Updated: Dec 10, 2021
How To Make Your FBA Business Create Passive Income
Amazon has changed in several fundamental ways over the years and so have the Amazon customers. Maybe we could say that the other way around; Amazon customers have changed, so Amazon has changed. But whenever we look at what people are teaching about selling on Amazon, it looks just like what they've been teaching for years. In fact, some of the content that shows up is from two or three years ago, or more. Most of what was true then hat is not relevant anymore. The game has changed. The best way to generate a passive income from an Amazon FBA Business is to offer a "Subscription" to your product. Read on.
What's The Big Idea?
When Amazon started, they only sold books. It was a place where writers could self publish their books. They started out as a publisher. They gave authors the ability to publish and sell their own books independently, without the help of a big publishing company. A whole bunch of people got rich selling books because at that time, information products were the number one thing people bought online. Amazon is essentially the same. Sure, it's a lot more shiny, there are more options, more customers, more sellers, and more products. But at its core, Amazon is still a publisher, but they publish brands.
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Big Changes. Same Business Model
In the past, people weren't comfortable buying clothes or products because they were afraid they wouldn’t get what they paid for. Now people are comfortable buying almost everything online so Amazon has shifted it's business model to include physical products not just books. That they are primarily a publishing company has not changed. Think about writing a book and putting your name on it and putting it out there for the world to see. Now apply that same concept to creating a brand. Let’s say you have an idea for how a dish sponge could be better. You notice almost everyone is selling a round sponge instead of a square sponge. So you go to a manufacturer, explain that you want a square sponge, and they make it for you. The way to market your new product is through branding. So you create a brand. Amazon will publish your brand for you. It is a marketplace for private brands. Much like publishing a book, you can now publish a brand for your product. Where customers used to be comfortable only buying information, they’re now comfortable buying products.
What is the purpose of branding?
Understanding the fundamental concept behind branding is to turn the key and unlock the power of Amazon. Amazon FBA is a "fulfillment" or delivery system for physical
products. But it has become so sophisticated that competition on Amazon is fierce and putting a product from China on Amazon‘s website is no longer as profitable as it used to be. And it’s never simple. In order to make a lot of money with that business model, you must have your own brand.
Amazon will recommend your brand to people who have already bought products from you. In the same way that you may have read every book written by your favorite author, Amazon assumes, correctly most of the time, that you are more likely to buy products from brands you have already used. In addition to you previous purchases, Amazon relies mostly on reviews to decide what products to recommend. If you buy a product from "XYZ brand" and then you leave a five star review, and then 100 other people do the same thing, they figure the 101st person is going to enjoy your product. Bad reviews will work the same way but with the opposite effect. Your sales will tank. Not only does Amazon rely on reviews, but customers rely on reviews.
How To Compete On Amazon
Amazon’s search algorithm relies on reviews to recommend products. If somebody goes online and searches for a product, Amazon doesn’t show whatever product was listed most recently like craigslist. Amazon is much more sophisticated than that. They rely on various criteria to decide what products to show in their search results first. By far, the most important set of criteria is your product reviews. Getting good reviews is important so you can impress prospective customers. It's also important for your search rankings when someone searches for your product. Even if someone would buy your product, they never get the opportunity to buy it if they don’t see it.
What? Reviews won't make me rich?
Customers have also become far more sophisticated. They do research information about a product with Google before they go to Amazon. They might search the phrase “what’s the best sponge available on Amazon?” Then there are 1 million "affiliate websites" and blogs that will answer that question for them. They read through the blogs, maybe click on affiliate links that will most likely bring them to Amazon, and they buy it on Amazon’s Website. Showing up in the Amazon search isn’t all there is to it anymore. Paid search isn’t enough these days if you want to be competitive. Yes, you’ll probably make money as long as you have good reviews and good demand, but your overhead will be outrageous.
Where Are Your Customers?
You have to get in touch with your customer before they go to Amazon. You have to have a blog and a website. I’m not suggesting you start an affiliate website at all. I’m suggesting that if you’re going to have a product, you need to have a blog related to that product. But it’s hard to have a blog with 100 blog posts on one product. How many blog posts can you write about one product? The solution is to have a brand with various products in your product line.
Constantly launching new products, blogging about them, and hunting for five star reviews from buyers. Developing a product happens outside of Amazon first but it takes time. A blog post can take 6 to 8 months to rank on Google organically. Before you spend any money, select a specific product, or buy inventory, you should start a blog and write about your product. You should have a brand so that people who are interested in your product will become familiar with you.
How to make long-term passive income
To build up your income long-term, try to find a product that someone will buy multiple times either monthly or a couple times a year. Right now, customers have the highest brand loyalty in history, but customers are the smartest and most sophisticated they’ve ever been. If you are able to reach them and show them why your product is better than what they’re currently using, they will switch to your brand. If you show that your brand is consistently better, your customers will never leave.
If You Can't Beat'em, Join'em
Amazon has made it nice to shop on Amazon. It’s not a monopoly but it has put even Walmart in second place. So if somebody wants to compete in that space, they first have to beat Walmart and then they can start to compete with Amazon. Having an e-commerce website where somebody can shop on your site and purchase your products directly from your store is great, but you need to be on Amazon in order to compete in today’s e-commerce world. You should list your product on Amazon even when the product is available elsewhere, here's why: Amazon has over 40 million credit cards on file, they offer free shipping with Prime, easy returns, and one click to buy, and customers know that what they see is what they’re going to get based on reviews.
What's the next big thing in e-commerce?
Even now, after all the evolution we have seen in e-commerce, it is still evolving. Have
you noticed the shift towards subscriptions in physical product brands? What if you want a food box or pet food delivered? There’s a subscription for that. How about razors for shaving? There’s a subscription for that. What about makeup for women? There are 15+ different subscription services for that. How many other products can you buy subscription services to get it delivered on a regular basis?
It’s gone beyond clicking a button and it’s going into automation. Your product is
delivered whether you order it or not and the seller gets paid on a regular basis. Why? From the customer’s standpoint, it’s convenient and gives them a feeling of belonging almost like being a member of a club. From the seller’s standpoint, it generates income and snowballs their sales volume.
Most of the education I see online is about product selection, product sourcing, creating your Amazon ad, getting reviews etc. If you have money to invest, you can hire somebody for that. (full disclosure, that’s one of the services we offer on our website.) Your biggest goal should be selecting a product where there can be a subscription service attached to it.
How does this relate to product selection?
You should have a product that your customers can subscribe to. There is space in any market for a one-off purchase, but with reviews, customer loyalty, and Amazon‘s Prime, buying products has evolved to the point that subscription services are really easy to sell.
You need a product that someone will buy repeatedly. Find out what your competition is doing, make it a little bit better, start your blog, YouTube channel, and website to reach your customers, then put your product on Amazon FBA with a subscription service attached to it.
Let’s Look At The Numbers
Just as an example, let’s say you sell 20 orders your first month, maybe through paid advertising, then 20 orders your second month, then if you do nothing and have no growth in your traffic, you are likely to get 30 or 40 orders your third month because the orders are
automated from your first customer's subscriptions. Do you see how powerful that is? It gives you the ability to spend more to acquire customers.
Your competition is looking at a sale to a customer and their breakeven price is based on the sale. But you could spend a lot more time and a little bit more money on the front end to develop your brand and offer a better product to your customer. On the backend you will make so much more money. You will build something strong and long lasting. Something where you don’t constantly have to advertise it and push new sales. It will organically grow and as it grows it will stay big with very little or no effort on your part. This is how to generate passive income.
When Does It Become "Passive"?
Amazon FBA is not passive income if you don't sell subscription products. Amazon FBA is a ton of work and learning at first. Anybody who has tried it will tell you that and it doesn’t work for every product. You might put something on Amazon and figure out that it won’t work (it might take 6 to 8 months to know if the product is working because that’s about how long it takes to test the e-commerce market)
So why would you want to invest in something for 6 to 8 months just to find out if it’s working or not? You have to keep investing in order to keep it working for you. Start a subscription service and some of the customers you get in your very first month, will still be customers in your eighth month. Not all of them because you will have some attrition, but those repeat orders will become your customers, not just Amazon's customers. Don’t try to compete with Amazon with your own ecommerce site. Amazon allows you to create subscriptions for their customers. Those customers are reachable by you. Once they know your brand, any other products that you launch will be picked up by many of the same customers who already use you. It also makes you much more likely to be marketed by Amazon to those, and other customers, for free. Amazon wants to keep their customers on their website so if you’re customers are loyal to you, Amazon wants to generate more customers for you.
Reducing your overhead on Amazon FBA
Some of the 40 million customers on Amazon can be your customers if you can create a great product with a subscription service. That will generate a true passive income for you. Not only does it generate passive income, it eliminates advertising and marketing overhead in the long term. Google will show your blog organically after about six months when someone searches for something related to your brand. Then when they go on Amazon, they will search for your brand. They’ll skip right over searching for “sponge” and they’ll search for your sponge brand.
If you know that they are going to use a sponge every month, you can offer to send them a new sponge every month and throw in a bonus, like your proprietary soap, or a sponge rack, or a cleaner for the sponge, or 15 other things that somebody who is doing dishes might need to supplement the sponge use. A sponge is a great example because it works for this but competition for a sponge is so high you are unlikely to be successful selling sponges. It’s just an example. Some of the brands who sell sponges are so big and popular that their customers will never try anything different. You really want products that will work similarly but you want to be the brand that becomes so big and popular no one will ever leave you.
Let us set you up for success
We hope this article has offered some value to our readers. If you want us to build your
Amazon FBA business for you and select a product that people can subscribe to, simply sign up for our "FBA Business In A Box" service. Not only do we select and source the right product for you, we also get reviews and build the website with a blog. Customers won’t have to randomly select you from a list of a million similar products on Amazon, they will recognize you or search for you directly based on what they researched when they were on Google. Since Amazon doesn’t offer any research tools for customers other than reviews, you definitely want to show up when your customers are researching the product on Google. Once you achieve a little bit of success on Amazon selling your product and establishing your brand, Walmart’s website is the next step, and we can help with that too. We look forward to talking to you soon.