The Basic Minimum Of Knowledge To Start An Activity

Before I start describing the bumps in the process of maintaining an account, you need to start by mastering the absolute minimum of knowledge that is extremely necessary to start an activity. You cannot do anything without understanding how to choose a product, what price is acceptable for sales, and what offers should be rejected.

As briefly as possible, I will describe the main nuances of the legislation that you will definitely encounter.

Of course, it is impossible to grasp everything within the framework of one book. But in order to unearth these basic truths yourself, it may take several months. Most of my statements do not have the ultimate truth, and can change at any time at the whim of lawmakers. Therefore, I will show you direction, and your lawyer or accountant should be able to quickly find and verify each statement so that you can use it in your work.

So, let’s start with the simplest.

The basis of all the basics is not only the right choice of goods, but also an understanding of the way how you will send it to the customer.

For example, while in Europe, you can still somehow organize the sending of your parcel to the recipient in one of the neighboring countries of your continent, but sending one unit of goods packed in your garage to America is terribly inconvenient for everyone and almost impossible. Airmail delivery to the United States will be prohibitively expensive, and the waiting time will be incredible due to customs procedures. You have no choice but to send a certain batch of goods to a distant country for storage, from where a caring warehouse operator (or a wholesale seller) will send it to the recipient at your request.

The first way. You and the garage

The scheme looks like this: Amazon receives money for your product and sends you a notification with the recipient’s address. You take the goods from the shelf, pack it, glue the label with address and a barcode on the packaging box, go to the post office, pay them, and the goods are sent to the customer’s address.

This scheme has the following pros:

– Maybe it is cheap, since you do all the work yourself. If you don’t have a lot of goods, you minimize your storage and processing costs.

– If the product is expensive or oversized, or not sold every day, this scheme is appropriate just for such cases.

Cons:

– High labor costs. It is one thing if you send a dozen packages a week, but you will not fulfill it if you have to ship 20-30 packages a day. And if there are 300?

– Difficulties with taxation in different countries. We will discuss it later.

– You will not receive your payment for the sent product from Amazon immediately, but only in three weeks. This should be always remembered.

The second way. Prep (Preparation Center)

When you have a lot of goods, you can apply for service to one of the warehouses that specializes in fulfillment processing (the so-called Prep centers), which carry out the storage of goods, selection, packaging, barcode sticker and transfer of goods to the expedition.

The advantages of such a scheme are undeniable:

– Simplification of logistics and automation of the process.

– Various Prep centers give competitive prices for the storage and processing of goods.

– Your costs for manual processing and mailing at a certain intensity of sending may be much higher than the Prep center services.

Cons:

– Most Prep centers prefer to work with medium and large online stores.

– After you find anyone who decide to take you for a service, at first there will be a question of prepayment.

– The fulfillment centers are interested in a high turnover of goods within 1-2 months. They will prefer those who will bring them to the warehouse a little but often. If you have 20 pallets that will have to be sold within a year, they will most likely refuse you.

– The centers rarely propose their own transport services: they only store, pack and transfer the goods  to transport workers. We need to find out how the center interacts with delivery. For example, in Poland, the InPost system is well known. It owns a widely branched network of points for receiving and sending goods. You can order any product on the local site Allegro.pl, and in just a couple of days you will receive your goods to the nearest point. It is very convenient, cheap and fast. In Europe, low-cost transportation services are offered, for example, by DPD and GLS.

– Prep-centers do not exempt you from the paperwork for the accounting of goods. They work either with databases in Excel, or require the use of special software.

The third way. FBA (Fulfilled by Amazon)

Amazon has chosen a unique path of development, becoming both a trading platform and a Prep center at the same time. This shot kills many birds with one stone at the same time:

– Amazon stores the goods on behalf of the buyer and takes care of all the paperwork,

– Amazon brings delivery to a single standard, as it controls the entire process – from shipment from its own warehouse to delivery of the goods to the buyer,

– Amazon chooses transport companies that work with it on an ongoing basis on the principle of outsourcing, and strictly controls prices and delivery times.

– All products located in Amazon warehouses are eligible to participate in the Amazon Prime program, which is offered to each product buyer from the first day of registration. This is also free shipping when buying over a certain amount (now it is $25). This is also the Prime Day held once a year, when all Prime users enjoy big discounts. This is also Lightning Deals, giving access to promotions 30 minutes earlier than other buyers. In addition, there are many other discounts, bonuses, loyalty programs and other interesting solutions that will allow you to save on online purchases.

– If the buyer decides to return the product, Amazon fulfills the return procedure with appropriate changes to the warehouse software. You will see all the changes in your Seller Central account.

Years of operation of a huge live mechanism have led to the fact that FBA (Fulfilled by Amazon) is the most convenient way both for the buyer and seller, but at the same time the most expensive for the seller to process and send the goods. In this case, Amazon does everything for you: it takes the goods to the warehouse, where it allocates storage space. After receiving the pallets, the cargo is unpacked, checked and recalculated within a few days. Upon receipt of the order, the warehouse operator selects the transport package, sticks the label and sends it to the buyer.

I repeat, Amazon’s prices for processing goods in the warehouse are quite high. Besides, they change periodically (for example, from September to January, increased tariffs apply). The main advantage for you is that this method removes from absolutely all your responsibilities for processing the goods, with the exception of the most important thing – payment.

The fourth way. Dropshipping

This word describes a scheme when you agree with the supplier that you will buy goods from him at wholesale prices, provided that he will pack and send each unit of goods directly to the buyer. Most often, the seller himself does not have his own infrastructure for packaging and shipping. He agrees with the local Prep warehouse, places his goods with them, and gives permission to the warehouse to ship after receiving payment from you.

Indeed, you do not need to have a large amount of money. You do not need a warehouse for storing products. You can cooperate with an unlimited number of suppliers at the same time. But the most important thing is that you can receive your commission based on the monthly results for a registered individual entrepreneur. No accounting of production units, no VAT. Just a contract and payment of earnings in a single amount.

However, not from the first day every manufacturer of goods will agree to work with an unfamiliar seller that you are. As already mentioned, you invest your money in the product, Amazon pays for your sales only after a few weeks, however you have to pay the supplier immediately. You must have money for these operations.

Any company plans its sales, and it is much more dependable to rely on trusted customers. In order to be able to trust you, these companies will also expect a piece of their confidence from you in the future. They usually make a profit from your sales, but there are also those that require monthly contributions or certain sales plans to maintain the purchase price.

Also, the next problem is that you do not control the sending process in any way. The company can put an advertising leaflet with its contacts in the package, or send the goods in its branded box. If the recipient likes the product, next time they can apply directly and buy it cheaper. And if there is a complaint, or the product simply needs to be returned – you will have to deal with this issue. Additionally, you will be to blame for the customer’s dissatisfaction, not your supplier.

And finally, your margin when working with dropshipping will be always lower than you expect. You will have to work hard on each shipment. The only way out is to increase sales with low margins.

Many novice traders are attracted by the availability of this sales method. It is used by all sorts of schools that betting that are ready to teach you how to work on Amazon. You can play with this scheme for some time to check how everything works. But in my opinion, it has a very remote relation to a long-term stable business.

I will try to describe in a few words the nuances of working with dropshipping.

First of all, remember the cherished word – Amazon Prime. This is a fast delivery program, one of the most important Amazon services. The store promotes it as much as it can, and all subscribers get a very good benefit.

When ordering any product, the buyer has three options for delivering their purchases:

– Free Shipping — free delivery of orders with a price of $49 from certified Amazon sellers. The delivery time is about 7-10 days.

– Paid Shipping. The term is 4-5 days, and the cost is determined by the seller of the goods. You can speed up the delivery by paying extra for it.

– Amazon Prime — Free shipping in the USA and EU for selected products. The deadline is 1-2 days. Each customer is invited to try this delivery method for free at their first purchase, and then subscribe to it. Prime involves goods stored in Amazon warehouses, and this is a serious advantage not only for the buyer, but also for the seller.

During the courses at school, you will be asked to find products for sale primarily that are not participating in Prime. This means that either the dropshipper himself or a certain Prep center on his behalf will send the goods to the buyer. Why exactly such products? As soon as the product appears in Prime, you will not have a chance to compete with it even at your lowest price. The buyer will most often choose a more expensive offer if it is associated with all the privileges of the program. Paying for participation in the Prime program (this is really convenient, and the buyer is ready to pay for it), I would do exactly this.

The next smart word to remember is BuyBox. This is the name of the window on the right side of the page, which displays the prices of all sellers. You see the main price, and below – the prices of other market participants, which may be higher or lower than the original one. We will talk about this later.

Let’s say someone already sells this product on Amazon. What will a beginner have to do to get into BuyBox? Of course, he will have to set the lowest prices for the product. It may happen that you will “cut” your profit to move your offer higher, and other sellers will do the same. You will act for a long period of time with the strategy “beggars are fighting for a piece of bread”, and go to losses, but finally someone will take away your achievements, sending the goods to the warehouse and receiving the status of a Prime participant.

If you are tempted by the prospect of selling anything, no matter what: flash cards, ballpoint pens, teddy bears or soap, then you can try it. After tinkering on this thankless field, having grown pretty tired, many people soon become “experts” who are ready to teach you this craft for a cheap price.

Within the framework of this book, I will not touch deeply on this topic, because probably you are interested in building a long-term and reliable system, aren’t you?