Hey there! As an experienced FBA seller, I completely understand how tricky it can be evaluating different business models when you‘re first getting started. You want to choose the one aligned with your skills, interests and income goals.
So should you begin selling products through Fulfillment by Amazon (FBA) or become an affiliate marketer promoting other brands? Great question – let‘s dive in!
At a Glance: FBA Generates Higher Income Potential
If your primary goal is to maximize earnings, I recommend starting with FBA over affiliate marketing.
Top FBA sellers regularly generate over $1 million in annual sales. You take on more upfront risks with inventory costs and operations, but the reward potential is tremendous.
Affiliate marketing can also lead to six figure income, but it takes exceptional marketing skills. Most affiliates make between $500-$5,000 monthly. The earning ceiling is lower unless you create your own products.
Now let‘s get into the details…
How the FBA Model Works
As an FBA seller, you source and sell your own products. When you make a sale, you buy the item wholesale and ship it to Amazon‘s warehouses.
Amazon handles storage, packing the items, shipping it to the customer, answering questions, and processing returns.
The benefits are:
- Access to Amazon‘s hundreds of millions of customers
- Prime members are more likely to buy FBA products
- Amazon handles logistics and customer service for you
- Increased chances of winning the Buy Box
The main downsides are FBA fees which eat into your profits, and it can take weeks to replenish inventory. You also need to closely monitor your listings and payouts.
But overall, FBA allows entrepreneurs to scale far faster than selling on their own ecommerce store. Let‘s look at the earning potential.
FBA Income Potential is Sky-High for Top Sellers
FBA is high risk, high reward. Here are some stats from top earners:
- The average yearly gross sales for top FBA sellers is $1.16 million .
- The top 1% of sellers drive over 11% of Amazon‘s total GMS .
- Top sellers report net profit margins between 20-50% after fees.
Let‘s say you sell a product that costs $5 wholesale. You sell it FBA for $15 and Amazon takes a $3 referral fee. That‘s $12 net profit off a $15 sale.
At a 30% profit margin, selling $1 million in revenue yields approximately $300,000 in profit. And sellers can scale far beyond 7 figures in annual sales.
But reaching this level takes major upfront investments and managing supply chains. It‘s also critical to choose profitable niches and monitor your listings.
You need enough capital to order 500+ units per product to qualify for bulk discounts. To net $300k profit selling a $15 product, you would need to sell 200,000 units annually.
While it takes extensive work, the earning potential is unmatched compared to other online business models.
Affiliate Marketing: Flexible but Lower Income Potential
Now let‘s compare that to affiliate marketing income potential…
As an affiliate, you promote other companies‘ products and get paid commission when someone makes a purchase through your link.
For example, you could promote Amazon products on your website. When a visitor buys through your special affiliate link, you earn 4-10% of that sale value.
The benefits are it requires very minimal startup costs. You can get started by creating content and don‘t have to handle product fulfillment.
But there‘s stiffer competition trying to promote the same products. You fully rely on your marketing skills driving conversions rather than simply managing a supply chain well.
Here are some benchmarks on affiliate earning potential:
- Most affiliates earn $500-$5,000 per month, or $6,000 to $60,000 annually .
- Top affiliate marketers make over $50,000 per month .
- But only 1-5% of affiliates reach 6 figures or more in annual income .
Unless you create your own products or training programs, affiliate commissions will hit a ceiling. Still, it provides a nice side income stream with lower risk and upfront costs.
Startup Costs Comparison
A major point of comparison is how much startup capital is required for each model.
For FBA, most experts recommend having at least $1,000 to $5,000 to properly start selling. This budget allows you to order enough inventory to qualify for volume discounts from your supplier.
You also need working capital for 1-2 months of FBA fees until your sales volume picks up. These include:
- Storage fees – average $0.60 per cubic foot depending on product size
- Fulfillment fees – around $2 to $5 per order on top of referral fees
- Referral fees – 15% on consumer products, 12% on industrial goods
With affiliate marketing, you can realistically start with $100 or less. A basic WordPress site costs $5-$15 per month. Add some budget for initial tools like content creation software or advertising.
But with no inventory costs, you can start very lean and reinvest profits into your growth. Just focus on creating value and driving conversions at first.
Control and Flexibility
FBA provides more control over your products, branding, supply chain, and customer experience. You choose what items to sell based on your market research.
But you need to follow Amazon‘s terms of service for listings, ship times, packaging, etc. And Amazon takes a cut of each sale.
Affiliate marketers have flexibility in what products they promote. You can pivot your offers easily and aren‘t locked into inventory.
But you don‘t own the customer relationship. And changes to a company‘s affiliate program out of your control can affect your commissions.
So FBA provides more control over your business itself, while affiliate marketing offers personal flexibility. Consider which is more appealing to your preferences.
Final Takeaway – Evaluate Your Goals and Risk Tolerance
Let‘s wrap up with some key questions to help decide between FBA and affiliate marketing:
- What are your income goals? FBA suits those wanting to scale a company. Affiliates see slower growth.
- Risk tolerance? FBA has more volatility and upfront risks. Affiliate marketing is lower risk.
- Interests? FBA involves logistics and operations. Affiliates focus on marketing.
- Startup budget? FBA requires more capital upfront.
Overall, I suggest FBA for entrepreneurs who want to build a large ecommerce business and have some capital to get started. Or do affiliate marketing on the side.
Affiliate marketing is ideal for those who enjoy creating content and have lower risk tolerance. It can provide nice supplementary income.
Feel free to reach out if you need any help getting started down either path! I‘m always happy to offer advice.