Selling on Amazon without holding your own inventory can be an extremely lucrative business model. By leveraging dropshipping suppliers or Amazon‘s Fulfillment by Amazon (FBA) program, entrepreneurs and small business owners can access the platform‘s built-in traffic and massive customer base to scale up sales.
However, finding success selling on Amazon still requires careful planning and execution around product selection, listing optimization, order management, and more.
In this detailed guide, we’ll cover everything you need to know about selling profitability on Amazon without inventory, including:
- Evaluating the pros and cons of dropshipping vs FBA
- Step-by-step instructions for account setup and listing products
- Tips for finding profitable products with proven sales potential
- Pricing and promotion strategies to drive conversions
- Managing orders and inventory to scale while maintaining quality
I’ll be drawing on my experience directly assisting small business owners with ecommerce in addition to up-to-date insights from top Amazon experts. Let’s get started.
Choosing a Fulfillment Model: Dropshipping vs FBA
When selling without your own inventory on Amazon, you’ll need to leverage either a dropshipping or Fulfillment by Amazon model. Let’s compare the two approaches:
Dropshipping
Dropshipping allows you to focus on marketing and customer acquisition while a supplier handles inventory, fulfillment and shipping. As the middleman, you’ll forward customer orders and information to the supplier, who ships products directly to the customer.
Pros
- Extremely low startup costs (around $500 on average)
- No physical inventory handling
- Wide range of product selection from dropship suppliers
Cons
- Low profit margins, usually 10-30%
- Limited quality control once shipped
- Potential shipping delays from relying on the supplier
In 2021, 89% of Amazon sellers used dropshipping for at least part of their inventory according to Feedadvisors. Many sellers mix dropshipping with other fulfillment methods.
Fulfillment by Amazon (FBA)
With FBA, you ship your products wholesale to Amazon’s warehouses. They handle storage, picking & packing orders, shipping, returns, and customer service including inquiries and refunds. You focus on product research, wholesale sourcing, listing to Amazon and driving marketing.
Pros
- Access to Amazon Prime customers and faster shipping
- Reduced workload around fulfillment and customer communication
- Amazon customer service and return handling
Cons
- Amazon fees for storage space and fulfillment
- More complex initial setup process
- Requires deeper knowledge of sourcing practices
In 2021, 66% of 3P sellers on Amazon leveraged FBA for some or all of their inventory according to Feedadvisors. Many build hybrid models using multiple fulfillment methods.
Evaluating the Differences
So how do sellers choose? For newer sellers, dropshipping tends to have lower barriers to entry. It allows you to start listing products and selling more quickly without large upfront inventory investments.
However, profit margins are lower, usually between 10-30%. With FBA, profit margins typically range from 30-50% for first-party private label products. However FBA has a steeper learning curve.
Many sellers utilize both FBA and dropshipping, while slowly transitioning more volume to FBA over time.
Step-by-Step Guide to Getting Started on Amazon
Ready to get selling? Here is the complete process for listing your first products on Amazon:
1. Identify Your Niche & Product Selection
First, you‘ll want to identify a niche you‘re passionate about selling in. Some examples include:
- Home & Kitchen goods
- Sports & Outdoors equipment
- Toys & Games
- Beauty & Personal care
- Pet supplies
Amazon breaks products out across thousands of subcategories, so go fairly narrow with your niche focus at the start.
Next, begin researching specific product ideas that align with your niche using the tactics covered later in this guide. Order samples during this phase to validate products.
2. Set Up Your Seller Central Account
Head over to Amazon Seller Central to set up your individual or professional selling account.
With the individual plan, you can sell up to 40 products per month for $0.99 per item sold. This works well when starting out dropshipping.
For sellers looking to build a larger FBA-focused business, the professional plan costs $39.99 per month but allows unlimited products with lower fulfillment fees.
3. Create Compelling Listings
Now it’s time to create listings for each product you‘ll sell. Compelling listings include:
- High-quality product images and video
- A detailed title optimized with target keywords
- Useful product features and technical details
- Accurate shipping and return policies for customers
See Amazon’s listing quality checklist for more specifics. Ensure listings stand out against competitors.
4. Drive External & Internal Traffic
There are two components to driving consistent traffic to your listings:
External traffic comes from anywhere off Amazon – your own website, email, YouTube channel etc. Use content and video to start attracting potential buyers.
Internal traffic comes from Amazon’s own search traffic, where keywords, conversions and reviews all play a role in rankings. Master Amazon SEO and advertising.
See more details in the marketing section next. Maintain effective promotions and advertising initiatives across both channels into perpetuity.
5. Manage Orders & Inventory
As orders start rolling in, stay organized:
Dropshipping: Carefully manage communications from suppliers on order status and expected delivery date to provide buyers reliable updates.
FBA: Monitor your available inventory levels in Seller Central frequently. Restock products at Amazon’s fulfillment centers before they hit zero available inventory in the listing.
For both models, swift and helpful customer communication is essential to manage expectations and minimize returns. Consider collecting reviews from happy buyers to build up your brand reputation and drive repeat purchases.
Finding High-Potential Products to Sell on Amazon
The key to earning big profits selling on Amazon without worrying about upfront inventory is finding high-demand products with healthy margins.
Here is a step-by-step system for finding those hidden gems:
Validate Consumer Demand First
Always start with demand validation before committing to ordering inventory or listing a specific product. Some key indicators of demand include:
- Monthly Organic Traffic: Over 2,000 searches per month suggests buyer interest. Use Google Keyword Planner or niche tools to estimate.
- Amazon Best Seller Rank: Generally under 100,000 indicates enough volume for profitability. Use tools like Jungle Scout to analyze competitors.
- Amazon Search Volume: Look for over 10,000 searches per month for the core product keywords
- Product Reviews: Look for over 20+ reviews from existing listings as social proof.
Without sufficient consumer demand from the start, you‘ll struggle driving enough sales velocity to justify managing the listing and restocking inventory.
Research Competitor Pricing and Margins
Once you’ve identified some high-demand products aligned with your niche, dive into the revenue potential:
- Use Amazon tools like Jungle Scout to view estimated sales volume, dimensions and other key metrics to model out profit.
- Research purchase costs from your chosen supplier or manufacturer upfront to understand your gross profit margin for each sale.
- Ensure there is room for profitability after Amazon fees by checking competitor item pricing on listings.
I typically recommend looking for at least a 35% profit margin when first starting out on Amazon. This gives you sufficient room to experiment.
Order Samples to Validate Quality
The final step before committing inventory dollars or listing a product is to order samples yourself.
Thoroughly inspect for dimensions, branding, quality and function against your compliance standards. Taking the time upfront prevents inventory investments in poor quality products.
By following this product selection system, you’ll source proven winners ready to drive profits from day one.
Pricing Strategies to Increase Profits
Finding the optimal pricing strategy is crucial to maximize profits selling on Amazon without worrying about upfront inventory costs.
Here are 3 tips for pricing profitably right from the start:
1. Research the Market Price Range
The first step is using Amazon’s own analytics to estimate a price range customers are used to paying.
Install the CamelCamelCamel browser extension to view detailed price history charts on competitor listings to understand current and historical pricing.
Taking the time to research where an item typically retails for will prevent pricing way too high and losing conversions.
2. Align to Your Profit Margins
Next, factor your unique profit goals into setting a price:
- Dropshipping: Price competitively to conversions while allowing room for supplier costs and your profit margin on top, usually 10-30%.
- FBA: Price based on the fees you need to cover while landing in the standard margin range for retail arbitrage, usually 30-50%.
Price checking tools display competitor prices making it easy to position your listing competitively.
3. Experiment with Pricing
Early on, start more conservatively matching prices with your top competition listing the same item.
Monitor conversions closely for 2-3 weeks before trying slightly higher or lower pricing to maximize sales and profit. Continue fine tuning.
Getting pricing right does take some early trial and error. Following these steps will set you on the right path to profitability.
Promoting Your Products to Drive Sales
To ensure consistent sales, you‘ll need to master promoting your listings both on and off Amazon.
Here are proven promotion strategies to consider:
Amazon Advertising
Amazon facilitates powerful advertising options to reach people during the purchase process:
- Sponsored Products: Target product search terms where you‘ll appear at the top of results when shoppers search those phrases.
- Sponsored Brands: Bid on raising visibility for your whole brand across Amazon search and product pages.
- Display Ads: Place highly targeted banner & video ads on Amazon publisher sites.
Leverage Amazon’s built in reports to optimize bids and keywords driving the lowest costs per purchase over time.
Off-Amazon Marketing
Don‘t limit yourself to Amazon‘s walled garden for driving new buyers. Consider:
- Content marketing through blog posts and videos to attract organic search
- Retargeting ads on Google and social to reconnect with past site visitors
- Email nurture sequences to build loyalty among past purchasers
- Influencer partnerships on Youtube, Instagram and TikTok to gain credibility
The more external exposure you generate, the less reliant you become on Amazon search traffic alone.
Promotions & Discounts
Leverage promotions like sales, coupons and product giveaways carefully around major opportunities:
- New product launches to rocket up best seller rankings
- Seasonal sales moments like holidays and Amazon Prime Day
- Scaling back up after inventory shortages
See a spike in conversions indicating buyer price sensitivity? Try lowering the listing price temporarily while increasing ad budgets to lift sales velocities further.
Executed strategically, promotions keep each product‘s performance climbing week over week.
Managing Operations and Logistics
Selling without your own inventory simplifies product fulfillment but operations management remains vital, especially regarding inventory availability.
Here are key aspects to keep running smoothly:
Inventory Level Monitoring
Log into Seller Central daily to keep visibility on available inventory levels and incoming restock shipments:
- Dropshipping: Receive notifications from suppliers on inventory shortages or order delays impacting fulfillment timelines. Keep shoppers updated.
- FBA: Monitor stock levels in Amazon‘s warehouses. Restock before reaching zero available inventory to prevent losing the crucial "In Stock" tag.
Quality Control
While not holding the inventory yourself removes direct quality control, you still play a role ensuring buyers consistently receive defect-free units:
- Spot check returned items for damage trends pointing to mishandling or supplier defects
- Proactively message suppliers when multiple complaints come in about product flaws
- Switch supplier if quality cannot be resolved and order defects keep increasing
Protecting your reviews and brand reputation on Amazon requires getting to the bottom of systemic issues.
Customer Communication
Provide exceptional customer service through proactive order status updates, swift refund processing and helpful responses to inquiries:
- Set expectations accurately upfront with processing times and shipping estimates.
- Resolve complaints quickly through refunds or returns to prevent damaging reviews.
- Follow up with customers after delivery to collect product reviews, feedback and testimonials.
The more you can minimize returns and maximize positive review collection, the more sales velocity your listings will gain over time.
Selling on Amazon without inventory simplifies much of the fulfillment process but still requires hands-on management around promotion, inventory analysis and customer communication.
Invest time upfront finding profitable listings. Then pour your energy into scaling up sales through marketing and optimization efforts. Use my detailed guide to formulate your own unique game plan for selling profitably on Amazon.
