Amazon Dropshipping Guide: What Is It and How To Start
Amazon is the biggest and most popular online shopping platform with over 197 million users visiting the website per month. That is why this is a great platform to find customers who are ready to buy without additional promotion. Even better, it’s very easy to become an Amazon Seller. If you heard something about it before and are interested in becoming an Amazon Seller yourself, read on to learn how to start your own successful drop shipping business with this detailed guide.
The first question people usually ask is “Is it legal to drop ship on Amazon?” Yes, it is. And a lot of people do this. Drop shipping on Amazon works by the FBM model which means: “Fulfillment by Merchant.” In other words, you can sell something, pass the order and customer info to the supplier, track the shipment, and if everything goes fine you get the margin as a third-party seller. To use this model, you don’t need to hold your own inventory, nor do you need to make a big investment in products.
Let’s review how becoming an Amazon seller works.
1 Step. Create a Seller Account
First, create your Seller Central account at https://services.amazon.com (this is your seller account, not the usual customer account). During the registration process (which is very intuitive and not difficult), you’ll have to choose between Individual and Professional plans. The Individual plan is suitable for small sellers who plan to sell less than 40 items per month. This plan does not have a subscription fee rather, it charges a fee per product. To be honest, it’s not a drop shippers’ choice. You likely want to choose the professional plan which has a small monthly service fee ($39.99) and allows you to list thousands of products without charging you a fee for each item. By the way, sometimes Amazon has the first-month-free promotion for this type of account.
The registration process will ask require:
- Your credit card number for the case of advertising charges
- Your bank account information for depositing your funds once you make a sale
- Company name, address, and contacts information (e-mail, phone number)
- Tax ID (your social security number or your company’s federal taxation number)
- The categories of products you’d like to sell.
After filling all data your account will be activated and accessible at https://sellercentral.amazon.com/
Note: Amazon restricts and limits some product categories to ensure that customers can buy with confidence from all sellers. To register as a seller of those types of products you will need to satisfy additional requirements. Those restricted categories are: Automotive and Powersports, Clothing, Accessories, Shoes, Luggage, Collectible Books, Collectible Coins, Entertainment Collectibles, Fine Art, Fine Jewelry, Gift Cards, Grocery and Gourmet Foods, Kindle Accessories, Major Appliances, Sexual Wellness, Sports Collectibles, Textbook Rentals, Toys & Games (Holiday Guidelines), Video, DVD and Blu-ray, Watches, Wine.
Familiarize yourself with Amazon’s policies and restrictions. You can find Amazons drop ship policies and agreements at the Amazon Seller Central Help center. It can seem that there are too many rules but really, it’s not so difficult to follow them, especially if you’ll use special Amazon oriented automation software. For example, the TrackMyOrders App has special options to exclude restricted products from future listings, so you can only upload items that will not cause restrictions to you.
2 Step. Choose your supplier and products
The second step is to create or download your product catalog to Amazon. This is the time to ask yourself: “What do I want sell on Amazon?” Our answer is to sell profitable and popular products from a trusted supplier. That’s why TrackMyOrders’ products scouting has flexible tunes of every item profit, popularity (Amazon’s Best Seller Rank), competitiveness, estimated sales and other products parameters. All supported suppliers provide good automated service: inventory and stock levels, order tracking, pricing update alerts, and more.
Most sellers are focused on searching popular products first and only then sourcing a supplier’s catalog for this one product. We recommend you start from choosing your supplier with whom you can build trusted relations and who will let you to grow in the future.
How many products should you sell? Amazon drop shippers can list products by thousands at a time. Some products have small margins but sell fast while others have bigger margins but sell slowly. Anyway, it’s not easy to list a lot of items manually, so you’ll likely use special software. For example, the TrackMyOrders Scout App allows you to find products by any criteria across 30+ suppliers, compare products with existing Amazon listings (UPC and ASIN matching), and compare found items with Amazon’s requirements. So, you can easily upload them to your Amazon Marketplace directly from your TrackMyOrders account.
Exact matching of supplier’s products with existing Amazon listings is very important. Because a single mismatch can cause an order to be either returned or cancelled. Negative feedback can lead to your account being blocked. To avoid such situations TrackMyOrders’ scouting process has a validating stage when you or your team compare mismatch parameters and identify found products.
3 Step. Start selling
Drop shipping on Amazon works by the FBM model. That means that the responsibility is in your hands. If you have any misunderstandings with your supplier (who delivers items sold by you to customers) it will reflect on your Amazon Marketplace rating (where it is recommended to have a rating of more than 95%). That’s why we recommend you choose one trusted supplier and not too many products at first. Start with a small product range for easy managing and fix your store positions on a high level. After understanding and working out all the processes you’ll be able to widen your marketplace without risks.
Moreover, you’ll get customer’s payment after delivery only. Amazon has special restriction for new sellers regarding how long they will hold the payment before depositing the funds to your account.
Also, Amazon applies a fee to all sellers. In the case of the FBM drop shipping business model with the professional Amazon seller account you’ll be charged a few types of fees:
- Amazon referral fee for using Amazon platform which is from 12% to 40% depends on the product category, mostly about 15%.
- Individual Seller fee which is additional $0.99 for each sale.
- Other fees that you can be faced with in such categories like DVDs, books etc.
It can seem excessive but it’s still cheaper than building your own online shop and attracting customer traffic for it by yourself.
4 Step. Manage sales
Amazon is very strict to sellers in all aspects concerning connection with customers: delivery time, support, answer speed, product description etc. To avoid account disrating or even blocking you must be in touch with customers and suppliers all the time.
Amazon worries about exceptional customer experience first, so where is a strict condition to third party sellers that calculates regularly to orders from the same date range:
Order Defect Rate must be less 1%. Defects can be about product defect, bad feedback, or some claims.
Pre-fulfillment Cancelation Rate must be less 2.5%. It considers all order cancelation by any reason.
Late Shipment Rate must be less 4%. Means percent of shipment which are not confirmed as expected.
So, you can see how deeply you will be dependent on your supplier and how important it is to trust them.
The main aspect for product to be sold is the price. Even the smallest minimizing of prices in relation to competitors is essential to win Buy Box (a special super visible place of site page where customers see the product they want to buy). To regulate your prices, you must react on supplier prices which change fast. TrackMyOrders lets you preset your margin and automatically change your listing price depending on supplier changes. Also, this system shows if you lost Buy Box and why.
Another important aspect is to react quickly to a supplier’s inventory changes. Quantities of some products can set to zero any moment and you need to be prepared for such a situation. TrackMyOrders automation software lets you fully integrate supplier’s inventory to your Amazon marketplace and preset your marketplace reaction on low inventory level.
There are many other pitfalls of Amazon drop shipping and its automation. If you are ready to get your head into this business model, TrackMyOrders would be glad to accompany you and automate your business processes.
