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3 Ways to Make Money on Amazon

by Jennifer Clark

3 ways to make money on Amazon

This is a guest post from our friends at AMZ Advisers, a full-service eCommerce consultancy.

Becoming an online entrepreneur is easier than ever. Amazon in particular has made it extremely easy for people to find success online by creating a variety of different programs that can help you build your business empire, or even make a little extra cash on the side. 

Each of these ways to make money on Amazon require different commitments from you, the business owner. We are going to take a look at selling products, books and T-shirt designs on Amazon; what is involved with each; and how you can quickly start making money on Amazon.

Selling Products on Seller Central

Selling physical goods on Amazon’s third-party marketplace, Seller Central, has become one of the best-known ways to be successful with Amazon. But most don’t realize there is more than one business model when selling on that platform. Creating private labels, retail arbitraging products and selling refurbished items are all possible.

Each of these methods have different benefits and tax consequences depending on how you sell and fulfill customer orders. The route you go can also create significant liabilities for you, so it is important to make sure you are well-protected as a seller.

Private Label Selling

Amazon has turned into a platform where minnows can steal market share for well-established brands. One-person operations are able to create private label brands that can compete and win against big brands. Private labeling products, however, is one of the most labor-intensive ways to sell on Amazon.

The entire process involves designing a brand and working with a manufacturer to create products for sale. Often times, sellers are working directly with overseas manufacturers and then import the product into the United States or whichever target market the seller wants to sell in.

You need to create your own listings and optimize them for SEO on Amazon. However, doing so successfully, and in the right categories, can lead to tens of thousands or more in sales each month. Sellers typically utilize Fulfillment by Amazon (FBA) to get their inventory to customers. This can have significant sales tax implications for sellers, as Amazon uses warehouses that are located across the country.

Retail Arbitrage

Making money through retail arbitrage is one of the lowest difficulty ways to begin selling physical products on Amazon. It is also how my partners and I got our start. Essentially, involves purchasing name-brand or popular selling products and reselling them online. 

The idea is that you can buy something at a discount, sell it on a markup on Amazon and pocket the difference. Retail arbitrage is a very popular way to make money on Amazon and has even gained some national attention lately about nomads traveling around the U.S. doing this business model.

Retail arbitrage is simple to get started. You do not need to design, brand or order any products like you do when creating a private label. The products and listings are already created on Amazon and you simply need to find popular selling items and jump on the listing. Using the FBA program can make the entire fulfillment process very hands off. However, it can also create issues around tax nexuses that can be more difficult to manage as a small seller without help.

Selling Refurbished or Liquidated Inventory

Another lucrative option is to sell refurbished or liquidated inventory. You can actually buy used or returned products from companies like Amazon, Walmart, Target, etc., and turn around and resell the inventory. Like retail arbitrage, this method does not require all the hassles of creating your own branding and working with manufacturers to order inventory.

There are numerous websites where you can easily purchase liquidated inventory directly from these platforms and sellers may even try to liquidate Amazon FBA inventory to avoid paying long-term storage fees. Once you have the inventory, you can choose to sell it back on these platforms, on other marketplaces or even in brick-and-mortar locations. 

Tax implications can also be complicated with selling refurbished or liquidated inventory depending on your fulfillment method. Using FBA can create tax nexus in multiple states that can require you to make sales tax payments to each state where you have a responsibility. 

Selling Books on Kindle Publishing

Becoming a Kindle publisher is another great way to find success with limited tax liabilities. As a Kindle publisher, you can create both physical books and e-books through the Kindle Direct Publishing platform. Amazon will then list these books on the Amazon Marketplace and Kindle Store, and for every sale that you make, Amazon will pay you a royalty.

Amazon handles all of the distribution and production of your content. They will print the physical books for you, ship them to the customer and also create the e-book files for customers to download. Being a Kindle publisher virtually eliminates your cost of goods and can provide you a steady stream of passive income from book royalties.

There are two royalty options to choose from depending on the price point of your product. Your content is eligible for the 70% royalty if it is priced between $2.99 and $9.99. Any booked priced outside of that range has a 35% royalty.

You also have the ability to use the Amazon Advertising platform to run Sponsored Products or Lockscreen ads. The cost of advertising can vary, so it may not be right for your published content. Consider the keyword bids and whether you can be profitable before investing into advertising your books.

Selling T-Shirts on Merch by Amazon

Another great lesser-known way to make money on Amazon is through Merch by Amazon. This T-shirt program is similar to the Kindle Direct Publishing in that you earn royalties if your product is sold. Even better, you don’t have to handle the production or distribution. With Merch by Amazon, you submit graphic designs for T-shirts and Amazon lists them on the platform for sale. The products appear side by side with other apparel offerings and are virtually indistinguishable from other apparel offerings.

Merch offerings allow you to simply focus on graphic design and eliminate your cost of goods. The royalties from selling your designs can be substantial. I’ve met several sellers that do more than $5,000 a month in royalties from the program. The royalties are calculated based on the price and can range from 13% and up. Here is an example royalty chart from the Merch website:

amazon merch calc table

Tax and Liability Considerations

The Amazon platform is great, but like anything, you still need to pay your taxes. Tax avoidance from Amazon sellers has become a huge focus point for U.S. states trying to get their share of online sales. Over the past two years it has led to numerous lawsuits and challenges against Amazon for failing to collect and remit the taxes due – and has led to Amazon collecting and remitting sales tax for numerous states.

Luckily, the Kindle Direct Publishing and Merch by Amazon platforms handle any sales tax, as Amazon is the entity actually making the product sale. Your royalties are paid to you, and you simply need to claim it on your income taxes and pay taxes then.

The story is different if you are selling physical products on Amazon – and extremely complicated if you are using the FBA program. You do have a few options to handle your taxes properly. Working with a licensed CPA can help you avoid many of the pitfalls of sales tax. You can also utilize third-party software like TaxJar to track your sales and tell you exactly what you owe to each state. We recommend speaking with a tax expert to understand all your options and protect yourself against any potential tax liabilities.

Start Making Money on Amazon

Your options for making money online are practically unlimited, with Amazon being a great starting point for first-time online entrepreneurs. The platforms make it easy to get your products in front of customers and the available teaching resources are plentiful. There is  a variety of business models for you to choose the one that works for you.

Creating a passive income through the Kindle or Merch programs is a great low-risk option to consider. Building a private label brand and selling physical products come with more obstacles – including dealing with sales tax among others. But, getting into the right market at the right time can have a massive payout that will make it worth all the effort. Check out your options and start making money on Amazon today.

About the Author:

Mike Begg is the founder of AMZ Advisers, a full-service eCommerce and digital marketing consultancy focused on creating growth for brands, manufacturers and private labels across all Amazon platforms globally.

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