How to Build an Amazon FBA Business and What Buyers Should Consider

Viaductus founder Sven Graeber provides insights into building his Amazon FBA business in an interview with Christopher Heckel (CTO viaductus). If you are considering starting your own FBA business, this article is a great starting point.

"How did you originally come up with the idea to start an FBA shop, and how long did it take until you became profitable?"

I started the Amazon FBA business as a side venture because I no longer found fulfillment in my 9 to 5 corporate job. I simply wanted to build something of my own and create sustainable value for myself. The foundation was laid; I wanted to do something independently. The only question was what? Like everyone else, I did the classic Google search and consumed relevant content on YouTube and other platforms. From the initial idea to launching with Amazon, it took about three months. Achieving profitability was not easy at the beginning; my first product barely broke even. Had it been profitable, it would have taken about eight months. However, once I understood the game, I knew it could work. The next product was a complete success—it took about 1.5 years.

"What factors have proven crucial to the success of your FBA business, and what were the biggest challenges?"

Always sell under your own brand, which allows you to justify higher prices. Pure resellers of third-party brands are subject to price wars. With your own brand, you can freely determine how prices, offers, and other aspects are structured. Additionally, the selection of the niche (size, competitive situation, and attractiveness) and product development paired with good marketing/product images and top quality are key to success. Very important: Can the product be profitable considering all cost factors? Here, careful calculation is essential. Initially, it's definitely about understanding all the processes and what needs to be considered, such as how Amazon works, practically the setup. Later, it's about raising enough capital to dominate a niche and always having sufficient stock, but these are luxury problems.

"How do you approach product selection and sourcing, and what average margins have you achieved?"

Product selection is a core element. You shouldn't rush this process. Analyze the competing products very carefully—what do the products do, what can they do, what do customers criticize in reviews, and what do customers like. You don't have to develop a completely new product; you just need to make a product better or bring a product that exists outside of Amazon to the marketplace under your own brand. (WARNING: Design protection and patents must be strictly observed here). Product sourcing is largely done through Alibaba, at least in most niches. On Alibaba, you can quickly find 5-10 manufacturers to contact. Before ordering 1,000 units directly, you should always order samples, i.e., test products manufactured according to your specifications. You thoroughly test the product, negotiate with manufacturers, and improve the product again. Then there's the Golden Sample, which you check once more before starting mass production. Typically, it takes about 3-4 months, including shipping, for the goods to be available in Germany. I would say the average margin is around 10-15%.

"What systems and processes have you implemented to keep the business running without your constant presence?"

Once a product is successfully launched, you only need to monitor it. You adjust your advertising measures on Amazon every two weeks; I would recommend not using expensive tools as they hardly yield better results and are very costly. The tools I use consistently are Helium10 and Sellerboard. A well-maintained account on Sellerboard allows you to keep track of your income and expenses on a daily basis. You can quickly react if something isn't working. Helium10 is simply great for keeping an eye on your competitors and your organic ranking. If a product is set up well from the start, the weekly administrative effort is about 2-3 hours.

"What are the key performance indicators (KPIs) you regularly monitor?"

Revenue, product contribution margin, advertising expenses on Amazon (PPC), return rate, inventory, organic ranking, number of reviews. Purchase prices usually change only marginally. It's important to keep an eye on transportation costs.

"How do you deal with competition and potential product copies on Amazon?"

A challenging topic. If you can't protect your product or haven't protected it, there's almost nothing you can do except position yourself as the "original." Another approach can be to check the product compliance of competitors and report violations to Amazon. The problem: you are acting under your own name, and you must expect to receive negative reviews or be checked for compliance yourself. IMPORTANT: Only do this if you are 100% sure you meet all compliance requirements. An alternative approach would be to use AMZ Compliance—external lawyers who review the product for a fee without you having to use your name.

"What aspects of your business would you consider particularly attractive to potential buyers?"

It is an asset-light business model, meaning you don't have to build a machinery park and constantly monitor maintenance. Furthermore, with sufficient capital, it is a highly scalable business model that doesn't require much additional personnel after a certain point. Depending on the niche and product portfolio, this can also be an interesting factor. For example, the entry barriers for children's and baby products are extremely high because the regulations and certifications are expensive. Most sellers from the Far East don't dare to enter this market or don't survive long. Moreover, parents are willing to spend a lot of money on their children, which means the pricing power is high, something investors appreciate.

"What advice would you give a potential buyer on what to pay special attention to during the due diligence of an FBA business?"

A few years ago, there was a wave of consolidation by so-called aggregators. Many of them no longer exist today; they got burned. Key topics:

• The BWA/annual financial statement reflects the actual result, not Sellerboard
• Check product compliance (Are all certificates available, is the product labeling correct, etc.)
• Order the products yourself on Amazon and convince yourself of the quality
• Look at the individual product contribution margins.
• How has the market developed (Helium10 provides insights). Best example: Home office boom during Corona.

"Thank you for the interview!"