In short: yes Amazon FBA is still profitable in 2022, but it's getting more competitive as 4000 new sellers join every day. Old tactics of selling generic products, is not working as well as it did 5 years ago. But Amazon grew from 100 million prime users in 2018 to 200 million prime users in 2021. Their revenue was $280 billion in 2019, now it grew to $386 billion and half of their revenue comes from 3rd party FBA sellers, so with the right strategy, you can still profit from Amazon FBA.
In this article, we'll look at why & how the landscape of FBA has changed, and what you can do to stay profitable in 2022.
Top 6 Reasons FBA Became Unprofitable for Some Sellers
Before we look into strategies, it's important to see all the factors that's causing this business to be more challenging in recent years.
1. Amazon Increasing Seller Fees
Amazon has been increasing their fees each year, and they justify it by saying that their operations cost is going up as they scale their business.
3rd party sellers are already on slim margins, any percentage increase in fees can be a big deal.
2. More Sellers
4000 new sellers joining everyday means if you don't have a competitive advantage, someone can source the same product as you, and undercut your prices.
3. Suppliers & Brands Joining the Game
In the last few years, we're seeing huge uptick of Chinese suppliers doing FBA themselves and cutting out the middleman. They've killed many niches because they can operate on the slimmest margins.
Even big brands are getting on Amazon, which is cutting out the wholesalers.
4. Amazon Has Started Their Private Label
In the last few years, Amazon has increased their focus on their private label brand: Amazon Basics. It's becoming a big issue for many FBA sellers, as they claim Amazon is not playing fair.
Look at this Quora post:
5. Expensive Shipping Costs because of the Pandemic
Many sellers have halted their operations as they're seeing 3-4x increase in freight costs, largely caused by the pandemic.
6. Account Suspension is Happening More Frequently, Especially for Dropshippers & "Amazon Automation"
As the number of sellers increase, Amazon is handing out Account Suspension much more frequently, & why should they be lenient? They have more than enough sellers.
For starters, Amazon does not like drop shippers. Basically selling products on Amazon without ever buying inventory. Only after you get a sale, you put in the order to a supplier that's got cheaper prices and have them ship directly to the customer.
According to Amazon's dropshipping TOS, they don't like any products that show another company has shipped it, and not from you, because this causes confusion to the customer. This, along with few other reasons, causes a lot of suspensions for drop shippers.
There are still some loopholes, but Amazon is really cracking down
Beware of Amazon Automation
Beware of these "Amazon Automation" companies that charge hefty $30K upfront "set-up" fees because they're running this dropshipping model and many people are losing money on their investment because of suspensions.
Words like "automation" or "done-for-you" should raise red flags. There's usually a Catch 22, anytime a company tries to sell you a dream that you can own a business without putting in the work.
3 Reasons You Can Still Be Profitable
Despite the rise in competition, this biz model is not dead yet. Here are some facts & stats to show that.
1. Amazon Doubled It's Subscriber Base in 3 Years
50% of all online e-commerce sales happen on Amazon.
Every $1 spent online, $0.45 is going to Amazon.
So despite increasing sellers, there is also a huge increase in demand.
2. Ingenuity Will Always Have Competitive Advantage
Yes, if all you do is sell products you found on Alibaba then its only a matter of time before another seller or a supplier sells the same product and undercut you.
However, if you're creative enough to create an attractive brand, bundle different products together, or innovate on a product. It gives you competitive advantage to remain profitable longer.
Another key is to study the marketplace and really understand what the customer wants. Study the negative reviews and think about how you can solve that problem.
3. Ability to Build Connections will also give you an advantage
This is true especially in the wholesale model. If you're not scared of calling up suppliers. If you're an excellent communicator and you know how to negotiate. You will get deals that most people can't. That extra 5-10% margin could be make or break. The very reason you're able to get the buy box and kill it.
if you're not selling your own brand then you will have to compete for the "Buy Now" button or the buy box with other sellers selling the same product.
So in Wholesale, your ability to find great suppliers and being able to negotiate the best possible deal is crucial because its whoever can offer the cheapest price will win the buy box.
The trend will continue in this direction. Each year, FBA gets more difficult for new sellers trying to sell generic products. More time & resources will be required for the innovation of the product itself. Basically, you need ways to differentiate yourself from other suppliers or sellers that are more established than you (reviews, branding), and with better connections (able to source products cheaper).
What percentage of sellers are profitable?
25% of Amazon sellers produce $25,000 per month or more, which means at 25% profit margin, that's $6250 per month take-home income.
Here's the breakdown of Amazon seller's monthly sales according to Jungle Scout.
In the third column, we calculated the actual net profit by 25% which is just an average % for your typical seller, however it's known that top FBA sellers are at around 10% margins so the take-home income might be bit lower at the higher tiers.
Still 25% able to hit $6250 per month or more in net is not bad.
To be fair, some of those FBA sellers are suppliers & companies that you can't compete with, but a good 15% are at $6250 per month to $25,000 per month in net.
Common Reason for Failure
So how do you ensure you're in the 25% that succeed with FBA & make it profitable?
Understand the main reasons people fail Amazon FBA, because sometimes the best way to learn is to learn what not to do.
There's a common theme to all the failure stories I've heard and with my own experience with FBA I can see why this can be so challenging for many people.
Most people severely underestimate just how much it will cost & how long it may take to succeed with FBA. The problem is most gurus tell people you only need $5K to get started with FBA. This is true only if you never make a single mistake and you luckily select a winning product for your first pick.
However, most people fail 2-3 product launches before finding success.
So the more realistic number is you need $15K ready to invest if you want the best shot in succeeding.
The mindset to have is to know that Amazon FBA will eventually become profitable as long as you don't quit. Treat it like an actual business, start-up cost of $15K is still cheap, relatively speaking.
I wrote more details here: 3 Main Reasons People Fail at Amazon FBA
How to start Amazon FBA?
In my experience, the best way to get started with Amazon FBA is to have a good course to follow.
The free resources of Amazon FBA training you find on YouTube, I always felt, were never thorough enough.
You can check out our list of best Amazon FBA courses
25% of Amazon sellers can net $6250 per month and up.
As time goes on, more companies & suppliers are becoming those sellers, still 54% are still third party sellers, just like me and you.
Not that you can't still be profitable with Amazon FBA in 2022, it's just that finding a winning product is becoming more difficult plus even when a product succeeds for a while, just how long it stays profitable is getting shorter with more competition.
This means that in order to succeed with Amazon FBA long-term, treat it like a proper business (not a hobby). Constantly launch new products knowing that a lot of your products will get phased out by the competition sooner rather than later.
Don't expect to find 1 winning product and make a profit from that 1 success for the rest of your life.
My Online Business Portfolio in 2022
Amazon FBA: $15K NET per month (After 50% split with a partner)
Local Lead Generation: $52K NET per month
Amazon FBA is a great business model but like all businesses it has its challenges, particularly how competitive it's becoming as more big brands & suppliers began selling on FBA themselves 2-3 years ago.
Another business model I've had a lot of success with is local lead generation. It's simple and less competitive. It might be a better fit for some people.
Click here to learn all about it: Local Lead Generation vs. Amazon FBA