fast way to earn passive income, as getting consistent sales was much harder than expected.

A former Amazon FBA seller on Reddit shared several key lessons learned from their failed business. 

5. Global Supply Chain Issues

Global supply chain issues refer to disruptions in the production and shipping of goods, which have become a major reason why people are quitting Amazon FBA. These problems, worsened by the COVID-19 pandemic, have caused delays and increased shipping costs. Many sellers who rely on products sourced from China face unpredictable timelines due to manufacturing delays and citywide lockdowns.

According to Just One Dime, an Amazon FBA consulting company, even if your manufacturer isn’t in a lockdown zone, they often rely on parts from different factories across China. A lockdown in one city, like Shanghai, can affect production in another city, such as Shenzhen. With these ongoing issues and no clear end in sight, many FBA sellers are either looking for alternative suppliers or deciding to leave the business entirely.

Why Do People Still Want to Sell on Amazon FBA? 

1. Strong outlook for Ecommerce and Amazon

A strong outlook for eCommerce and Amazon refers to the expected continued growth of online shopping and Amazon’s dominant role in that expansion. Even though eCommerce growth has slowed since the pandemic, it is still projected to see significant increases in the coming years. According to Morgan Stanley, global eCommerce could grow from $3.3 trillion in 2022 to $5.4 trillion by 2026, and Amazon is expected to benefit from a large share of this market.

2. Lifestyle Benefits of Amazon FBA

The lifestyle benefits of Amazon FBA refer to the flexibility and freedom that sellers gain by using the platform. With Amazon FBA, sellers can enjoy the ability to work from anywhere, set their own hours, and have unlimited income potential, which is a significant draw compared to traditional 9-5 jobs. This flexibility allows sellers to create a work-life balance that suits their personal needs.

In addition, Amazon takes care of many logistical tasks through the FBA program, including order fulfillment and customer service. While there are fees for storage and shipping, many sellers find it worthwhile because it frees them up to focus on growing their business while Amazon handles the operational side. This convenience, paired with the ability to work on their own terms, makes Amazon FBA appealing to those looking for more control over their time and income.

4 New Seller Tips for Starting an Amazon FBA Business2024

1. Start by Learning the Basics of Amazon FBA

Start by learning the basics of Amazon FBA means understanding how the platform works before diving in. For most new sellers, retail arbitrage is the easiest way to get started. With this model, you find discounted products at retail stores or online and resell them on Amazon for a profit. This is a low-risk way to learn selling on Amazon without needingwith no needt investment.

Retail arbitrage helps you understand key elements of the business, like sourcing products, setting prices, and managing inventory. Once you’re comfortable with the basics, you can explore more advanced models like private label or wholesale, which require more capital and experience. Starting small with retail arbitrage allows new sellers to gain valuable experience before scaling their Amazon FBA business.

2. Don’t Rush Amazon Product Research

Don’t rush Amazon product research means taking your time to carefully choose the right product before launching your Amazon FBA business. Simply picking a product from Amazon's best sellers or Amazon's Choice isn't enough. While these can give you ideas, successful sellers go deeper by using tools like Jungle Scout to find products with low competition and high demand.

It's important to identify a niche that fulfills a need and offers something different from what's already available. Before investing money to order products in bulk, you should have clear data showing why your product has a good chance of succeeding in Amazon’s competitive market. Careful research helps reduce risk and increases the likelihood of building a profitable business.

3. Optimize Your Amazon Product Listings

Optimize your Amazon product listings means improving your listings to increase visibility and attract more buyers. To do this, you need to apply Amazon SEO principles, which help your products show up when potential customers search for relevant items. Well-optimized listings increase the chances that the right audience will find and buy your products.

It's also important to have high-quality product images and compelling copywriting. Clear, professional images and detailed descriptions give customers confidence in your product. Listings with these elements consistently outperform those without. 

4. Leverage Amazon Advertising

Leverage Amazon Advertising means using Amazon's PPC (Pay-Per-Click) ads to boost your product’s visibility in the highly competitive marketplace. Since there are millions of products and sellers on Amazon, PPC advertising is crucial for new sellers to get their products in front of potential buyers. Most successful Amazon sellers rely on this strategy to increase their chances of being noticed.

As a new seller, developing an Amazon PPC strategy and refining it based on data is essential for achieving a good profit margin. In the beginning, you might spend more on ads than you make in sales, but this investment can help improve your product’s organic ranking. Amazon’s algorithm favors products with high sales velocity, so having a solid ad budget for a few months can increase your product’s visibility and long-term success.

Conclusion: Why Local Lead Generation Is Less Saturated Than Amazon FBA?

Local lead generation is much less saturated than Amazon FBA because there’s far less competition in local markets. On Amazon, there are over 9.7 million global sellers, with 2 million actively selling. Plus, 64% of them use Amazon’s Fulfilled by Amazon (FBA) service, which helps streamline their logistics and delivery. Competing with millions of sellers, many of whom source products from low-cost manufacturers in places like China, makes it very hard for new sellers to stand out.

With local lead generation, you’re targeting local businesses, which is a much smaller and less crowded market. In the U.S., there are about 31.7 million small businesses, but only a small portion focus on using local SEO or digital marketing to generate leads. This means you have far fewer competitors than you would on Amazon. Instead of competing with thousands of sellers for the same product category, you might only be up against a handful of businesses in your area for top Google rankings.

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.