Amazon FBA – Chapter Three

Chapter 3

Gated Categories and Validation

Gated Categories - Watch Out!

Over time, Amazon has restricted popular product categories. Some categories are gated because they have a higher standard of quality and require certifications. For instance, health and beauty products are a gated category because of the chemicals and ingredients associated with this product. People or companies need to provide proper documentation for their health and beauty products.

Don’t spend too much time in gated categories for your first product.

Gated doesn’t mean you can’t access these categories; Amazon just requires documentation such as a verified reseller of this product from its distributor, certificates from the factory for certain material, purchase order forms, and more.

The gated categories are constantly changing depending on the industry, so we won’t provide a list for you here. Sellers on Amazon have reported gaining access into these categories without documentation if their account is in good standing. This means they’ve been selling products for a certain amount of time, have high sales volume, and good seller feedback. Some categories will be accessible to new sellers over time once their records are established.

Don’t spend too much time in gated categories for your first product. Make this a goal since it’s harder to get into and therefore, less competitive.

Validate your product selection

Now that you’ve found products to source, you want to decide whether this product will turn a profit for you. Amazon has created a simple tool called the FBA calculator to assist you in your research on revenue and profitability.

Visit Amazon’s FBA calculator here.

There are two ways to utilize this tool:

1. Search product by its keyword
2. A product’s ASIN

FBA Calculator — Takes information from an already selling product to generate its dimensions and weight. This allows you to get as close as possible to estimating your FBA fees.
Keyword — Common terms used to search for this product, typically in the title of the product or the most used search term. Example: If you’re searching for a yoga mat, type in “yoga mat”.
ASIN — Amazon’s unique identifier code for products in its database.

Disclaimer: Your FBA fees may vary depending on the dimensions of your packaging, or product weight. For example, adding an insert or thank you card may add weight to your package.

You can also type in a product keyword in your FBA Revenue Calculator such as “ski mask”. The results that populate on the first page are top performing. Go ahead and click on any of the product that look similar to the one you want to source.

A more advanced method is to insert a product’s ASIN to get closer to the weight and dimension of the product. Use this if you know exactly which product you’re looking to measure.

To find a product’s ASIN code, scroll to the bottom of any product where the information is before the buyer’s review section.

ASINs will be a combination of letters and numbers. Be sure you copy all digits.

Plug the ASIN into the calculator.

Below is the revenue calculator where you can plug numbers into to figure out your opportunity costs.

Plug in the retail price of the item you’ll be selling. The rule of thumb is to input the lowest price possible. When you use Jungle Scout, look at the lowest prices for the same type of product. JS will populate the first page with results reflecting the range of prices you will be competing against. Keep in mind, most people don’t generate profit for a few months. As with any business, it takes time to build up your customer base, reviews, and sales volume. Starting with a low sales price will give you a good idea of whether you can be profitable. Over time you can raise your prices.

Shipping to the U.S. depends on weight and size. We usually estimate shipping to be 30 percent of our product cost. You won’t know the true cost of the shipping until you talk to your factory and see if it offers shipping services. You might also talk to a freight forwarding company.

Take a look on Alibaba and see how much it will cost to produce your product. Keep in mind this does not include shipping costs. You can search on Alibaba for the product and see what it’ll charge for production. We go more in-depth for product sourcing below.

Because we are going to ship with Amazon FBA, we will ignore the “Your Fulfillment” section.

Let’s say we are conservative and decide to sell a product at $27 compared to the competitor’s $35. The cost of producing the product is $10. We then calculate the shipping cost at 30 percent of the production cost.

By submitting the numbers, it will generate your costs and profit below.

This gets you a $5.70 profit margin, which is not bad. We plugged in $10 as an example, but the product may be cheaper. Keep in mind that you should never sacrifice quality. Even if the figures show phenomenal results, do not cut corners as your product will not hold up over time and that could result in negative customer feedback.

Reference the example chart below to calculate a low, medium, and high sales point. This will allow you to calculate your profit margins. These figures are made up as an example. You can pinpoint numbers for your own product to calculate the net margin per unit.

Tools Mentioned in This Chapter