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Amazon Business Model

Defining the Amazon business model can be kind of a curious task, as we observe that this global trade giant increases its reach year by year, both geographically and in terms of products and services offered. To give you an idea of ​​the size of the business we’re talking about, in the time it takes you to read this simple article, Amazon may have added about a million dollars more to its revenue .

A brief history of Amazon

Back in 1994, Jeff Bezos, a former Wall Street hedge fund executive and a visionary who was already aware of the potential of the internet and the e-commerce platforms, took the decision to give the first step in creating an “online everything store” — yes, he knew steroide zu verkaufen from the beginning that this was Amazon’s objective. At first, he thought about naming the company “Cadabra” (from abracadabra ). However, his lawyer, Todd Tarbert, advised him that the name could be seen as kind of obscure. Besides, it sounded like “cadaver”, especially over the phone.

After the new name was decided, the next decision would be about the product to be sold on the e-commerce platform. Bezos found that the most logical option would be to sell books. Going against financial journalists and analysts, that just couldn’t see the growth of the internet as Bezos did, Amazon.com reached 180,000 accounts in its first year. In May 1997, Amazon.com became a public company, with $54 million on NASDAQ.

At the end of the same year, there were 1 million accounts and $148 million in revenues (what would become $610 million the following year). The company expanded rapidly and began selling music, videos, electronics, video games, software, houseware, toys, games, and more. Moreover, what attracted customers were its personalized recommendation tools and customers reviews, thus developing a community of consumers. In 2000, Amazon opened room for small companies and individuals to sell their goods through the platform.

Two years later, Amazon Web Services (AWS) was launched, confirming what Bezos claimed from the start: Amazon was not a retailer, but a technology company. From that year on, AWS has encompassed statistics on the internet for developers and marketers, its Elastic Compute Cloud that rents out computer processing power, and its Simple Storage Service, for renting data storage. Kindle e-readers appeared in 2007, fostering the e-book market.

In 2009, the company launched Amazon Encore, its first publishing line, which would also allow individuals to publish their own e-books. Two years later, it would become Amazon Publishing, aiming to develop its own titles. Well, Amazon went from a bookstore to an “everything store” and then to a worldwide e-commerce giant. But the brand definitely didn’t stop there — and its potential never seems to end. Perhaps what keeps its audience so close is its profit margin, which remains low on any product/service offered by the company.

For the buyer, it is comfortable to know that Amazon will always bring a reasonable and competitive price in all fields and products. And for sellers who use the multisided platform , it’s convenient to be sure they can easily display their products on the website and make sales on all continents on Earth. Nowadays, Amazon is recognized as the largest retailer on the planet, a brand for which not even the sky seems to be the limit .

Who Owns Amazon

Since Amazon is a publicly traded company, it is owned by a number of institutional and individual shareholders . However, Jeff Bezos, its founder, still holds a major part of the company (about 10%), making him one of the most influential shareholders in the company. However, in July 2021, Bezos stepped down as CEO to become Executive Chairman, leaving Andy Jassy for the president and CEO positions nowadays. Differently from Google x Alphabet and Facebook x Meta relations, Amazon is actually the official name of the holding group, which includes all of its arising services, such as Amazon Music, Amazon Prime Video, Kindle and Alexa devices, Amazon Web Services (AWS), among many others.

Amazon’s Mission Statement

How Amazon makes money

To understand how Amazon makes money, we need to take a look at each of the different operations that are under this big corporate umbrella. These operations have successfully helped the company achieve year-on-year profitability , which has fueled its growth. They are:

• Amazon Marketplace : The company’s first revenue stream, Amazon.com, accounts for more than 42% ($220 billion of $513.98 billion revenue in 2022 from its online stores) of the income. Third-party sellers accounted for an additional $117.71 billion of revenue. Basically, Amazon asks for a fee from its sellers to promote and advertise their products;
• Amazon Prime : It is Amazon’s subscription business model and has been vital to the brand’s growth. In exchange for a monthly fee, subscribers have access to the platform’s video and music streaming catalog, free two-day shipping, unlimited photo storage, etc. Prime currently has more than 150 million members ;
• Amazon Web Services : It is a low-cost complete IT structure platform, whose services are contracted by companies, organizations, and institutions around the world. It’s not the main source of revenue, but it is certainly the most profitable one;
• Amazon Kindle : It is Amazon’s e-reading service, where users can buy, browse and download books, magazines, and newspapers, that are available at Kindle Store . Amazon doesn’t make much money from Kindle itself, but by attracting traffic to the Prime membership plan. Besides, the platform allows independent authors to publish their info-products and e-books, charging something between 30 to 70% of royalty fees from the sales;
• Amazon Patents: The company has more than 17,600 patents , several of which are licensed by other companies. Just in 2022, the U.S. Patent & Trademark Office granted them about 2,051 patents;
• Amazon Advertising : Amazon Ad platform offers sponsored ads and videos. It is a very efficient marketing channel, since the audience that accesses the platform already intends to buy something.

Amazon’s Business Model Canvas

The Amazon Business Model can be seen in the business model canvas below:

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Amazon’s Customer Segments

The customer segments of Amazon can be divided into basically three groups: sellers, buyers, and developers.

• Sellers are all the companies that use Amazon’s e-commerce platform to sell their products to its wide audience.
• Developers are all the community involved with Amazon Web Services (AWS) — Amazon’s cloud computing platform. As its own website states , they are customers and partners “across virtually every industry and of every size, including startups, enterprises, and public sector organizations”.
• And the buyers are the millions of people across the world who acquire products and services through Amazon’s channels. Amazon tracks its customers based on some characteristics, such as interest, engagement, and personal information (age, gender, geographical space, language, among others).

Amazon’s Value Propositions

Jeff Bezos defines that Amazon’s business model is based on three value propositions : low price, fast delivery, and a wide selection of products. However, looking at these three consumer benefits, we can say that Amazon’s greatest value proposition is convenience because the audience understands that, with just the help of a device connected to the internet, they have access to the product catalog of the largest retailer in the world, with a reasonable price and an agile, safe and reliable delivery service.

Amazon’s Channels

Certainly, the Amazon website is its largest and most important channel. But important channels also include the brand’s app, Amazon Prime (its streaming, entertainment, and subscription platform), and its affiliate program. As an internet-based company, Amazon marketing strategy is basically digital, including advertisements, sponsored publications, and e-mail marketing. Overall, the company invested over $20 billion in media in 2022.

Amazon’s Customer Relationships

Amazon’s focus, no doubt, is to have a healthy and long-lasting relationship with its customers. For this reason, they maintain several communication channels open with their consumers — such as reviews and comments on the platform, telephone, online chat, and e-mail contact. Plus, they don’t usually take a lot of days to give feedback.

Amazon’s Revenue Streams

Amazon’s  revenue streams  consist of:

• One-Time Sales
• Commission on Sales
• Advertising
• Subscriptions (Amazon Prime)
• Web Services (AWS)
• Delivery Services
• Pay-Per-Use & Support Subscription

Amazon’s Key Resources

Hands down, “the one” Key Resource of Amazon is its technological infrastructure, which needs to be broad and very secure, in order to keep the whole chain running without interruption or losses ( back in 2013, Amazon was down for about 40 minutes, which resulted in a loss of more than US$ 5 million in sales ). Aside from that, other key resources include physical spaces of the company, such as offices, warehouses, supply chain structure, and automation, among others. And, of course, human resources are essential for Amazon, which needs to guarantee A-players among its designers, engineers, developers, etc.

Amazon’s Key Activities

Amazon’s key activities are all about the development, maintenance, and expansion of its gigantic platform. Therefore, the brand invests in website and app development and management, management of the entire supply chain, storage and logistics, information security on all platforms (including e-commerce, streaming, cloud computing, etc.), production of films, series, and other products for its video platform, as well as marketing for all of its products and services.

Amazon’s Key Partners

Amazon’s  key partners  consist of:

• Sellers : Certainly the most important partners of the brand, since they are the generators of Amazon’s first source of revenue. There are approximately 8 million worldwide, which guarantees more than half of the company’s revenue;
• Affiliates : Bloggers who earn a commission for any referrals that lead to a sale. In addition to helping with sales, they promote traffic to the platform;
• Developers : They are the partners of the AWS segment, or, as Amazon itself defines, “thousands of systems integrators who specialize in AWS services and tens of thousands of independent software vendors (ISVs) who adapt their technology to work on AWS”;
• Content creators : Independent authors who can publish their works through Kindle Direct Publishing ;
• Subsidiaries : They include companies that provide storage spaces, stores, and systems, in addition to brands and products developed by Amazon itself , such as Amazon Essentials , Amazon Elements , Amazon Elements, Kindle, Alexa, etc.

Amazon’s Cost Structure

The cost structure of Amazon includes its complete IT structure, customer service center, software development and maintenance, information security, and marketing, as well as all expenses involved in maintaining its physical spaces, such as fulfillment centers, sortation centers, and delivery stations.

Amazon’s Competitors

• Online stores : It’s estimated that there are over 24 million online stores nowadays. Especially regarding knowledge and quality, smaller niche shops can be “stronger” than Amazon in their fields;
• Walmart : Although a large percentage of Walmart sales comes from brick-and-mortar stores, this is another global giant with a significant presence online, being the second most popular online store in the U.S.;
• Alibaba : A China-based online retailer , specialized in wholesale selling online. It splits into separate businesses. Alibaba is focused on B2B, Taobao on B2C, and Tmall on multinational brands;
• Otto : A European online retailer, that sells products from other brands on its platform. With a user-friendly interface, some top categories include fashion, electronics, housewares, and sports;
• Jingdong (JD): Another Chinese e-commerce, and a direct competitor of Tmall (from Alibaba). It also has an English language version, Joybuy.com, which ships to more than 200 countries;
• eBay : eBay is the pioneer in C2C online selling and has evolved to offer B2C sales. Regarding visits, it only loses to Amazon and stands for about 20% of the market share;
• Flipkart : The largest online retailer in India, founded in 2007. In 2018, Walmart acquired 77% of Flipkart’s shares. Nowadays, there are more than 100 million accounts registered on the platform;
• Rakuten : Japanese e-commerce company, controlling over 14% of the total global e-commerce market. It has bought some other companies around the globe to expand its online presence;
• Newegg : The global leader in selling electronics (computers, TVs, cameras, phones, etc.) — consider that electronics is Amazon’s most popular category.
• Microsoft: With a 21% market share in the cloud services industry, Microsoft Azure is hot on the heels of Amazon’s 34% market share (2022 Q3). Since its launch in 2010, Azure has been steadily gaining market share and has proven to be a force to be reckoned with in the cloud business.
• Google : While Google still maintains a modest market share compared to the other cloud behemoths, its 11% market share in the industry serves as a foot in the door toward becoming a fierce industry competitor.

Amazon’s SWOT Analysis

Below, there is a detailed  SWOT Analysis  of Amazon:

Amazon’s Strengths

• Brand : Being an e-commerce giant, Amazon has a strong brand image in the market, and it’s ranked second in brand valuation , only behind Apple ;
• Customer orientation : Reasonable prices, personalized suggestions, and reviews make a loyal consumer community;
• Innovation : Amazon is always developing new products and services while improving its regular business;
• Cost : As Amazon does not maintain physical stores and has little inventory, it is able to keep a low-cost structure, which enables low margins;
• Large selection : The company owns an extensive product mix, allowing customers to buy everything on the same platform;
• Partners : There are more than 2 billion items available from third-party sellers. Besides, Amazon makes partnerships with local supply chain companies, to understand and meet local needs per country;
• Logistics : Amazon uses a highly efficient distribution system, and it is known for its short and reliable delivery time periods.

Amazon’s Weaknesses

• Imitable business model : Online retail businesses have become more and more common, and Amazon has been facing some strong competitors;
• Flops and failures : The Fire Phone was a big failure and Kindle Fire didn’t grow as expected;
• Workplace conditions : There have been some negative reports regarding employees’ treatment, which have affected its reputation;
• Dependence on distributors : It exposes Amazon to a wide range of issues, especially considering the renegotiation of terms.

Amazon’s Opportunities

• Expansion : Amazon can expand its operations in developing countries;
• Physical stores : More brick-and-mortar operations may engage customers and compete more strongly against box retailers;
• Acquisitions : Amazon has made some big purchases, such as Zappos, and that can increase market share and reduce competition.

Amazon’s Threats

• Regulations : Some government regulations can threaten Amazon distribution inside some countries;
• Exploitative labor : Amazon faced scrutiny from the U.S. for allegedly maintaining partnerships with sources associated with human rights abuses;
• Cybercrime : It can threaten the security of the platform and its users;
• Competition : In addition to big retail companies, Amazon also faces strong competitors in video streaming services, such as Netflix, Apple TV+, HBO Max, Hulu, Disney+, etc.;
• Recession : Online stores are not immune to economic recession, and uncertainty can impact Amazon’s sales;
• Fake reviews : Customers rely on reviews to make purchases, and the company has already deleted thousands of fake reviews from its platform.

-> Read More About Amazon’s SWOT Analysis .

Think about it: Amazon isn’t just a part of today’s business landscape, it’s shaping it. Everywhere you look—whether it’s globally or in the digital space—Amazon’s footprint is undeniable. Its rapid adaptation to market changes is impressive, but what really sets it apart? It’s their rock-solid multisided platform business model. This isn’t just a lucky break; it’s strategic genius. Now, if you’ve ever found yourself wondering just how Amazon ticks, or what’s under the hood of their roaring engine of success, I’ve got some great news for you. We’ve rolled up our sleeves and put together an in-depth guide all about Amazon’s business model. Curious? Dive in and check it out here .

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• Leading American Businesses

1200 12th Avenue South, Suite 200 Seattle, WA 98144-2734 (206) 622-2335 Www.Amazon.Com

When Amazon.com opened its cyber doors in July 1995 as an Internet bookseller, it did not even merit a mention in Time magazine. During the next four years, however, the company became not only a driving force in American business, it emerged as a shining example of how to turn an Internet start-up into a corporate empire. Because of its amazing success, Time named company founder Jeff Bezos its "Person of the Year" for 1999.

Today, Amazon.com is a household name thanks to an enormous amount of publicity and a customer base of twenty-five million. It has weathered ups and downs to become the nation's largest bookstore and one of the top businesses in the country. In addition to millions of book titles, the company also offers a wide variety of other goods, from CDs and DVDs to kitchenware, electronics, toys and games, automobiles, and computers.

Forming a Plan

In 1994, Jeff Bezos left his $1 million a year job as an investment manager at the New York City firm of D. E. Shaw & Company with the intent of starting a business to take advantage of the 2,300 percent-a-year growth of the Internet. In a story he has told in numerous interviews, Bezos said he drew up a list of the best products to sell on-line and books topped the list, primarily because of the millions of titles in print.

Once the product was decided on, Bezos and his wife moved from Texas to the Seattle, Washington, area, home to dozens of computer software companies, including the Microsoft Corporation (see entry). Bezos figured that there he would have access to a large pool of high-tech professionals. With his wife, MacKenzie, driving their 1988 Chevy Blazer west from Texas, Bezos wrote a business plan on his laptop computer. The plan included naming the company Amazon, after the world's largest river. The symbolism proved to be amazingly prophetic.

Bezos soon rented a two-bedroom house in the Seattle suburb of Bellevue and set up operations in his garage with four employees. A computer programmer, Shel Kaplan, was the first person he hired; Kaplan was given the task of developing the company's Web site. A beta, or test version, of the Amazon.com Web site was put in place in June 1995.

Bezos financed the operation with his own money and a $300,000 loan from his parents. But realizing he needed much more, Bezos contacted former co-workers and family friends and convinced fifteen of them to invest in his start-up, bringing his total capital to $1 million. With his initial investment, and after a month of successfully beta testing the Web site, Bezos was ready for business.

Amazon.com at a Glance

• Employees: 7,700
• CEO: Jeff Bezos
• Major Competitors: barnesandnoble.com

The Company Is Launched

Amazon.com officially opened for business on July 6, 1995. For the first few days, orders came mostly from family and friends. Ten days later, the first "real" customer ordered an obscure science book, Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought, by Douglas R. Hofstadter.

From then on, orders began pouring in despite little publicity. Within a month, Amazon.com had sales in all fifty states and forty-five countries. Most had heard about the company by word of mouth or stumbled across it while surfing the Internet.

Bezos, his wife, and a small group of employees did all of their work from the garage. To save money, Bezos built desks, bookcases, and other office furniture out of old doors and pieces of used lumber. To help supply electricity, he used power cables to bring electricity from the house to the garage. Once a customer placed an order, the staff would immediately request the title from one of their book suppliers. Employees had to crouch or kneel on the garage floor to pack books in shipping cartons. Everyone took turns packing books for shipment, sometimes staying up until two or three o'clock in the morning.

One Million Titles

Part of Amazon's early success can be attributed to the company offering one million new and used titles. Of these, 300,000 were available for shipment within forty-eight hours while the remaining required four to six weeks for shipment. This far exceeded the traditional bookstore that typically stocks 30,000 to 175,000 titles. Also unlike traditional bookstores, Amazon.com was open twenty-four hours a day, seven days a week. Customers could complete their transactions without ever leaving their home or office.

Another key to the company's rise was its use of the "secure sockets layer," a format developed by Netscape Communications Corporation (see entry) that encrypts (scrambles) and protects data, such as credit card information. It is built into most Web browsers, such as Netscape Navigator and Microsoft Internet Explorer, and most major Web servers. It allows credit card and other information to be securely sent from a customer's computer to Amazon.com .

Customer Is Top Priority

At about the same time Amazon.com was starting, the search engine Yahoo.com was establishing itself on the Internet as a major presence. Internet users entered key words or short phrases and were given a list of Web sites that matched their input or query. Yahoo contacted Bezos about listing Amazon.com in its "What's Cool" section. With this free publicity, Amazon.com book sales immediately skyrocketed.

As Amazon.com 's sales increased, Bezos realized it was more important than ever to stick to his core philosophy of what makes a successful company: the customer is the single most important priority, regardless of the cost. This often resulted in the company spending more to ship a book to the customer than the price of the book itself. Amazon.com absorbed the added costs to ensure that the customer received the book in the time frame originally promised.

Jeff Bezos spent months coming up with the company name for Amazon. He discarded his original idea, "Cadabra," when, in a telephone conversation, his attorney thought he said "cadaver."

Growth Spurs Move

While Amazon.com posted net sales of $511,000 during its nearly six months of operation in 1995, after paying operating expenses it actually had a net loss of $303,000. This would be the first in a series of unprofitable years for the company. Bezos, however, was not discouraged and remained confident that his fledgling business would be a success.

At the beginning of 1996, Amazon employed eleven people and moved to new headquarters, a small warehouse not far from Bezos's home. To help keep costs down, the company carried little inventory (products on-hand) and relied on speedy shipments from its suppliers. By the end of 1996, Amazon.com 's growth was phenomenal. It offered 2.5 million titles although it still carried minimal inventory. To accommodate its 151 employees, it relocated to a larger building in downtown Seattle. Its 1996 revenues showed $15.7 million in net sales and a net loss of $5.7 million. During the same year, several on-line competitors surfaced, including Book Stacks, BookZone, and Internet Book Shop.

The company's growth continued in 1997. In May, Amazon.com began offering its stock for sale to the public with an initial offering of three million shares. Opening at $18 a share, Amazon.com stock rose to $30 before closing for the day at $23.25. In one day, the stock sale raised $54 million for the company.

Lawsuits Plague Company

Two other developments proved noteworthy in 1997, both involving the nation's largest traditional bookseller, Barnes & Noble. On May 12, Barnes & Noble unveiled its own Web site and filed a lawsuit challenging Amazon.com 's claim to be the world's largest bookstore. "[It] isn't a bookstore at all," the suit stated. "It's a book broker."

An out-of-court settlement (where both parties agree to settle their dispute without the help of the court system) was reached in October. Details were not released, but Amazon.com continues to call itself the world's largest bookstore. According to its Web site, Amazon offers the Earth's Biggest Selection T M of products.

The Barnes & Noble lawsuit proved to be only the first of several legal challenges to Amazon.com . On October 16, 1998, Wal-Mart Stores, Inc. (see entry) filed suit against the company charging it with stealing distribution and merchandising trade secrets by hiring Wal-Mart executives. The two business giants reached an out-of-court settlement eighteen months later, which legal analysts saw as a victory for Amazon.com . Under the agreement, one Amazon.com employee was reassigned and all fifteen employees named in the suit were restricted in their duties relating to information systems.

Amazon Expands

In 1997 and 1998, Amazon.com 's stocks shot up as sales dramatically increased. Still, the company continued posting quarterly losses. By the end of 1998, Amazon.com offered 3.1 million titles. It reported total sales of $610 million, up 312 percent over 1997. It also had a net loss of $124 million, a 301 percent increase from 1997.

Amazon.com 's sales were boosted by expansion into the United Kingdom and Germany, as well as the addition of music, video, and gift "stores" to its Internet site. It also introduced its associates program, which allowed other Web sites to sell books through a link to Amazon.com . In addition, beginning in 1998, the company began to partially or totally take over a number of companies, including Junglee (a Web technology firm), Drugstore.com , Pets.com , HomeGrocer.com , Overstock.com , and Della.com (wedding gifts and registry.)

By the end of 2000, Amazon.com was an unquestionable force in American commerce. It partnered with Toys R Us, expanded it range of merchandise well beyond its core line of books, music, and videos, and added new technology that improved customer interaction. It also launched sites in France and Japan.

Losses Force job Cuts

Yet the more Amazon grew, the more money it lost. Early in 2000, the company announced its first-ever job cuts: 150 employees would be laid off. Net sales for the year were $2.76 billion but the company posted a net loss of $1.4 billion. Wall Street analysts said that unless Amazon.com began to show a profit, its future was uncertain. Investors and stockholders started to become nervous.

Bezos heard Wall Street's warnings loud and clear. In late January 2001, Amazon.com announced it would lay off thirteen hundred of its nine thousand workers and close its McDonough, Georgia, warehouse, one of eleven across the country. It also announced that they would eliminate a customer service center in Seattle, and operate its Seattle distribution center only during the holiday season. Finally, it also closed a distribution center in the Netherlands. Amazon.com rebounded in 2001 posting a fourth quarter net profit of $5.1 million on net sales of $1.12 billion. For the year, it reported net sales of $3.12 billion and a net loss of $567 million.

Looking Ahead

As it started 2002, Amazon.com offered more than two dozen on-line "stores," which sold products ranging from cameras, cars, and computers, to tools, toys, and travel. It also operated its own auction shop and partnered with the Target Corporation (see entry) and Circuit City. Even traditional bookseller Borders signed an agreement for Amazon.com to sell books on its behalf on-line. It expected to start selling clothing, and movie, concert, and event tickets by the end of the year. In March, Warren Jenson resigned as chief financial officer (CFO). He joined the company in 1999 and is credited with helping Amazon.com achieve its first quarterly profit.

Wall Street analysts are split over whether Amazon.com can sustain its profitability. Bezos predicts the company will stay profitable by continuing to expand its merchandise line, keeping its commitment to customer service, and operating more efficiently. "What we want to become is something completely new," Bezos said in a January 2002 interview with CNET.com . "And our vision hasn't changed at all the last few years. We want to be a place where people can come to find and discover anything they might want to buy on-line."

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Inside Amazon’s Growth Strategy

If the key to success is focus, why does Amazon work?

• Apple Podcasts

Since Amazon started as an online retailer in 1994, it has expanded into streaming, cloud computing, content creation, and even groceries. But traditional business strategy tells us that the key to success is focus. So, why does Amazon work?

“I think in Amazon’s case, everything is very tightly connected. If you remove one part, the whole becomes less,” says Harvard Business School professor Sunil Gupta . “That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?”

Gupta has studied Amazon’s growth strategy and he tells Cold Call host Brian Kenny how Amazon looks beyond traditional industry boundaries to define their competitors and why connecting products and services with their customers is at the core of their strategy.

Key episode topics include: business models, growth strategy, operations and supply chain management, innovation, technology and analytics, online retail, customer-centricity, customer experience, competitive strategy.  

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

• Listen to the original HBR Cold Call episode: If the Key to Business Success Is Focus, Why Does Amazon Work? (May 2019)
• Find more episodes of Cold Call .
• Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. Amazon started as an online retailer back in 1994. Since then, it has expanded into streaming, cloud computing, content creation, and even groceries. But if traditional business strategy tells us that the key to success is focus – why does Amazon work ? Today, we bring you a conversation with Harvard Business School professor Sunil Gupta – who has studied Amazon’s growth strategy. You’ll learn how Amazon builds its business around its customers — rather than its products and services. You’ll also learn how they look beyond traditional industry boundaries to define their competitors – and why connecting products and services with their customers is at the core of their strategy. This episode originally aired on Cold Call in May 2019. Here it is.

BRIAN KENNY: In the world of computer science, Jon Wainwright is kind of a big deal. A pioneer of computer languages, he was the principle architect of both Script 5 and Manuscript. What makes Jon a legend has nothing to do with programming. Let me explain. On April 3, 1995, Jon was in need of some work-related reading material. So, he fired up his T1 modem and navigated the fledgling internet to the beta version of a new online bookstore. With the click of a mouse, he became the very first customer to make a purchase on Amazon.com. Fluid Concepts and Creative Analogies, the book he purchased, never became a best seller. But Amazon took off like a rocket ship and hasn’t slowed down since. With a market cap larger than all other retailers combined, including Walmart, Amazon owns 49% of all online sales. In the time it takes me to read this introduction, the company will earn over 300,000 dollars. Will we ever see the likes of it again? Today, we’ll hear from professor Sunil Gupta, about his case entitled, “Amazon in 2017.” I’m your host Brian Kenny. You’re listening to Cold Call, part of the HBR Presents network. Sunil Gupta is an expert in the area of digital technology and its impact on consumer behavior and firm strategy. He is the author of the recently published, Driving Digital Strategy, a guide to re-imagining your business. This case is the perfect stepping off point to cover some of the ideas in that book, Sunil. Thank you for joining me today.

SUNIL GUPTA: Thank you for having me.

BRIAN KENNY: This is your second spin I think on Cold Call. We appreciate you coming back.

SUNIL GUPTA: I enjoy doing this.

BRIAN KENNY: Good, as long as it’s not too painful for you. I like having you here. I’ve had an opportunity to read the book. The case I think is really kind of a great foundational piece to launch into some of the ideas. I’m going to assume anybody listening to this podcast has purchased something on Amazon or watched something on Amazon Prime. I had forgotten about their modest beginnings and just how much they’ve grown and expanded and changed. The case was a great reminder of that. We’ll get into some of that. Let me start by asking you, just to set it up for us. What led you to write the case?

SUNIL GUPTA: As you said, everybody knows Amazon. At the same time, Amazon has become quite complex. I mean, they have gone into businesses that defy imagination. That raises the question, is Amazon spreading itself too thin? Are they an online retailer? Are they video producers? Are they now making movies? In strategy, we learn, everybody should focus. Obviously Jeff Bezos missed that class.

BRIAN KENNY: He didn’t come to HBS by the way.

SUNIL GUPTA: You sort of start wondering as to, what is the magic behind this? What is the secret sauce that makes Amazon such a huge success? The market gap almost touched a trillion dollars a few months ago.

BRIAN KENNY: Insane.

SUNIL GUPTA: That was the reason why I thought A, everybody knows about it, and B, it’s hugely successful and C, his business model seems to defy logic.

BRIAN KENNY: The case we know by the title takes place in 2017. Maybe you can just start us off by setting it up. How does the case open up?

SUNIL GUPTA: At that point in time, Amazon had just bought Whole Foods, which was very counterintuitive because Amazon has been an online player. So why is it getting into offline business? That was against his grain as an online player. The second thing is food is a very low margin category. You sort of say, Amazon is a technology company, its stock is going to stratosphere. Why buy a low margin business that Amazon actually had been trying Amazon Fresh for 10 years and hasn’t succeeded? Why don’t they give up? That was a starting point. But of course, the case describes all the other 20 different things that they have done in the last 20 years and asked the question, what is Amazon up to?

BRIAN KENNY: Amazon and Jeff Bezos are sort of synonymous. He’s a cult of personality there, kind of like Steve Jobs was with Apple. Jeff’s been in the news a lot lately for other reasons, you know, personal reasons. He is still obviously, probably one of the best known CEOs in the world. What’s he like as a leader?

SUNIL GUPTA: I don’t know him personally. Based on the research that I’ve done, he certainly is very customer obsessed. He’s focused on customer. He always says, “You start with the customer and work backwards.” He still takes evidently calls on the call center. The culture is very entrepreneurial, but also very heart driven. I mean, the idea for example of Amazon Prime evidently didn’t come from Jeff Bezos, it came from a low person in the organization. He’s quick to adapt the ideas if he sees some merit in it. It’s almost a 25-year-old company that still works like a startup.

BRIAN KENNY: Was the original concept for Amazon … I mean, I know he sold books originally. Was it ever really a book company?

SUNIL GUPTA: I think it started more as an online retailer. Book was an easy thing because everybody knows exactly what you’re buying. It’s no concern about the quality. His premise in the online store was a very clear value proposition of three things. One was convenience that you can shop in your pajamas, so we don’t have to fight the traffic of Boston or Los Angeles. The second was infinite variety. I don’t have the constraint of a physical store. Even if I have Walmart, which is a huge store, I can only stock so many things. As a result, you only have the top sellers. In Amazon, I can have the long tail of any product if you will. The third was price. It was cheaper, simply because I don’t have fixed costs of the brick and mortar store. I can reduce the cost structure and therefore I can be cheaper. Those were the three key value propositions. That’s how it started. The idea was, I’ll start with books and then move on to electronics and other things. But then of course, it moved far beyond being an online retailer.

BRIAN KENNY: This gets into some of the ideas in your book. I was really intrigued in the book about the notion of what kind of business are we in? Just that question alone. At face value, it looked like Amazon was a retailer. They went in directions that nobody could have imagined. The case really goes into some of a litany of all the things they tried.

SUNIL GUPTA: Right. Again, the purpose of the case was to illustrate as to how these are all connected. From a distance they look completely disconnected and completely lack of focus. Let’s start with how the concept evolved. The first thing was, as I said was online retailer. Very soon it became a marketplace. Now, what is a marketplace? They basically allow third party sellers also to sell on the Amazon platform, which is distinct from a traditional retailer. Walmart doesn’t allow me to set up shop within Walmart, but Amazon allows me to do that. Now, why would they do that? Simply because it increases the variety that they can sell on the platform. Therefore, consumers are quite happy with the variety of the product they can get on Amazon. Amazon gets commission without having the inventory and the capital cost. Perhaps the most important thing of becoming a platform is it creates what we call the network effects. If there are lots of products, everything I can buy is available on Amazon. More consumers are likely to go there. Because there are more consumers, more sellers are likely to go there. It just feeds in itself. More consumers mean more sellers, more sellers mean more consumers, and it becomes a virtual cycle. That’s why there is only one Amazon. Even if I start an online retail, which is in many ways better than Amazon, nobody’s coming to gupta.com, because buyers and sellers are not there. That became the next phase, change from online retailer to marketplace. Then it went into AWS, and you sort of say, “Well, how can it go into a technology company and compete with IBM and Microsoft?” It was competing with Walmart before.

BRIAN KENNY: That’s the web services division.

SUNIL GUPTA: That’s the web services. In fact, at that point in time, Wall Street was very down on that. They said, “What is Bezos thinking?” The idea again, if you think about it, it was very simple. Amazon was building this technology for its own purpose. And then, they started giving this technology, using this technology for the third party sellers, who were selling on its platform.

BRIAN KENNY: Let me just interrupt for a second. That’s a marked, a marked change in direction. They had always been a consumer platform. Now they’re in a business-to-business play. I bet a lot of consumers don’t even know about Amazon Web Services.

SUNIL GUPTA: Correct. Again, not in a traditional sense saying, “This is my market.” That’s simply saying, “I have this capability. There’s a demand for this capability. Can I do it?” Part of that was opportunistic also. If you remember in 2001, the dot.com bubble crashed. If you’re a B2C company, you hedge your bets and get into B2B business. Part of that may have been luck. That was, again, a change of direction. And then, Amazon started producing hardware, Kindle, and now competing with Apple. You sort of say, why is an online retailer getting into hardware production? If you think a little bit about it, the answer is very easy. Kindle was designed to sell eBooks as people move from buying the hard copy books to downloading the eBooks. The Kindle is the classic razor and blade strategy. I sell razors cheap in order to make money on the blades. I’m not making that much money Kindle, but I’m making money on eBooks, which is very different from Apple’s strategy. Apple actually makes money on devices, but Amazon is not making money on devices, or at least not making huge money on devices. Similarly, it moved into online streaming of the video content and suddenly became a competition on Netflix. You sort of say, “Why is a retailer becoming a competition on Netflix?” Again, if you think a little about it, the answer becomes clear. As you and I moved on to not buying DVDs, but actually streaming the stuff, that’s what Netflix did. They used to send the DVDs to us.

BRIAN KENNY: I remember that. I still have a couple.

SUNIL GUPTA: Amazon is very good in sort of moving with the customer. If the customer moved from buying books to eBooks, I move in that direction. If customers move from buying DVDs to streaming, I move in that direction. Now, can Amazon do it? Of course, they can. They have AWS. Netflix is one of the largest customers.

BRIAN KENNY: Are they leading or following? Are they creating a market? In the beginning it seemed like they created something entirely new. Now, are they anticipating, or are they just sort of reacting to what’s happening?

SUNIL GUPTA: No, it’s a combination of both. In some ways they are actually following the consumer behavior and say consumers are moving to a streaming and move with that. They were not the first ones. Netflix actually started the streaming thing. Then, they sort of come up with it. If you think about it, Amazon became not only distributing third party content on videos, but now they have Amazon Studio. I mean, they are making movies, and the competition now becomes Hollywood instead of Walmart. You sort of say, “What has gone wrong with Jeff Bezos? Why is he making movies?” Movies are pretty expensive business and highly risky. The key to that is to understand the purpose of the movies. The purpose of the movies is to hook the consumers from Amazon Prime. If you remember, Amazon Prime started with 79 dollars per year. The benefit at that time was two-day free shipping. Now, you and I are smart enough to sort of do the math in our heads saying, how many shipments do we expect next year, and is 79 dollars worth it or not? Bezos does not want you to do that math. He basically says, “Oh, by the way, I’ll throw in some free content, some free music, some free unique movies.” Now you can’t do the calculation. Why does he care about Prime? Right now, Amazon has about one hundred million Prime customers globally. Let’s say I get an average 100 dollars per year, that’s 10 billion dollars in my pocket before I open the store.

BRIAN KENNY: Right.

SUNIL GUPTA: The research also shows that Amazon Prime customers buy three to four times more than non-Prime customers. I mean, if you’re a Prime customer, you don’t even price shop.

BRIAN KENNY: Once you’re Prime, you’ve got to justify being a member. You buy everything on Amazon.

SUNIL GUPTA: Exactly. Your purchase increases. You become price sensitive, which is fantastic. In fact Jeff Bezos has gone public and say that every time we win a Golden Globe award for our content, we sell more shoes. The purpose of creating their own content is not to make money on the content. This is another different razor to sell you more shoes. Once you understand that, what looks like disparate business is actually extremely tied together.

BRIAN KENNY: It all comes right back to the core. They haven’t always had good ideas. Have they had some misses along the way too?

SUNIL GUPTA: I think the biggest failure was Fire phone.

BRIAN KENNY: Remind us what that was?

SUNIL GUPTA: Amazon launched their own phone. They were obviously very late in the market. iPhone was already there. Samsung had done very good. You have two major players, if not many others, who are very well established. Consumers love their iPhones. The question of course was, why is Amazon launching the phone? What are the odds of success? Clearly the odds of success were low. The reason to launch it was they didn’t want to be beholden to the iPhone or the Googles of the world. They know that the world is moving towards mobile, in terms of shopping, certainly in emerging markets, everybody’s moving to mobile shopping. If tomorrow Apple or Google sort of restrict the Amazon use, or availability of Amazon, because they’re all competing with each other now. It becomes a challenge. To Amazon’s credit, I mean, it’s true for all innovations. Not all innovations succeed. You’ve got to take a shot. If you think about it, all the technology and thought process that got into Fire phone, was not completely a waste. That went into Echo. Now Alexa is a big hit.

BRIAN KENNY: They’re a market leader in that in that. Let’s talk a little bit about the ideas that underlie his Amazon case. I think it starts with knowing what business you’re in. Your book addresses this. I think I know we’re in the education space here at Harvard Business School. Should we be thinking about other businesses?

SUNIL GUPTA: You’re right. The bigger question that Amazon case raises is: how do you define what business you are in? Most of us tend to define business by the traditional industry boundaries. If I’m a bank, I’m in banking and other banks are my competition. I think industry boundaries are getting blurred today. Amazon can get into banking. I have lots of customers, I can start giving loans to small and medium enterprises.

BRIAN KENNY: They know a lot about those customers.

SUNIL GUPTA: They know a lot about customers. The key asset is now customers and data, and not the product and services that you offer. Once you know about customers, you can do lots of different things. One thing is, I would say is the industry boundaries are getting blurred. You need to think about not competition, but what do customers want. Do I have capabilities to serve that? The second thing is the traditional definition of where competitive advantage comes from is changing. What I learned, in doing my MBA class many years ago, we used to read Michael Porter’s competitive strategy stuff. If I were to simplify and summarize what I learned in competitive strategy was competitive advantage comes from making your product better or cheaper. Differentiation or cost leadership, which makes sense. If you think about it, it’s very much product-focused. I think in today’s world, competitive advantage comes from connecting products and connecting customers. The Kindle and eBooks is an example of connecting products, multiple products right? Making movies of Amazon and selling more shoes is connecting products. Razor and blade have been around forever. I think what is different today is razor and blade could be in completely different industries. Movies and shoes. The other side is connecting customers. We are in a network economy. That’s why there is only one Facebook, or one WhatsApp. If you are the only person on Facebook, what’s the value of Facebook? Not much, unless you love yourself. As more and more people get onto Facebook, the value of Facebook increases. It’s not about improving product. Without changing product, Facebook value increases. I think in this connected world that we live in, it’s about connecting products and connecting consumers.

BRIAN KENNY: We’ve got a lot of listeners out there. Many of whom are probably leading firms of one kind or another. How do they even go about exploring redefining their business?

SUNIL GUPTA: I think again, you need to think about what is your key asset? Everything starts with the consumer. In the Amazon case, you move with the consumer to some extent. I asked the same of a company for a medical device manufacturer. I said, “Who’s your competition?” The typical answer is: the other medical devices. Medical business is now becoming a lot about data. Google is getting into that. Apple. iPhone is becoming a medical device. Suddenly you have a very different kind of player getting into this thing. When I say, “What business are you in?” You need to think about who might actually get into that business and that changes the whole picture.

BRIAN KENNY: Why is Amazon so good at engaging customers?

SUNIL GUPTA: I think it comes from the culture of being customer obsessed, that no matter what the customer is right. They deliver on that promise. I mean, the level of convenience that customers expect from companies has changed. It used to be, if a company delivers a product within a week, that was considered good. Now, if you don’t deliver on the same day it just seems awful. They’ve raised the bar in everything. Of course, they’re using technology very effectively, whether it’s in their warehousing, whether now they’re investing in drones. I think they’re still a 25-year-old startup.

BRIAN KENNY: That’s another point that I wanted to touch upon. They’re able to adapt their supply chain it seems almost effortlessly to whatever business direction they move in. Is it possible for another entry to come into this space and scale in the same way that Amazon has? Is this a once-in-a-lifetime type thing?

SUNIL GUPTA: That’s a tough question. I think Amazon, it’s not that they’re adapting supply chain for everything, right? For example, I don’t think Amazon supply chain is ready for delivering frozen food yet. If I have a supply chain to ship you electronics, I can use the same supply chain to ship you prescription medication. That opens up another billion dollar, several billion dollar market. If I call myself an online retailer, I will never think of prescription drug delivery. If I think of my capabilities, I have the warehouse to deliver electronics and books. Why can’t I deliver your prescription medication? That opens up completely different businesses.

BRIAN KENNY: What are the kind of pitfalls that you need to be careful of, as you start to move into adjacent markets?

SUNIL GUPTA: I think definitely the big challenge is: how far do you go? On one hand it’s good to expand the business scope because the industry boundaries are getting blurred. The danger is do you lose focus? The classic challenge of losing focus. There’s a balance. I think in Amazon’s case, if you notice, everything is very tightly connected. If you remove one part, the whole becomes less. That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?

BRIAN KENNY: We’ve done a couple of cases on Cold Call that touch on the organizational impact of firms that move into new businesses. Some of them are examples of where it’s benefitted the employees. In other cases, it seems to have disrupted the culture in negative ways. How do you see this playing out at Amazon? Does it impact them in any way?

SUNIL GUPTA: If you look at Amazon, it has grown the top line 20, 25% every quarter without fail, except for one quarter in 2001. Right now, it’s in 2019, their sales are 232 billion. I don’t know that many companies, which grow at that rate, even when they’re over 200 billion. I think, if you’re on a winning team, that as an employee, it has to energize you. If you are in a culture which encourages experimentation and innovation, it has to excite you. At the same time, I’m sure it’s a very demanding culture, and there have been reports about how demanding the culture of Amazon is. It probably is not for everybody. For the people who are innovative, who are entrepreneurial, who want to be on a winning team, I’m sure it’s an exciting place.

BRIAN KENNY: There are sort of shades of Apple there. I mean, I think Apple had the same reputation. You’ve discussed this case in class with students.

SUNIL GUPTA: Oh, many students.

BRIAN KENNY: What are sort of the top line things that surprise you as you discuss it?

SUNIL GUPTA: The nice thing about this case is, everybody knows Amazon as a consumer. Everybody has shopped at Amazon. It’s very easy case. In fact, it’s a very short case that I give, at the opening of most sessions. People see it as very surface level. They sort of don’t realize the deep insights that comes out. As a three page case, you sort of say, I will be done in ten minutes, but then you peel the layers of the onion. That was a shocking thing to them, as to how you peel the layers of the onion and how you see the connection across different things. Why did Amazon buy Whole Foods? It makes no sense. Why did they get into AWS? It makes no sense. When you start un-peeling that layer, you see the connection as to why Amazon is doing all these different things. I think that’s the “A-ha” moment that comes across.

BRIAN KENNY: Much more on that in your book. How’s the book doing?

SUNIL GUPTA: Book is doing great.

BRIAN KENNY: Great.

SUNIL GUPTA: Fabulous. It was released in August. I’ve been going around on tour for many, different parts of the world.

BRIAN KENNY: I bet you can buy it on Amazon.

SUNIL GUPTA: You can certainly buy it on Amazon.

BRIAN KENNY: That’s great. Sunil, thanks for joining us today.

SUNIL GUPTA: Thank you very much Brian.

HANNAH BATES: That was Harvard Business School professor Sunil Gupta – in conversation with Brian Kenny on Cold Call . If you liked this episode and want to hear more of Harvard Business School’s legendary case studies in podcast form – search for Cold Call wherever you get your podcasts. We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review – if you want more articles, case studies, books, and videos like this, be sure to subscribe to HBR at HBR.org. This episode was produced by Anne Saini, Ian Fox, and me, Hannah Bates. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.

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How jeff bezos got the idea to sell 'everything' on amazon.

Amazon ( AMZN ) is known for selling nearly everything, from electronics to disinfecting wipes, but of course the e-commerce giant started out selling only books when it launched in 1994.

In a fireside chat last week at The Economic Club of Washington D.C., Amazon’s chief executive explained the original business plan for the company focused entirely on selling books online — an idea that occurred to Bezos in 1994 after calculating the nascent internet was rapidly growing at roughly 2,300% a year.

“I looked at that and was like, I should come up with a business idea on the internet and let the internet grow around this,” Bezos recalled. “And so I made a list of products and started force-ranking them, and I picked books, because books are super-unusual in one respect, which is there are more items in the book category than there are items in any other category,” Bezos recalled. “There are 3 million different books active and in print around the world at any given time. So, the founding idea of Amazon was to build a universal selection of books.”

Emailing 1,000 customers

But after the company also began selling music and electronics in the late 1990s, Bezos turned to Amazon customers to figure out how he could further expand the business.

“I emailed 1,000 randomly selected customers, and asked them, ‘besides the things we sell today, what would you like to see us sell?’” Bezos recalled. “And that answer came back incredibly long-tailed. Basically, the way they answered the question was whatever they were looking for at that moment. One of the answers was, ‘I wish you sold windshield wiper blades, because I really need windshield wiper blades.’ And I thought to myself, we can sell anything this way! And then we launched electronics and toys and many other categories over time.”

The rest is history for Amazon, which now sells a wide array of items from third-party merchants, not to mention Amazon itself. During the company’s second quarter, online store sales generated $27.2 billion, with nearly $9.7 billion generated from third-party sellers. Put another way: Amazon has “built $840 billion of wealth for other people” over the last 21 years, Bezos added.

Those kinds of figures, as well as Amazon’s aggressive and successful push into areas such as cloud computing and advertising, have helped catapult Amazon into the stratosphere. The Seattle tech giant’s market cap crossed $1 trillion in early September, making it the second U.S. company to do so after Apple ( AAPL ) accomplished a similar feat in August.

A bumpy few months

Still, Amazon, like other tech giants, has had a bumpy few months. Amazon stock dipped over 3% on Monday following a Wall Street Journal report claiming employees accepted bribes in exchange for confidential information, bringing the company’s market cap down to almost $931 billion. However, Bezos has cautioned employees in the past not to worry too much about fluctuations in the company’s stock.

“At almost every all-hands meeting, I say, ‘Look, when the stock is up 30% in a month, don’t feel 30% smarter, because when the stock is down 30% in a month, it’s not going to feel so good to feel 30% dumber,” Bezos explained.

Instead, Amazon’s chief executive has his sights set on future quarters.

“None of the people who report to me should really be focused on the current quarter,” Bezos explained. “Sometimes, we’ll have a really good quarterly conference call or something, and Wall Street will like our quarterly results. People will stop me and say, congratulations on your quarter, and I say, ‘Thank you.’ But what I’m really thinking is, that quarter was baked three years ago. Right now, I’m working on a quarter that’s going to reveal itself in 2021 sometime. And that’s what you need to be doing: you need to be looking to two to three years in advance.”

Last week’s surprisingly frank discussion additionally covered a wide range of topics. The 54-year-old Amazon chief executive also reflected on his stepfather, a Cuban immigrant, and his mother, who had Bezos in Albuquerque, New Mexico, when she was 17 years old. He spoke of the virtues of getting eight hours of sleep each night, which enable him to make “a small number of high-quality decisions.” He also acknowledged that big businesses like his should be scrutinized .

Bezos even disclosed Amazon would reveal the location of HQ2, the company’s second headquarters, by the end of 2018 — a long-awaited announcement expected to heavily impact the chosen city’s local residents, labor, and housing.

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to [email protected] . Follow him on Twitter or Facebook .

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The Complete History of Amazon and Its Rise: From A to Z

It isn’t easy to build a commercial giant from scratch, but within just a few years, Amazon has had enough time to become one of the world's leading companies.

Amazon history is on the same level as others like Apple , Google, or Microsoft — o ne of those companies that begins in a dusty and abandoned garage and ends in a skyscraper.

This article delves into Amazon's background, how did Amazon start, when did Amazon start selling more than books, and the evolution of Amazon.

Related Reading: Alibaba vs Amazon: Comparing Two Ecommerce Giants

History of Amazon: Cadabra

Jeff Bezos , a young man fresh out of Princeton , the university he graduated from in 1986, quickly began to make a name for himself in the business world, eventually becoming vicepresident of the major Wall Street firm DE Shaw and Co. A position he left in 1994 to launch his own company in Seattle (Washington). 

After reading a report on the future of the Internet that projected annual growth of web commerce of 2,300%, in the space of a garage (Seattle in 1994), Jeff Bezos decided to build his new online company. The result of this adventure was Cadabra, the embryo of Amazon .

When the company was born, it was exclusively dedicated to selling books on the Internet . “ With more than three million titles for sale and available throughout the world, the books category has more articles than any other “, acknowledged the founder of the company in an interview.

At the same time, in his incessant quest to improve business volume, the entrepreneur soon opted to change the name of the company.

Bezos selected the name Amazon by looking in the dictionary. He chose this name because of its association with the Amazonas river and also because it began with the first letter of the alphabet.

Amazon’s slogan is From A to Z .

Amazon History: Amazon Early Days 

Bezos decided that this new business would sell books over the web, due to the large worldwide demand for literature.

Additionally, he also took advantage of the low price that could be offered for books and the great selection of titles that were available in print.

Amazon.com website was launched on July 16, 1995. Immediately beginning an exponential growth of the company and its presence on the web.

After 30 days of Amazon.com going online and without media promotion, Amazon was selling books in all 50 US states and 45 countries.

Bezos wanted to work on making the website as customer-friendly as possible and relating the site to all types of customers. The company offered discounts, affordable prices, offered topic areas to browse, books recently featured, a recommendation center, access to customer reviews… And a bunch of other customer hits!

Despite the quick takeoff, not everything could be rosy. It wasn't long before other companies started attacking the new company of having stolen his business idea, like Walmart accused Bezos's business.

When Did Amazon Start Becoming a Giant Retailer?

Amazon made its debut on the stock market on May 15, 1997, trading under the NASDAQ symbol AMZN. During its initial public offering, the company's shares were priced at $18 each, and since then, they have experienced a yet significant growth, rising by a staggering 211 times.

The business plan that Amazon decided to go for in the beginning was completely unusual and unexpected. The company didn’t expect to make a profit until four or five years later, and because of this kind of “slow” growth, shareholders began to complain that the company wasn’t reaching profitability fast enough to justify its investment and even it wasn’t fit for long-term survival.

In November of 1997, Amazon opened an East Coast distribution center in New Castle, Delaware, in order to serve customers on the East Coast. 

In 1998, Bezos’s company continued to grow so much that it expanded its offering to other products, such as music, video game or movie compact. Amazon ended the second quarter of this year as strong as ever.

During the final year of the 20th century, Amazon pioneered a platform for third-party sellers to market used items through what it initially termed zShops , now recognized as the Marketplace. This initiative garnered swift success, with a remarkable one-quarter of consumers making purchases through this service within the initial months.

Besides, Bezos ended the year by the big door when Time magazine honored him with its prestigious “Person of the Year” award.

In 2000, the company took a total turnaround transforming itself into a marketplace and allowing its users to find and sell a variety of products and services online with the highest levels of quality and guarantee in the market.

Having now fully entered the 21st century, Amazon adventured to take another huge step in its relentless evolution.

In 2002, the company continued to diversify by launching Amazon Web Services (AWS) . This service is a cloud service platform that provides a variety of infrastructure services such as storage, networks, databases, application services, messaging, and artificial intelligence, among others. AWS has a presence in 190 countries around the world.

Amazon Web Services data centers are in the United States, Japan, Australia, Brazil, Europe and Singapore. Actually, Amazon’s biggest source of operating profit is its AWS program .

In 2004, Amazon bought Joyo.  This company used to sell books and other media products, shipping to customers nationwide.

Joyo was renamed “Amazon China” when Jeff Bezos acquired the company. The acquisition deal also included control over other Chinese subsidiaries and partners owned by Joyo.com. China boasts immense popularity in the realm of ecommerce, standing as one of the largest and most influential markets in the world. Additionally, China has became the largest exporter in the world.

In 2005, Amazon launched the popular Amazon Prime service , which allows products sold by the company as well as those of third parties sellers , to be shipped completely free of charge in a period never exceeding 48 hours. 

When Amazon launched its Fulfillment By Amazon (FBA) service in 2006, it was a groundbreaking program.

FBA, or Fulfillment by Amazon, is a program empowering sellers to list and sell items on the Amazon platform. It offers the convenience of storing merchandise in Amazon's warehouses, and Amazon takes charge of shipping to customers, managing refunds, returns, and ensuring top-notch customer service. This relieves sellers from the intricacies of handling the entire process independently.

Thus began an ascending pyramid of growth for Amazon, that's why Amazon t hird-party sellers are part of the core of Amazon and are one of the most important sources of income, along with AWS, since m ore than 50% of all Amazon sales come from third-party sellers.

Despite the rapid diversification of the company, there were still many projects that Bezos hadn’t had time to touch on.

He began to acquire companies and start new projects such as Joyo (the largest online seller of books and electronics in the Chinese market), Audible (audiobooks company), Zappos (shoe shopping site), IMDB, Good Reads, Kiva Systems (robotics company), Twitch (social video game streaming site), Whole Foods , and The Washington Post , among others, to his portfolio.

On top of that, Amazon introduced its own innovations, including Kindle, Echo, Alexa, Fire Tablets, and Fire TV.

Amazon's success truly lies in viewing people not just as consumers but as valued customers, consistently prioritizing them over sellers.

Their vision is still met with skepticism, particularly from third-party sellers who feel most impacted. Nevertheless, this skepticism has become a central aspect of their success today.

Amazon has evolved the world of e-commerce, the ability for customers to rate products and wish lists, the ease of one-click purchases, and flexibility in returns.

Amazon Ethical Concerns and Criticisms

The success of the largest companies of our time, which tend to belong to the technology sector, is usually explained by their capacity for innovation, their high inventiveness and by risk when others didn’t.

In 2020, the global economy took a severe blow due to the pandemic. During this period, the surge in Amazon's share value significantly augmented the fortune of its founder and CEO , Jeff Bezos, between January 1st and October 31st, 2020.

Also, the company has suffered strikes in some of its departments due to insecurity and to demand higher wages protections, while it has been accused of firing people for criticizing the company.

In this context, articles such as “ How Does an Amazon FBA Warehouse Work and What are the Conditions? I Worked at One ” offer a nuanced perspective on the intricate operations of Amazon.

Amazon is one of the most profitable companies in the world. In fact, it has more revenue than many states. According to the income level of the 100 largest economies in the world , 69 are companies and the rest are states, thus far surpassing the power and influence of most countries in the world. 

There’s a common and unfriendly strategy in its continual growth plan: offshoring. The transnationals move their production to countries with fragile social and labor protection systems and with no environmental legislation.

Additionally, these companies use tax havens to avoid paying taxes generating losses of one billion dollars a year. The result is an unprecedented concentration of wealth, inequality, systematic human rights violations, and the destruction of ecosystems.

Despite the seriousness of the human rights violations and environmental crimes of many transnational companies, there is no international agreement that holds them accountable. When the law doesn’t work the same way for everyone, there’re always players who benefit from it.

Transnational corporations systematically prioritize profit over the environment and human rights. They are very well protected and can very rarely be held responsible for the violations they commit, which is why a legally binding treaty is necessary that allows victims access to justice and makes companies have to assume responsibility for their violations.

In 2014, the Binding Treaty was released. This is a process that obliges transnationals to respect human rights and the environment.

FTC is Fighting Tech Giant Amazon

Amazon is the success story of one of the world's largest tech companies, where billions of dollars are dedicated to creating businesses capable of offering a product at the lowest possible price. 

Amazon’s theory is if it makes consumers happy with low prices and return policies where third-party seller loses out, they will leave Amazon alone and thrive. This is how Amazon has managed to build a huge empire, evading the scrutiny of regulators.

Few people have spoken out against Jeff Bezos' monopolistic practices. Among them, is Margrethe Vestager, European Commissioner for Competition, who after two years of investigation, the European Commission has not gathered enough evidence to prove how Amazon manipulates its algorithm to give greater visibility to its products over those of third party sellers.

On this side of the pond, Lina Khan, appointed in 2021 by the Joe Biden Administration as commissioner of the U.S. regulator, published “The Antimonopoly Paradox of Amazon” in 2017, explaining some of the key strategies of how to “hunt” Amazon. In this report, Khan turned decades of antimonopoly economic theory on its head.

In the 1970s and 1980s, laws in the United States changed to decide what is and is not a monopoly based on consumer interests, that is, whether there is price competition or not. Lina argues that to determine if there is real competition in a sector, especially in the case of online platforms, one must analyze the structure and dynamics on which that sector is based. 

“In addition to being an ‘online' store, it is also a ‘marketing' platform, a logistics network, a payment provider, financial services provider, a book publisher, a producer of series and movies, a fashion designer, a device manufacturer, and one of the world's largest cloud services providers,” details Khan.

The possible solution proposed by Khan is to consider these massive ‘online' platforms as something akin to public goods, like water, electricity, or gas, and regulate and intervene to eliminate price and service discrimination. 

At the beginning of 2023, the Federal Trade Commission (FTC) started planning on filing a lawsuit against Amazon over its alleged anticompetitive practices. 

But since 2021, the FTC has repeatedly pointed fingers at Amazon. The agency accused it of enrolling millions of consumers in its paid subscription service, Amazon Prime, without their consent and making it difficult for them to cancel.

In 2021, a complaint was filed, alleging that Amazon is violating FTC rules with how they run their ads.

In June 2023, Amazon reached an agreement to pay a civil penalty of $25 million to resolve accusations of violating a child privacy law . The allegations pertain to the storage of children's voice recordings and location data collected by their widely-used Alexa voice assistant.

In addition, Amazon had also agreed to provide customer refunds of $5.8 million as part of a settlement regarding alleged privacy breaches related to its doorbell camera product, Ring.

Final Thoughts

Starting with books, Amazon has spread its tentacles to other business areas ranging from the sale of all kinds of products to cloud services.

Further, attention to the consumer has taken Amazon to the top and become a giant that few can stand up to. 

In the last fifty years, in the full effervescence of capitalist idealism, we have witnessed the creation of multiple empires that have ended up dominating the world in their sectors. Empires that, on their way to growth, have ruthlessly devastated wherever they have passed.

The case of the history of Amazon is no different. From its beginning, in the mid-1990s, Amazon has been involved in numerous controversies.

The business model of this company has been criticized by the booksellers and publishers sector; in its logistics centers, according to some of its workers, they work under not very favorable conditions; and also, an investigation has been initiated on the fiscal practices of Amazon.

These are just a few examples that show that growth does come at a price after all. Amazon has become a true giant that is on its way to dominating the world of eCommerce globally (if it doesn't already).

Helena Fernandez Morano

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Nice writeup! I thought Amazon was initially called “Relentless”?

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Amazon Business Model | How Does Amazon Make Money?

Jeff Bezos once said, “There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.” And it won’t be wrong to say that Amazon is constantly trying to achieve lower prices for its enormous user base.

Amazon has become a one-stop destination for everyone’s shopping needs and is correctly called ‘the everything store’.

Today, the company has a market capitalisation of $117 billion. With such a complex ecosystem comprising several entities and millions of customers, it is crucial to understand every aspect of this ecommerce giant’s business model.

Dive right in to know all about Amazon’s business model, operating model , and revenue sources.

Amazon Business Model

Amazon has come a long way from being a simple, one-sided ecommerce company to developing its own massive ecosystem. Today Amazon has incorporated various units within its business model, including a one-sided platform, two-sided marketplace, web services, kindle marketplace, an app store, prime video, game studio, and even retail stores called Amazon Go. All these diverse ventures add to the revenue stream of Amazon, making it one of the biggest companies in the world.

Although Amazon deals in numerous products and has set foot in multiple industries, its core business model is based on an ecommerce market platform. Thus to completely understand the massive business model of this tech giant, it is crucial first to take a look at the Amazon marketplace. 

What Is Amazon Marketplace?

Amazon first started as a digital bookstore when only 0.447% of the total world population had access to the internet. Today it has evolved into the world’s largest retail marketplace platform and is popularly called ‘the everything store.’

The Amazon marketplace is an online two-sided ecommerce platform where third-party sellers and Amazon sells products from various categories, including electronics, gaming products, apparel, home decor, B2B business products, garden products, etc. The marketplace provides a platform for buyers and third-party sellers to interact and trade.

Amazon marketplace also includes the Kindle store, which allows readers to browse and download various e-books, newspapers, magazines, etc. Thus, the marketplace provides a platform to publishers and readers where they can trade and interact. 

Who Are Amazon’s Customers And What Value Does It Provide?

Amazon’s consumers are the people who use the marketplace for their shopping needs. The platform provides multiple options to the consumers at the lowest prices with fast deliveries and an overall enhanced shopping experience.

Amazon is a customer-centric company and provides immense value to its customers through its easy-to-use and easy-to-browse interface, review systems, recommendations, and gift certificates. Moreover, the platform has greatly reduced the shopping time as now customers complete around 28% of their purchases in three minutes or less. All these features combined contribute to customer value creation which gives them more incentive to use the platform. According to Amazon’s annual report, the total customer value creation in 2020 itself was $164 billion ! 

Amazon’s Operating Model

Amazon operates on the business model of a two-sided marketplace. It provides a platform for the buyers and sellers to easily interact and trade with each other without much hassle or difficulties. The company has designed a vast operating model to fulfill the needs and demands of each consumer. It manages the production, packaging, shipping, and delivery of a large number of products to provide everything to customers at the lowest possible price.

Key Resources

Amazon uses various resources to keep its business up and running.

• One of the major resources is its warehouses and fulfilment centres used for packaging, shipment, and delivery of products.
• Amazon’s technological infrastructure, including the website, the app, and the developers, are extremely important for the platform’s functioning.
• Other resources include the company’s executives in various departments, including customer relationship management, marketing, content development, etc. 

Key Partners

Amazon’s key partners are the sellers or the merchants who use the marketplace to reach buyers and sell their products. Amazon provides a platform to such third-party sellers to easily interact with an established base of buyers and trade with them. It has partnered with many third-party sellers who offer a wide variety of products and hence provide multiple options to the buyers.

Although sellers are the partners, Amazon treats them as its customers as they can either sell on Amazon or some other marketplace.

Key Channels

Amazon delivers its services to the customers through three main channels including:

• The Amazon website,
• The application, which is available on PlayStore as well as App Store and,
• The physical stores called Amazon Go where the company has harnessed technology to provide an easy and speedy shopping experience.

Customer Relationships: Reviews And Customer Service

One of the main goals of Amazon’s business model is to constantly enhance customer experience on the marketplace and build strong customer relationships. The company has always been customer-centric and has successfully mastered customer relationship management by offering convenience, low prices, multiple options and an overall enhanced shopping experience. Some of the strategies used by Amazon for customer relationship management are:

Network Effect

In 2001, Jeff Bezos, CEO and founder of Amazon, drew up Amazon’s famous virtual cycle that aptly describes the company’s business model.

Amazon’s key objective has always been selling products at the lowest prices. That is why even though the company has the opportunity to translate its lower cost structure into profits and return some profits to shareholders, it passes them on to the customers through network effects .

The network effects create a loop where the low prices of products on Amazon enhance customer experience, driving more traffic to the platform. The increase in traffic and number of customers induces more third-party sellers to join the network, increasing the options available to the customers. This, in turn, further enhances the customer experience by providing various categories of products at low prices.  

Moreover, Amazon uses the revenue generated from increased sales to improve its cost structure further. A big portion of the revenue goes to improve fulfilment and delivery networks which further lowers the cost structure. Amazon has used network effects and marketing strategies since the very beginning, which has helped the company to expand and take over various industries successfully.

Amazon Fulfilment Options: The Supply Chain

Inventory management is a key task for Amazon as the company deals in such a wide variety of products. Amazon provides various fulfilment options to the merchants, including:

• Fulfilment By Amazon (FBA) where Amazon stores, packs and ships the product through its fulfilment centres
• Easy Ship where the merchant stores and packs the product but Amazon delivers it.
• Fulfillment By Merchant (FBM) where the merchant handles storage, packaging and delivery of the product.

Therefore, Amazon stores most of the products placed on the marketplace and hence has to manage a large amount of inventory. So to satisfy customers with speedy delivery, the company has managed to create an efficient inventory management system and order picking process.  Each product in the Amazon distribution network goes through 5 centres:

• Crossdock centres where packages from vendors are stored until more stock is required
• Fulfilment centres where the products are stored and packed for delivery.
• Sortation centres where packages are sorted and routed by zip code before sending them to delivery stations.
• Delivery stations where deliveries are handled by USPS, FedEx or UPS.
• Amazon Prime Now Hubs where Amazon manages the products which have to be delivered within 2 hours of purchase.

How Does Amazon Make Money?

Amazon works on a complex business model with various value propositions and different customers. But its main source of revenue is the marketplace and ecommerce stores which form the foundation for its other businesses. For example, in 2019, the company had net sales of $280 billion and a net profit of $11 billion, and around 50% of sales were from ecommerce stores.

Revenue Sources

The Amazon marketplace has multiple revenue sources such as:

• Sales: Amazon works as an ecommerce platform and sells its products on the platform. A considerable percentage of Amazon’s revenue comes from the sales of these products. The company competes with other third-party sellers and brands to attract customers on the marketplace and promotes its own brand.
• Listing fee: Amazon charges a listing fee from third-party sellers to list their products on the platform. The fee starts at 2% of the product price and varies for various categories of products.
• Commission or Closing fee: Amazon charges a commission from the merchants every time a product is sold through the platform. The commission depends on the price of the said product and the fulfilment channel used by the merchants.
• Prime subscriptions: Amazon also offers prime subscriptions to the customer for an enhanced shopping experience on the platform. The prime members get access to unlimited free, fast deliveries, prime video where they can stream the latest movies and tv-shows, prime music where they can enjoy ad-free music streaming along with unlimited offline downloads, free in-game content on popular mobile games, unlimited 5% reward points, prime reading, and exclusive access to top deals and coupons. The membership costs $119 per year and $12.99 per month.
• FBA (Fulfilled by Amazon): Amazon offers various fulfilment options to merchants. They can either go for FBA, where Amazon stores, packs, and delivers the product to the customer, or they can go for easy shipment where the merchant stores and packs the product while Amazon delivers it. The company charges a different fee based on the option chosen by the merchant.
• Kindle direct publishing: Amazon offers publishing services to independent authors as well as publishers. The company publishes the book, makes it available on the kindle store, and provides the author 70% royalty.

Cash Conversion Cycle

Amazon’s cash conversion cycle is one of the most important strategies of its business model. The company generates short-term liquidity by receiving payments from the customers before paying for the product to the suppliers. This allows Amazon to invest in its growth using the suppliers’ balance rather than being tied up in the inventory loop.

Using this mechanism, Amazon has successfully dominated various industries and diversified its portfolio from being an online bookstore to ‘the everything store’.

What Makes Amazon’s Business Model Unique: The Pricing Strategies

Amazon is known for its low and competitive prices across diverse categories of products. However, the Amazon business model depends on offering the lowest prices to the customers and offering prices that reflect market changes and keep up with the competition. The company achieves this using artificial intelligence, machine learning and around 1 billion gigabytes of data pertaining to its 1.5 billion products and about 200 million users.  

Here are some pricing strategies used by the e-commerce giant to keep its prices up to date:

• Dynamic pricing: Amazon changes the prices of various products on the marketplace about 2.5 million times a day. Thus, an average product listed on Amazon would change price every 10 minutes! The dynamic pricing allows the company to keep its prices competitive and has even helped Amazon boost profits by 25% on an average. The real-time pricing considers data from various sources like customer activity, the available inventory of a product, order history, preferences set for a product, expected margin on the product, and more.
• Psychological pricing: Another strategy used by Amazon to keep its prices competitive and to attract more customers is psychological pricing or price perception strategy. An average customer often finds that prices on Amazon are the lowest among all its competitors . This is because of Amazon’s pricing algorithms. The company provides huge discounts on best-selling and popular products but raises the prices on uncommon products. Now, whenever a customer searches for the most common products on Amazon, they will find the most affordable prices which will further induce them to assume that the platform has lowest prices overall.
• Competition monitoring and repricing: Every retailer on Amazon constantly keeps a tab on the prices offered by its competitors and considers repricing its own products to attract more customers on the platform and achieve the ‘buy box’ position. Amazon uses its algorithms to keep track of the changing prices and tanks the products offered by various retailers accordingly.

Go On, Tell Us What You Think!

Did we miss something?  Come on! Tell us what you think about Amazon Business Model in the comment section.

An enthusiastic human being with determination and zeal to explore new ventures. Tanya is an entrepreneurial spirit searching for changes and learning to exploit them as opportunities and impacting people for good.

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March 13, 2024

Written by Tomas Kellner

Everything you need to know about Amazon Business, one of Amazon’s fastest-growing ventures

Meet the new Amazon Small Business Academy, an expanded suite of free resources for entrepreneurs

Amazon’s Small Business Academy gives early-stage entrepreneurs and small business owners the tools, resources, and networking opportunities to help grow their businesses online.

Who can open an Amazon Business account?

How does amazon business work.

What does Amazon Business offer beyond vast selection, low prices, and convenience?

Small business owners can now get fast, free delivery when they shop on Amazon Business

Now Prime members get Business Prime Duo free, offering small business owners fast, free delivery and exclusive Amazon Business pricing and analytics.

Does Amazon Business have a Prime membership program?

How do customers use amazon business, how do small businesses benefit from shopping on amazon business.

Amazon's Buy with Prime increases shopper conversion by 25% on average

No longer invitation only: Buy with Prime will be widely available to more U.S.-based merchants by January 31, 2023.

What attracts large customers to Amazon Business?

Who sells on amazon business.

How do small and diverse businesses benefit from selling on Amazon Business?

Where is amazon business available.

How to Create an Effective Amazon FBA Business Plan

Blog > how to create an effective amazon fba business plan, table of content, introduction, understanding the amazon marketplace, market analysis and competitor research, defining your unique selling proposition (usp), product selection and sourcing, branding and packaging, pricing and profitability, inventory management and order fulfillment, amazon seo and listing optimization, marketing and promotions, customer service and reviews, financial projections and budgeting, scaling and growth strategies, exit strategy and contingency planning, our other categories.

• Company Valuation
• Pitch Deck Essentials
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• Startup Guide
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Reading Time : 30 Min

Business plan 101.

In the dynamic world of e-commerce, Amazon FBA (Fulfillment by Amazon) has emerged as a game-changer for aspiring entrepreneurs. As a startup consultant service provider, Stellar is committed to supporting your journey to success on the Amazon platform. This comprehensive guide will walk you through the process of creating a well-structured and successful Amazon FBA business plan . From market analysis and product selection to marketing strategies and financial projections, we’ve got you covered. With our step-by-step approach, you will gain the tools and knowledge to navigate the complexities of Amazon FBA and unlock the keys to a thriving e-commerce venture. Let’s dive in and make your Amazon FBA dreams a reality together!

The first step in creating a successful Amazon FBA business plan is understanding the e-commerce landscape and the prominence of Amazon as a major player in the industry. Here, we explore Amazon’s dominance, the advantages of using FBA, and the importance of conducting market research to identify profitable product niches.

The Rise of E-Commerce and Amazon’s Dominance: The global e-commerce boom has transformed the way consumers shop, and Amazon stands at the forefront of this digital revolution. As of [cite latest statistics], Amazon has captured [percentage] of the U.S. e-commerce market share, making it the undisputed leader. Its vast customer base, efficient logistics network, and fulfillment capabilities have given rise to the popularity of Amazon FBA among sellers.

Example: In [year], Amazon’s revenue reached [dollar amount], demonstrating its significance in the e-commerce industry.

An Overview of Amazon FBA and Its Advantages: Amazon FBA is a program that allows sellers to store their inventory in Amazon’s fulfillment centers. Amazon then handles the storage, packaging, and shipping of products, as well as customer service, returns, and refunds. This streamlined process offers several benefits to sellers, such as Prime eligibility, faster shipping, and access to Amazon’s loyal customer base.

Example: [Seller’s Name] used Amazon FBA to expand their business internationally and witnessed a [percentage increase] in sales within the first [number of months] of enrollment.

Conducting Market Research on Amazon: To succeed on Amazon, it is essential to conduct thorough market research. Understand your target audience, their preferences, and pain points. Leverage Amazon’s own data and tools to identify trends, evaluate demand, and explore opportunities.

Example: By analyzing Amazon’s Best Seller Rank (BSR) and conducting keyword research, [Seller’s Name] discovered a high-demand product category with low competition, leading to their product’s success on the platform.

Identifying Profitable Product Niches: Identifying the right product niche is crucial for long-term success. Focus on products with sufficient demand and profitability potential, and assess the level of competition to carve a niche for yourself.

Example: [Seller’s Name] capitalized on the growing trend of sustainable and eco-friendly products, offering unique items that resonated with environmentally conscious consumers.

Understanding the market landscape and analyzing competitors are vital components of a robust Amazon FBA business plan. In this section, we delve into the importance of market analysis and competitor research and provide actionable tips to gain insights into your competition.

The Importance of Market Analysis: A comprehensive market analysis helps you understand the market size, trends, and growth potential for your product category on Amazon. It provides a solid foundation for your business plan and helps you make data-driven decisions.

Example: [Seller’s Name] identified a surge in demand for home fitness equipment during the pandemic through market analysis, leading them to pivot their product offerings and achieve remarkable sales growth.

Analyzing Competitors on Amazon: Identifying and analyzing your competitors’ products, pricing strategies, and customer feedback can offer valuable insights. Understanding their strengths and weaknesses allows you to differentiate your brand and products effectively.

Example: By studying competitor listings and customer reviews, [Seller’s Name] identified a gap in the market for premium quality products at competitive prices, positioning themselves as a top choice among customers.

Utilizing Tools and Data for Insights: Leverage various tools and data available on Amazon to gain deeper insights into customer behavior, keyword rankings, and competitor performance. Amazon’s Seller Central and third-party software offer valuable data for informed decision-making.

Example: [Seller’s Name] used an analytics tool to track keyword performance and made strategic adjustments to their product listings, resulting in increased organic traffic and sales.

In a competitive Amazon marketplace, defining a compelling Unique Selling Proposition (USP) is essential for standing out and attracting customers. This section explores the importance of a strong USP and provides guidance on crafting one that resonates with your target audience.

Understanding Your Product’s USP: Your USP is what makes your product different from others in the market. Identify the unique features, benefits, or solutions your product offers and how they fulfill the needs of your target customers.

Example: [Seller’s Name]’s eco-friendly cleaning product line offers biodegradable packaging and natural ingredients, appealing to environmentally conscious consumers seeking sustainable alternatives.

Crafting a Compelling USP for Amazon Shoppers: Your USP should be communicated clearly and concisely in your product listings. Craft compelling product titles, bullet points, and descriptions that highlight your product’s key selling points and how it addresses customer pain points.

Example: [Seller’s Name] created an attention-grabbing product title that emphasized their product’s time-saving benefits, leading to higher click-through rates and conversions.

Leveraging Your USP for Brand Positioning: Your USP forms the foundation of your brand positioning on Amazon. Consistently convey your USP across all marketing touchpoints to build brand recognition and loyalty.

Example: [Seller’s Name] developed a brand story centered around their USP, reinforcing their commitment to sustainability and creating a brand that resonates with environmentally conscious consumers.

Selecting the right products for your Amazon FBA business is crucial to your success. In this section, we explore criteria for product selection and various sourcing options to help you make informed decisions.

Criteria for Selecting Products for FBA: Choose products based on factors such as demand, competition, and profitability. Consider products with consistent demand and long-term potential.

Example: [Seller’s Name] used market data to identify products with seasonal demand and adjusted their inventory levels accordingly to maximize profitability.

Different Sourcing Options and Their Pros and Cons: Select the sourcing method that aligns with your business goals and budget. Options include manufacturing, private labeling, wholesale purchasing, and more.

Example: [Seller’s Name] opted for private labeling to create a unique brand identity while avoiding the complexities of manufacturing from scratch.

Ensuring Product Quality from Suppliers: Maintaining product quality is essential to build trust with customers. Establish a thorough vetting process for suppliers to ensure consistent quality.

Example: [Seller’s Name] partnered with suppliers who adhered to strict quality control standards, resulting in positive customer feedback and reviews praising the product’s quality.

Branding and packaging play a crucial role in shaping your customers’ perception of your products and brand. In this section, we explore the power of branding and share tips for designing informative and visually appealing packaging.

The Power of Branding on Amazon: A strong brand identity creates trust and loyalty among customers. Develop a brand story that resonates with your target audience and reflects your core values.

Example: [Seller’s Name] incorporated their passion for health and wellness into their brand story, connecting with health-conscious consumers seeking premium products.

Designing Eye-Catching and Informative Packaging: Your product packaging serves as a first point of contact with customers. Design packaging that not only catches the eye but also communicates essential product information effectively.

Example: [Seller’s Name] designed packaging that showcased key product features and usage instructions, reducing customer inquiries and returns.

Building Customer Loyalty through Branding: Consistent branding across all touchpoints fosters customer loyalty. Provide a memorable and cohesive customer experience to encourage repeat purchases.

Example: [Seller’s Name] used branded inserts and follow-up emails to thank customers for their purchases and offer exclusive discounts on future orders.

Setting the right price for your products is crucial for balancing competitiveness and profitability. In this section, we explore pricing strategies and how to calculate all costs involved in Amazon FBA to ensure healthy profit margins.

Pricing Strategies for Competitive Advantage: Consider factors such as production costs, competitor pricing, and customer perception when determining product prices.

Example: [Seller’s Name] used a competitive pricing strategy, positioning their products slightly below competitors to attract price-sensitive shoppers while maintaining profitability.

Calculating All Costs for FBA: Understand the various costs involved in the Amazon FBA process, including fulfillment fees, storage fees, shipping costs, and other expenses.

Example: [Seller’s Name] kept meticulous records of all costs associated with FBA, allowing them to make data-driven decisions and optimize their pricing strategy.

Achieving Healthy Profit Margins: Strive for profit margins that ensure sustainability and growth. Monitor and adjust pricing strategies as needed to maintain profitability.

Example: [Seller’s Name] consistently monitored their profit margins and adjusted pricing during peak seasons to capitalize on increased demand without compromising profitability.

Efficiently managing inventory levels and order fulfillment is essential to meet customer demand and maintain a positive shopping experience. In this section, we explore best practices for inventory management and understanding Amazon’s FBA fulfillment process.

Efficiently Managing Inventory Levels: Optimize inventory levels to prevent stockouts and overstocking. Use inventory management tools and demand forecasting to ensure timely replenishment.

Example: [Seller’s Name] implemented inventory management software that provided real-time insights into stock levels, reducing instances of stockouts and optimizing inventory turnover.

Understanding Amazon’s FBA Fulfillment Process: Learn how Amazon handles order fulfillment, including receiving, storage, picking, packing, and shipping.

Example: [Seller’s Name] regularly monitored Amazon’s FBA inventory reports to ensure products were consistently in stock and available for fast shipping.

Ensuring Timely Order Fulfillment: Meeting Amazon’s performance metrics for order processing is critical to maintaining a healthy seller account. Prioritize timely shipping and minimize order processing delays.

Example: [Seller’s Name] implemented a streamlined order fulfillment process that reduced order processing times, resulting in improved seller performance metrics.

Amazon SEO (Search Engine Optimization) is essential for improving product visibility and driving organic traffic to your listings. In this section, we delve into Amazon SEO best practices and how to optimize product listings effectively.

The Role of Amazon SEO in Product Visibility: Understand Amazon’s search algorithm (A9) and its impact on product rankings. Optimize your product listings with relevant keywords to increase visibility.

Example: [Seller’s Name] optimized their product titles and bullet points with high-converting keywords, resulting in improved search rankings and increased organic traffic.

Optimizing Product Listings with Persuasive Content: Craft product titles, bullet points, and descriptions that highlight your product’s key features and benefits. Use compelling images and Enhanced Brand Content (EBC) to engage customers.

Example: [Seller’s Name] used EBC to create visually appealing product descriptions that showcased their product’s unique selling points, leading to higher conversion rates.

Best Practices for Amazon SEO: Stay updated with Amazon’s SEO best practices and algorithm changes. Regularly A/B test your product listings to identify high-performing variations.

Example: [Seller’s Name] conducted regular A/B tests on their product titles and images, using data-driven insights to refine their listings and boost conversions.

Promoting your products effectively is key to driving sales and increasing visibility. In this section, we explore Amazon advertising, promotions, and off-platform marketing strategies.

Leveraging Amazon Advertising (PPC) to Drive Sales: Amazon’s advertising options, including Sponsored Products and Sponsored Brands, offer opportunities to reach a broader audience and drive sales.

Example: [Seller’s Name] used Amazon Sponsored Products to increase their product’s visibility and experienced a surge in sales during a holiday promotion.

Running Promotions and Deals to Attract Customers: Lightning deals, coupons, and other promotions help attract new customers and encourage repeat purchases.

Example: [Seller’s Name] ran a limited-time coupon promotion that resulted in a significant increase in sales and brand exposure.

Integrating Off-Platform Marketing Strategies: Complement your Amazon marketing efforts with off-platform strategies such as social media marketing, influencer collaborations, and email marketing.

Example: [Seller’s Name] leveraged social media influencers to promote their products, resulting in increased brand awareness and a boost in sales.

Providing exceptional customer service and managing product reviews are essential to maintaining a positive reputation on Amazon. In this section, we explore strategies for delivering top-notch customer support and obtaining positive reviews.

Providing Exceptional Customer Service on Amazon: Respond promptly to customer inquiries and address any issues or concerns. Excellent customer service leads to positive reviews and repeat business.

Example: [Seller’s Name] established a dedicated customer support team to provide timely responses to customer inquiries, leading to higher customer satisfaction rates.

Strategies for Obtaining Positive Reviews: Encourage satisfied customers to leave positive product reviews through follow-up emails and post-purchase engagement.

Example: [Seller’s Name] included personalized thank-you notes in their packaging, prompting customers to leave reviews and share their positive experiences.

Managing Negative Feedback Constructively: Address negative reviews professionally and proactively. Resolve customer issues to turn dissatisfied customers into loyal brand advocates.

Example: [Seller’s Name] promptly addressed negative reviews and offered personalized solutions, leading to positive follow-up reviews from previously dissatisfied customers.

Accurate financial projections and budgeting are crucial for making informed business decisions. In this section, we explore how to create realistic financial forecasts and allocate budgets for growth and marketing.

Creating Realistic Financial Forecasts: Accurate financial projections are vital for budgeting and decision-making. Forecast sales, expenses, and cash flow over a specific period.

Example: [Seller’s Name] used historical sales data and market trends to create realistic financial forecasts, aiding them in making strategic investment decisions.

Estimating Revenue, Expenses, and Profitability: Calculate net profit, gross margin, and return on investment (ROI) to gauge the business’s financial health. Differentiate between fixed and variable costs and their impact on profitability.

Example: [Seller’s Name] tracked their expenses meticulously, identifying areas where cost optimization could be achieved to improve overall profitability.

Allocating Budget for Growth and Marketing: Determine the appropriate allocation of resources for marketing initiatives and inventory management. Develop strategies for cost optimization while ensuring adequate funding for growth opportunities.

Example: [Seller’s Name] allocated a portion of their budget for Amazon PPC campaigns and reinvested a percentage of profits into launching new product lines.

Planning for long-term growth and expansion is essential for sustaining success on Amazon. In this section, we explore strategies for launching new products, entering new markets, and adapting to changes in the Amazon marketplace.

Planning for Long-Term Growth and Expansion: Cultivate a growth-oriented mindset and identify opportunities for expanding your product lines or entering new Amazon marketplaces.

Example: [Seller’s Name] expanded their product offerings to complement their existing line, catering to the diverse needs of their loyal customer base.

Strategies for Launching New Products and Entering New Markets: Conduct market research and product testing before launching new products. Build pre-launch marketing strategies to generate anticipation and buzz.

Example: [Seller’s Name] conducted a beta launch for their new product, gathering feedback from a select group of customers before the official launch, resulting in a successful product rollout.

Adapting to Changes in the Amazon Marketplace: Stay updated with Amazon policies, trends, and algorithm changes. Develop strategies for adapting to market shifts and changes in consumer behavior.

Example: [Seller’s Name] closely monitored Amazon’s policy updates and adjusted their marketing strategies to align with new guidelines, ensuring compliance and continued growth.

Even with a thriving Amazon FBA business, it is essential to have an exit strategy and contingency plans in place. In this section, we explore exit options and strategies for managing potential challenges.

Considering Exit Options for Your Amazon FBA Business: Understand exit options, such as selling your Amazon business to another entrepreneur or Amazon aggregator. Consider the factors that influence the value and attractiveness of your Amazon FBA business.

Example: [Seller’s Name] explored various exit options, ultimately selling their successful Amazon FBA business to an Amazon aggregator, allowing them to pursue new ventures.

Developing Contingency Plans for Potential Challenges: Identify potential risks and challenges in the Amazon marketplace and develop contingency plans for business continuity.

Example: [Seller’s Name] had contingency plans in place for potential supply chain disruptions, allowing them to navigate challenges such as logistics delays effectively.

Building a Resilient and Sustainable Business Model: Create a business model that can withstand challenges and capitalize on opportunities. Emphasize adaptability and continuous improvement in building a sustainable Amazon FBA business.

Example: [Seller’s Name] continuously optimized their business operations and product offerings, ensuring their business remained relevant and profitable amidst changing market dynamics.

Congratulations! You have completed our comprehensive guide on how to create an effective Amazon FBA business plan. With the knowledge and insights gained from this guide, you are now equipped to embark on your ecommerce journey with confidence. Remember that success on Amazon requires dedication, adaptability, and a commitment to providing exceptional customer experiences. As your partner in success, Stellar Business Plans is here to support you every step of the way. Let’s make your Amazon FBA business thrive and leave a lasting impact in the world of e-commerce. Happy selling!

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Updated On : September 2, 2023

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Amazon FBA Business Plan Template

Written by Dave Lavinsky

Amazon FBA Business Plan

Over the past 20+ years, we have helped over 1,000 entrepreneurs and business owners create business plans to start and grow their Amazon FBA businesses. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through an Amazon FBA (Fulfillment by Amazon) business plan template step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is an Amazon FBA Business Plan?

A business plan provides a snapshot of your Amazon FBA business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes target market research to support your plans.

Why You Need a Business Plan for an Amazon FBA Business

If you’re looking to start an Amazon FBA business, or grow your established business, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your Amazon FBA business in order to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Amazon FBA Businesses

With regards to funding, the main sources of funding for an Amazon FBA business are personal savings, credit cards, bank loans and angel investors. With regards to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to confirm that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business.

Personal savings is the other most common form of funding for an Amazon FBA business. Venture capitalists will usually not fund an Amazon FBA business. This is because most venture capitalists are looking for millions of dollars in return when they make an investment, and an individual Amazon FBA could never achieve such results.  With that said, personal savings and bank loans are the most common funding paths for Amazon FBA businesses.

Finish Your Business Plan Today!

How to write a business plan for an amazon fba business.

If you want to start an Amazon FBA business or expand your current one, you need a business plan. In the following Amazon business plan template, we detail what should be included in each section of your own business plan.

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of Amazon FBA business you are operating and the status. For example, are you a startup, do you have an Amazon FBA business that you would like to grow, or are you operating multiple Amazon FBA businesses or storefronts?

Next, provide an overview of each of the subsequent sections of your plan. For example, give a brief overview of the Amazon FBA industry. Discuss the type of Amazon FBA business you are operating. Detail your direct competitors. Give an overview of your target market. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.  

Company Analysis

In your company analysis, you will detail the type of business you are operating.

For example, you might operate one of the following types of Amazon FBA businesses:

• Reseller : this type of business finds products from other businesses to resell on Amazon.
• Private Label: this type of business buys existing products and rebrands them to sell on Amazon.
• Proprietary: this type of business is where a business creates a unique product to sell on Amazon.

In addition to explaining the type of Amazon FBA business you will operate, the Company Analysis section of your Amazon FBA business plan needs to provide background on the business.

Include answers to question such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, number of positive reviews, growth in product line, etc.
• Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

While this may seem unnecessary, it serves multiple purposes.

First, researching the industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your strategy, particularly if your research identifies market trends.

The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

• How big is the Amazon FBA industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your Amazon FBA business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: Millennials, Generation X, and Baby Boomers.

As you can imagine, the customer segments you choose will have a great impact on the type of Amazon FBA business you operate. Clearly, Baby Boomers would respond to different marketing promotions than Millennials, for example.

Try to break out your target market in terms of their demographic and psychographic profiles. With regards to demographics, the customer segments may include a discussion of the ages, genders, locations and income levels of the customers you seek to serve. Such demographic information is easy to find on government websites.

Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other Amazon sellers.

Indirect competitors are other options that customers have to purchase from that aren’t direct competitors. This includes traditional brick and mortar stores, branded websites, or people who make their own product at home. You need to mention such competition as well.

• What types of customers do they serve?
• What types of products do they sell?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide a broader range or higher quality product line?
• Will you provide services that your competitors don’t offer?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For an Amazon FBA business, your marketing plan should include the following:

Product : In the product section, you should reiterate the type of Amazon FBA company that you documented in your Company Analysis. Then, detail the specific products you will be offering. For example, in addition to your core product line, will you provide customization, or warranties, or any other services?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the products or services you offer and their prices.

Place : Place refers to the location of your Amazon FBA company. Document your location and mention how the location will impact your success. For example, if you are offering a proprietary product, is your production facility located near an Amazon distribution facility, or near suppliers of the inputs needed to make the product, etc. Discuss how your location might be the ideal location to minimize order fulfillment time.

Promotions : The final part of your marketing plan is the promotions section. Here you will document how you will drive customers to your location(s). The following are some promotional methods you might consider:

• Digital Advertising
• Partnering with applicable websites
• Social media marketing
• Amazon PPC ads

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your business, including managing, tracking, and restocking inventory, and customer service.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to sell your 1,000 th product, or when you hope to reach $X in revenue. It could also be when you expect to expand your business to a new product line.  

Management Team

To demonstrate your Amazon FBA business’ ability to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally you and/or your team members have direct experience in supply chain management or managing Amazon FBA businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing ecommerce shops or successfully running small businesses.  

Financial Plan

Your financial model should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.

Income Statement

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your Amazon FBA business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement

• Production facility build-out including design fees, construction, etc.
• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Taxes and permits
• Legal expenses

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your product line description or your branding portfolio.

Putting together a business plan for your Amazon FBA business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the Amazon FBA industry, your competition, and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful Amazon FBA business.

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Free Amazon FBA Business Plan PDF [2024 Template + Sample Plan]

Anthony St. Clair

12 min. read

Updated August 1, 2024

Free Download:  Sample Amazon FBA Business Plan Template

When figuring out how to turn eCommerce into your side hustle or primary business, Amazon FBA can be your ticket to starting a small business on Amazon . With over 4.1 billion products sold by independent sellers on Amazon in 2022 alone, Amazon’s marketplace for online sellers is growing, competitive, and full of opportunity .

In order to take full advantage of everything Amazon’s ecosystem has to offer your business, you should create an Amazon FBA business plan . Your Amazon business plan can help you think through your vision, understand the competition, identify opportunities, and foresee challenges. The better your plan, the better your chance at success as an Amazon FBA merchant.

What is Amazon FBA? 

When your business sells products to a customer online, those orders go through a fulfillment process, such as:

• Secure payment processing
• Selection and packing of the correct item or items in the order
• Package labeling
• Shipment and delivery of orders to customers
• Customer service throughout all steps of the process

A business can manage this on its own. On a small business or solopreneur scale though, that can mean figuring out logistical steps that take up a lot of time. For example, where will you store the products you sell? Warehouse space can be costly—and there’s only so much room in your apartment or garage.

Plus, once you have the products ready to go, they need to be securely packaged, including padding to protect during bumps and drops during shipping. You’ll have to figure out how the order gets on its way to the customer. Do you schedule regular pickups from UPS or FedEx? Are you making lots of trips to the post office, waiting in line, or setting up the customer’s shipping address and shipping options to generate labels?

Or, Amazon can do it all for you. The “FBA” in Amazon FBA is short for “Fulfillment by Amazon.” Instead of you taking care of the fulfillment steps above, you can pay a fee to Amazon , typically a flat monthly fee plus a per-order fee. Instead of managing orders, you can focus on sales strategy, suppliers, marketing, and the nitty-gritty of building, expanding, and profiting from your Amazon FBA eCommerce store .

As you develop your business plan, you can review Amazon’s FBA program , see how it fits your business goals, and evaluate the program’s costs and opportunities in your planning.

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• How do you write an Amazon FBA business plan?

For starters, focus overall on your business. Amazon FBA is a way to solve a problem and fulfill a need in your business, but it isn’t the entirety of your business. As you start working on your Amazon FBA business plan , think through what sort of business you are building. Amazon FBA can have a role, but so might other sales and distribution channels. Here are five things to keep in mind as you write your Amazon FBA business plan.

1. Determine what kind of Amazon seller you’ll be

Your business will be selling products online. So, what products will you be selling—and what sort of seller will you be? Depending on the types of products you want to sell, you’ll make different decisions about choices such as product sourcing and your overall business model. Here are three models to consider : Reseller, Private Label, or Proprietary.

A reseller sources products from other companies and then sells them to customers on Amazon. Being a reseller can be the easiest and cheapest way to get started in Amazon FBA. Startup costs can be as low as $500, depending on the products you are purchasing for reselling.

However, the downside is that other companies can just as easily follow the same model (and sometimes Amazon itself sources or creates products that may be the same as yours). It may also be challenging to figure out how to stand out in the market. If focusing on a reseller model in your Amazon business plan, examine competitors, similar products currently on the market, and what sort of marketing and promotional strategies can help you build sales and a customer base.

Private Label

If your focus is on building a recognized product brand and growing customer loyalty, while primarily sourcing pre-made products you can resell, a private label Amazon business model could be a good fit for your business. Manufacturers worldwide specialize in creating unbranded products that other companies can brand and sell. Also known as a “white label” product, building your business around private label sourcing can help you develop a distinctive product brand that customers look for.

Consider focusing your business plan around the characteristics you want your brand to embody. That can help you identify white label products that are a good fit. A private label Amazon FBA business model may also require more capital, for investing in labeling, packaging, brand development, and marketing.

Proprietary

For the Amazon seller who wants to go all-in on business, marketing, product development, and commerce on Amazon and beyond, developing and selling your own proprietary products can have both the most work and investment, but also the best chance to stand out and profit in the market.

Developing your own product will require the most up-front investment and capital. Your business plan can discuss the risks and challenges your business might face during product development and getting products to market, and how you are prepared to meet those challenges.

Creating your own product also opens up opportunities to patent that product. Plus, it can be easier to sell your product in other stores or channels beyond Amazon.

Different business models have different impacts on your value proposition as an Amazon seller

As you make your business plan, examine each type of seller and its impact on your value proposition. How can you use a seller type to offer value to the customer and win sales? What problem will you be solving in the market, and how will one model help you more than another

2. Conduct market research and solidify your brand position

Between Amazon and its third-party sellers, combined Amazon carries over 353 million products . In 2018 alone, Amazon sales accounted for 49.1% of all US online retail spending, and over 20 million people visited the site each month.

While being an Amazon FBA seller can be an easy way to get your eCommerce business underway, it is also extremely competitive. As you develop your business plan, examine:

• Understand the needs and wants your product can fulfill.
• Who will want to buy your product, and for what reasons?
• Who might your competitors be, what sort of marketing tactics do they use, and where are there opportunities for your brand to perform better?
• How will you brand your business on Amazon and beyond? Figuring out your business’s branding can help build the customer base that will buy from you on Amazon and other platforms where you sell your products.

Key to your business plan and your chances for success are figuring out a certain sweet spot of what products you can sell that will make you the right amount of profit. When evaluating products to offer, also take a look at how much that product is searched on Amazon , how much competition there is for it or similar products, how easy it is to source your products from suppliers, and the right price point.

3. Sales and marketing strategy

Inside Amazon FBA, you can estimate the fees Amazon will charge you, but there will be other costs to account for in your business plan too. From social media to paid advertising, there are many ways to get the word out about your products. Your business can pay for keyword-based advertising on Google and Amazon. You can also work on posting to social media, as well as advertising or paying for influencer content creation on platforms such as Facebook, Instagram, TikTok, and Pinterest.

As you develop and implement an ads strategy, keep an eye on your average cost of sale (ACOS): Aim to keep it low enough to preserve profits, usually with an ACOS of 10% or less.

Also consider your overall sales strategy not just for Amazon, but beyond. What other retailers would be a good fit for your product? Will you have your own in-house eCommerce store on your business’s website? Having multiple sales channels can make your business more durable and help your operation weather ups, downs, competition, or other problems.

Another part of your sales strategy is sourcing. Many Amazon FBA sellers source products from other countries, such as China. Understanding your suppliers and the cost to acquire your products can help you make out your business’s costs, revenues, and financial forecasts.

4. Startup costs and financial projections

Depending on factors such as your business model, startup capital, and what products you plan to sell, you can then use your business plan to understand the financial path your business can take. As you develop the financials portion of your plan, try to find good estimates for costs such as:

• Supply and sourcing

Combined with an understanding of your profit margins and product costs, you can map out realistic financial projections as you start the business and begin operating it day in and day out. Running the numbers in your business plan can help you determine if your Amazon FBA business could be financially profitable. It can also help you evaluate if you need to take a fresh look at your idea to see what you need to change to make the business more viable.

5. Milestones and partners

You’ll need to consider sales and fulfillment milestones that help ensure that you are appropriately anticipating demand and not overspending or overestimating need. Outlining who you’ll be partnering with (vendors/3rd party fulfillment and quality assurance providers) will also be necessary here.

Succeeding in your Amazon FBA business also depends on knowing what goals you want to meet, and who you will be working with. Some of those milestones might be quantitative, such as an amount of gross revenue achieved or an overall number of sales.

Other milestones can speak to factors that can help you optimize your Amazon business. For example, if your business increases sales to a specified level, you might be able to reduce your unit costs by ordering more products at a time. Those volume discounts can add up quickly to significant additional net revenue on your bottom line.

Your overall business decisions throughout the year also depend on understanding market conditions, supply chain pressures, upcoming trends, and more. The key is to figure out how to best estimate demand, stock levels, pricing, and other costs, while overspending on inventory or advertising, and also not overestimating the market’s need or desire for your products.

Along with Amazon, your business will also rely on other stakeholders or third parties. If you are running the business with partners, or if you have employees or work with independent contractors, you’ll need to take into account their costs, compensation, and expectations. Noting your partners, such as suppliers, quality assurance providers, retail partners (in addition to Amazon FBA), and other service providers such as attorneys and accountants in your business plan helps keep those relationships top of mind.

• Amazon FBA development tips for startup growth

As you work on your business plan and get your startup off the ground, there will be other questions to answer, challenges to meet, and opportunities to evaluate. Here are a few Amazon FBA tips that can help you get more out of your business and your Amazon business plan.

Build an audience outside of Amazon

Amazon is a powerful retail channel, but they are not the only game. Plus, having only one sales channel makes your entire operation dependent on only one company, which can put your profits or business at risk. Amazon can be a vital part of your eCommerce strategy. You can better weather business ups and downs, and potentially draw on more revenue streams, by having sales and marketing channels outside of Amazon. Develop active social media presences, partner with other retailers, and also look at selling directly through your own website. When you diversify your sales channels, you can spread risks and potentially grow sales more than with Amazon alone.

Optimize your Amazon product listings

Just like online content can be optimized for search engines such as Google, your Amazon product listings can be optimized to better fit customer expectations and Amazon’s own algorithms:

• Display multiple photos, including product images from various angles as well as in-use photos
• Make a simple introduction video, less than one minute, that talks about the product and shows the customer how it works and some of its key features
• Examine Amazon for search terms, or keywords, that customers will be using to find products like yours. Incorporate those terms throughout your product headings and text.
• Speaking of text, good product copy gets across not only what the product does and what it is, but how it fills the customer’s need or want.
• Add product FAQ to draw in more keywords and discuss other aspects of the product that customers want to know more about.

Get customer reviews

In your packaging and online correspondence, ask customers to leave an honest review about your products. You can learn a lot about how your product is or is not meeting their expectations. Plus, customer reviews can be gold mines for other product features or benefits to include in your Amazon description.

Leverage Amazon features

From Amazon Ads to enhanced A+ content , Amazon has a diverse range of features that sellers like you can put to work for your business. As part of your business planning, estimate a budget for advertising on Amazon, and also for creating visual and text content that can be incorporated into your product page’s A+ content. These are just a few of the many features that can help your Amazon FBA business sell more . Also check out Amazon’s global selling , multi-channel fulfillment , FBA customer service .

• Download your free Amazon FBA business plan pdf

Get started by downloading our free Amazon FBA business plan PDF can give you the template you need to start setting up your Amazon FBA business—and start building sales and customers around the world. This Amazon business plan is just one of hundreds of free business plan templates that have been time-tested by our team and by thousands of entrepreneurs all over the world.

Amazon is a competitive marketplace used by hundreds of thousands of sellers around the world. However, barriers to entry are low, and there is an opportunity for new sellers to find their niche in this market as well. Your Amazon FBA business plan can help you think through the challenges and opportunities that you’ll face in today’s eCommerce environment. You’ll also be able to identify potential business challenges—as well as milestones and opportunities that can help you both monitor your business’s progress and see where you can grow.

Whatever you want to sell on Amazon, get going: Get your free Amazon FBA business plan today .

Anthony St. Clair is a business copywriter, author of the Rucksack Universe travel fantasy series, and a craft beer writer specializing in Oregon. Learn more at anthonystclair.com.

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How to Write Amazon FBA Business Plan? Guide & Template

In the bustling world of e-commerce, establishing a foothold on Amazon can be a lucrative venture. However, success doesn’t come by chance. To navigate the competitive landscape and build a thriving business, entrepreneurs need a strategic roadmap — an Amazon FBA business plan. This article delves into the intricacies of crafting a comprehensive plan, exploring its significance, funding options, and providing a step-by-step guide.

What Is an Amazon FBA Business Plan?

Before diving into the intricacies of creating a plan, let’s clarify what an Amazon FBA (Fulfillment by Amazon) business plan entails. In essence, it’s a detailed document outlining your business goals, target audience, marketing strategies, financial projections, and operational plan. This blueprint serves as a roadmap, guiding your Amazon FBA journey from inception to sustainable growth.

Why Do You Need a Business Plan for Your Amazon FBA Business?

1. Strategic Direction:

A well-crafted business plan provides a clear roadmap, outlining your business’s mission, vision, and objectives. This strategic direction is crucial for making informed decisions and steering your Amazon FBA business towards success.

2. Investor Confidence:

Whether you’re seeking external funding or not, having a robust business plan instills confidence in potential investors, partners, and stakeholders. It showcases your commitment, vision, and the viability of your Amazon FBA venture.

3. Risk Mitigation:

By conducting a thorough analysis of the market, competition, and potential challenges, a business plan helps identify and mitigate risks. It equips you with strategies to overcome obstacles, ensuring the resilience of your Amazon FBA business.

4. Operational Efficiency:

The operational section of your business plan outlines the day-to-day activities, workflows, and logistics involved in running your Amazon FBA business. This promotes efficiency, streamlining processes for smoother operations.

Sources of Funding for Amazon FBA Businesses

Launching and scaling an Amazon FBA business often requires financial support. Here are some potential sources of funding:

1. Personal Savings:

Using personal savings is the most straightforward way to fund your Amazon FBA venture. While it avoids debt, it’s essential to assess the potential impact on personal finances.

2. Traditional Loans:

Banks and financial institutions offer various loan options for small businesses. Be prepared with a solid business plan to increase your chances of approval.

3. Investors and Partnerships:

Attracting investors or forming partnerships can inject capital into your Amazon FBA business. Highlight the potential returns and growth prospects in your business plan to attract potential investors.

4. Crowdfunding:

Platforms like Kickstarter and Indiegogo allow entrepreneurs to raise funds from a large number of backers. Craft a compelling story in your business plan to attract crowdfunding support.

How to Write a Business Plan for Amazon FBA Business?

Crafting an effective Amazon FBA business plan involves several key steps:

1. Executive Summary:

Provide a concise overview of your business, outlining its mission, vision, and goals. Include key metrics, such as projected revenue and growth targets.

2. Market Analysis:

Conduct a thorough analysis of the Amazon marketplace. Identify your target audience, assess market trends, and analyze competitors. Use tables to present data for a visually engaging experience.

3. Business Structure and Operations:

Detail the structure of your Amazon FBA business, including the team, roles, and responsibilities. Provide insights into your supply chain, inventory management, and fulfillment processes.

4. Marketing and Sales Strategy:

Outline your marketing plan, covering product positioning, pricing strategy, and promotional activities. Incorporate data-driven insights and forecasted customer acquisition costs.

5. Financial Projections:

Present detailed financial projections, including income statements, balance sheets, and cash flow statements. Highlight key financial indicators, such as break-even points and return on investment.

Amazon FBA Business Plan Example

To illustrate these concepts in action, let’s consider an example business plan for an imaginary Amazon FBA business — XYZ Tech Accessories.

Executive Summary:

XYZ Tech Accessories aims to revolutionize the tech accessory market by offering innovative, eco-friendly products. With a projected annual revenue of $5 million in the first three years, the company is poised for rapid growth.

Market Analysis:

Market Trends: The tech accessory market is witnessing a surge in demand for sustainable products. Competitor Analysis: Competitors like ABC Tech Gear and DEF Innovations dominate the market. Target Audience: XYZ Tech Accessories targets environmentally conscious consumers aged 18–35.

Business Structure and Operations:

XYZ Tech Accessories is led by a seasoned team with expertise in product design, manufacturing, and e-commerce. The company partners with eco-friendly suppliers and utilizes Amazon’s FBA services for efficient order fulfillment.

Marketing and Sales Strategy:

XYZ Tech Accessories employs a multi-channel marketing approach, leveraging social media, influencer partnerships, and Amazon Advertising. Competitive pricing and limited-edition releases are key components of the sales strategy.

Financial Projections:

Year 1 Revenue: $1.5 million Year 2 Revenue: $3 million Year 3 Revenue: $5 million Break-even point: Achieved by the end of Year 2

Crafting a robust Amazon FBA business plan is a crucial step in building a successful e-commerce venture. It provides clarity, attracts potential investors, and serves as a guide for navigating the dynamic landscape of online retail. By meticulously addressing each section — from market analysis to financial projections — you lay the foundation for a thriving Amazon FBA business.

Amazon FBA Business Plan FAQs

How do I create an Amazon FBA business plan?

To create an Amazon FBA business plan, outline your product selection process, sourcing strategy, launch plan, and financial projections. Detail your startup costs, inventory investments, and expected sales to determine profitability. Build in contingencies for issues like returns and inventory planning.

How much does it cost to start an Amazon FBA?

Starting an Amazon FBA business can cost anywhere from a few hundred dollars to over $5,000 when you account for items like inventory, shipping, brand registry, and professional seller tools. Initial costs vary widely based on product selection and sourcing.

Is doing Amazon FBA profitable?

Yes, an Amazon FBA business can be profitable due to Amazon’s large buyer pool, Fulfillment by Amazon handling logistics, and the ability to sell private label or wholesale products. Profitability depends greatly on choosing solid product opportunities and controlling costs well.

Is Amazon FBA easy to start?

Amazon FBA is relatively easy for beginners to start since you can piggyback off Amazon’s reputation and logistics network. Still, finding profitable products and navigating Amazon’s guidelines and fees take some tactical planning. Going slow is advisable.

Is Amazon FBA good for beginners?

Yes, Amazon FBA works well for beginners thanks to the extensive seller support system. As long as you research thoroughly and invest wisely at the outset, you can grow a profitable business on Amazon FBA with patience.

Does Amazon FBA require a license?

No, you do not need a license to sell on Amazon FBA. You register as either an individual or professional seller. If establishing a business entity, comply with state business licensing requirements.

Can you start Amazon FBA without money?

Though possible for under $1,000, realistically you need at least some spending money to source inventory and cover FBA membership fees when starting an Amazon FBA business. Capital gives you more product options.

What Is the Easiest Way to Complete My Amazon FBA Business Plan?

The easiest way to complete an Amazon FBA business plan is to follow Amazon’s free templates which provide a basic outline to estimate profitability more accurately as you enter details about your product, costs, and pricing.

How Do You Start an Amazon FBA Business?

The first steps in starting an Amazon FBA business are product research, identifying suppliers, finalizing a brand name, creating shipping plans, and registering as a seller before launching listings. It requires cost analysis and patience.

Written by Ivan Smith

Hello, I'm Ivan Smith, a graduate with a Bachelor of Business Administration in Marketing. Currently, I'm actively engaged in practicing business plan writing.

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2023 Analysis: Amazon Business Plan & Market Dominance

With a net sales revenue of $513.98 billion  in 2022, Amazon is one of the world’s largest and most successful companies. According to FINBOX , for the next five fiscal years , Amazon’s revenue is projected to increase by an average of  713.7 billion . What makes Amazon successful?

This dominance, however, is not achieved by chance or luck, and it results from an intensive business plan  refined over the years to achieve unprecedented success . The Amazon business model is designed to ensure that the company can achieve its goals while maintaining its position as a leader in the e-commerce industry . The plan includes strategies for revenue growth, cost reduction, and customer acquisition and retention, among other things.

The success of Amazon’s business plan is a testament to the importance of having a solid plan in place. While many factors contribute to a company’s success, a well-designed business plan is often the driving force behind it. As we deep dive into Amazon’s 2023 business plan, we’ll see how important this document is to the success of the world’s largest e-commerce company.

A Peek into Amazon’s Past: The Making of an E-commerce Behemoth

Let’s look at how Amazon transformed from a humble online bookstore to a global e-commerce powerhouse.

The Humble Beginnings of Amazon

In 1994 , Jeff Bezos  founded Amazon as an online bookstore. The company was initially named Cadabra, Inc, but Bezos quickly changed the name to Amazon, inspired by the vast South American River . The company began operations in Bezos’ garage to keep overhead costs low.

Amazon’s user-friendly website  and an extensive collection of books quickly resonated with customers. In its first month, Amazon shipped books to customers in all 50 US states and 45 countries . Amazon became the world’s largest online retailer in just a few years by focusing on customer satisfaction and continuous improvement.

From Bookstore to Diversified E-commerce Giant: The Evolution

Amazon’s journey from a simple online bookstore to a diversified e-commerce giant  includes strategic acquisitions and an expanding product range.

The company entered new markets, such as consumer electronics and apparel, and introduced new services like Amazon Prime and Amazon Web Services (AWS) , significantly increasing its overall revenue and reach.

Key factors contributing to remarkable transformation include:

• Customer obsession : By prioritizing customer needs, Amazon ensured a seamless shopping experience and high customer loyalty.
• Innovation:  Amazon continuously invested in research and development , enhancing its existing services and creating new ones.
• Global Expansion : Amazon expanded its operations worldwide, catering to customers from different regions and cultures.
• Diverse Ecosystem : Amazon developed a comprehensive ecosystem of products and services, from e-commerce and cloud computing to entertainment and logistics.

Amazon’s ability to adapt and evolve enabled it to establish a dominant presence in global e-commerce, transforming the industry.

Understanding Amazon’s Customers: Delivering Value Propositions

Amazon’s success has mainly been attributed to its ability to recognize and satisfy its consumers’ wants. By prioritizing the consumer experience, Amazon has built a solid reputation for providing value , which has helped them hold a leading position in the e-commerce sector.

This section will examine how Amazon recognizes its clients and the benefits they derive from the business .

The Wide Spectrum of Amazon’s Customer Base:

Amazon  caters to a diverse customer base across various age groups, regions, and demographics . This vast audience includes individuals , small businesses , and large enterprises .

By offering a myriad of products, services, and entertainment options, Amazon has established itself as a leading online marketplace .

The Unique Value Proposition Offered by Amazon

The value Amazon provides to its customers is unparalleled . With the following key features, Amazon distinguishes itself from its competitors:

• Convenience : Amazon’s user-friendly interface, quick delivery options, and easy returns policy make online shopping a hassle-free experience.
• Wide Product Selection : Amazon offers a vast product range, ensuring customers can find what they want in one place, invariably saving time and energy.
• Competitive Pricing:  The platform is known for offering competitive prices on products and services, making it a cost-effective option for buyers and sellers.
• Customer Reviews : Amazon’s reliable and extensive customer review system helps make informed decisions , enhancing the shopping experience.
• Amazon Prime: With Prime membership, you get exclusive benefits such as exclusive deals, free shipping, and streaming services, further enhancing the value offered to customers.

The Pillars of Amazon’s Success: Key Resources and Activities

A business plan provides direction and purpose , helps to align resources and efforts, and enables a company to measure progress and adjust course when necessary.

In recent years, Amazon has also made significant investments in technology and innovation, allowing them to stay ahead of the competition and continually improve its services.

Amazon’s Key Resources: From Technology to Human Capital

As an e-commerce giant, the technological infrastructure of Amazon plays a vital role in its success . You’ll find that their extensive use of data-driven approaches, combined with cutting-edge technology, helps them stay ahead of the competition.

Additionally, Amazon heavily invests in its human capital, understanding that a knowledgeable and efficient workforce is essential for continued growth.

The Launch of Amazon Associates

In 1996, the Amazon Associates Program  was introduced, revolutionizing affiliate marketing  in the e-commerce sector. This innovative program allowed website owners and bloggers to earn commissions by referring customers to Amazon .

By leveraging a diverse network of associates, Amazon effectively expanded its reach, increasing sales and brand visibility.

Amazon’s Key Activities and Their Impact on Growth

Amazon’s key activities mainly revolve around enhancing customer experience, investing in new technology, and diversifying its product offerings. These activities have contributed to the company’s substantial growth:

• Customer experience : Amazon consistently prioritizes the user experience by focusing on fast shipping , a seamless online shopping platform, and customer-centric policies.
• Technology investment:  From AWS to robotics in warehouses, Amazon’s cutting-edge technological adoption drives efficiencies and supports scalability.
• Product diversification:  By expanding into different markets, Amazon has become a one-stop shop  for customers, ensuring continued loyalty and growth.

Amazon’s SWOT Analysis

Amazon is a global e-commerce and has become one of the most valuable companies in the world. We can perform a SWOT analysis to understand Amazon’s strengths, weaknesses, opportunities, and threats.

• Strong brand recognition and reputation
• Diversified revenue streams, including e-commerce, cloud computing, and advertising
• Wide selection of products and services
• High customer satisfaction ratings

Weaknesses:

• Dependence on third-party sellers
• Overreliance on e-commerce sales
• Limited physical presence in some countries

Opportunities:

• Expansion into new markets, such as healthcare and finance
• Increased adoption of cloud computing services
• Continued growth in e-commerce and online advertising
• Intense competition from established companies and new entrants
• Changing consumer preferences and behaviors
• Government regulations and antitrust scrutiny

Amazon’s Diversified Patent Portfolio: A Testament to Innovation

You may already know that Amazon’s growth as an e-commerce giant is partly due to its persistent innovation. We can look at their diversified patent portfolio to see the extent of their creative efforts.

Let’s discuss the scope of Amazon’s patents and how this wide-ranging collection contributes to its competitive edge.

The Scope of Amazon Patents

Amazon’s patent holdings cover many technologies, such as logistics, aircraft technology, robotics, machine learning, and drone deliveries. This extensive range reflects their drive to innovate in every aspect of their business.

To give you an idea, here’s a brief list of patent holdings in different fields:

• 1-Click ordering system
• Fulfillment center automation
• Machine learning algorithms
• Drone deliveries

How Does the Patent Portfolio Contribute to Amazon’s Competitive Edge?

Amazon’s vast patent holdings  showcase its innovative spirit , giving them a significant edge over competitors.

By having proprietary technology , Amazon can ensure constant advancements in user experience, making them the go-to  choice for online shopping. Their patents also create hurdles for competitors, making it difficult for them to catch up or duplicate Amazon’s success .

Amazon Web Services (AWS): The Cloud Computing Cash Machine

Amazon Web Services (AWS) has become a significant revenue driver for Amazon. In this section, we’ll explore the inception of AWS, its growth, and its impact on Amazon’s overall revenue.

The Inception of AWS Services

AWS began to take shape in the early 2000s when Amazon realized that its infrastructure could be utilized to provide cloud services to other businesses . They also saw the need for a scalable, flexible cloud infrastructure that could grow with the businesses using it.

AWS officially launched in 2006, with services like S3 for storage and EC2 for computing resources. This move allowed Amazon to diversify its revenue and leverage its expertise in managing large-scale  internet services for others to utilize and build upon.

AWS Growth and Its Impact on Amazon’s Revenue

Since its launch, AWS has experienced tremendous growth in both the number of customers and the services offered . This growth has been primarily fueled by the rising demand for cloud infrastructure services , enabling businesses to scale up or down as needed without significant upfront capital investments.

AWS is one of the market’s most prominent cloud services providers, boasting a diverse and extensive customer base ranging from  startups to enterprises . Now you might be wondering about the significance of AWS in Amazon’s overall revenue .

While historically overshadowed by its retail operations, AWS has significantly contributed to Amazon’s overall revenue. In recent years, AWS has accounted for about 10-15% of Amazon’s total revenue, and its net profit margins are significantly higher than those of Amazon’s core retail business .

According to Forbes , AWS increased sales by 41%  in the recent fiscal quarter year over year, pulling in  $7.6B . This growth has been instrumental in driving Amazon’s financial performance, and it shows no signs of stopping anytime soon.

Building Strong Customer Relationships: Reviews and Customer Service

As an e-commerce entrepreneur, you know the importance of building strong customer relationships. This section will cover how Amazon achieves this through reviews and excellent customer service.

The Role of Customer Reviews in Shaping Amazon’s Offerings

Customer reviews are essential in helping Amazon improve its offerings. They provide valuable insights into what customers like and dislike about a product, allowing sellers to adapt accordingly. Furthermore, reviews help other customers make informed decisions when shopping on Amazon .

Amazon encourages users to leave reviews by making the process user-friendly and seamless. The more reviews a product has, the more trust it garners, increasing the likelihood of future sales. In turn, this strengthens customer relationships and promotes loyalty.

Top-notch Customer Service in Amazon’s Business Strategy

Excellent customer service is crucial to the Amazon business model . They understand that addressing issues  and concerns can improve a customer’s experience, and providing top-notch customer service  impacts customer retention and overall satisfaction.

To maintain its commitment to customer service, Amazon has implemented various strategies , such as offering a comprehensive help center, easy returns, and a responsive customer support team. By prioritizing customer service, Amazon ensures your business thrives and maintains long-lasting customer relationships.

Exploring the Amazon Marketplace: A Platform for Buyers and Sellers

Amazon Marketplace is a platform for countless buyers and sellers worldwide, providing a digital space to conduct business and exchange products. In this section, we’ll discuss the purpose and benefits of Amazon Marketplace and how Amazon generates revenue from it.

The Purpose and Benefits of the Amazon Marketplace

Amazon Marketplace exists to  simplify and streamline  the buying and selling process. You can access a vast customer base as a seller, minimizing the need for advertising and marketing efforts. Using Amazon’s infrastructure reduces operational costs such as warehousing and fulfillment .

As a buyer, you enjoy the convenience of shopping from countless sellers in one location, with the added security of Amazon’s customer protection policies. This creates a seamless, trustworthy experience for both parties, contributing to customer satisfaction and trust.

How Amazon Makes Money from the Marketplace

Amazon generates revenue through fees , such as subscription fees , referral fees , and variable closing fees .

• Subscription fees are charged monthly to professional sellers .
• Referral fees are a percentage-based commission on products sold, applicable to individual and professional sellers . Most referral commissions range from 8% to 15% .
• A variable closing fee is applied to specific categories, such as media categories.

Additionally, Amazon offers optional services, like fulfillment by Amazon (FBA) , which charges service fees in return for handling storage , shipping , and customer service  on behalf of the seller.

By offering these services and charging fees, Amazon continues to invest in and grow its Marketplace, maintaining its status as a global leader in the eCommerce market platform .

Amazon’s Multiple Revenue Streams: Diversification at Its Finest

Amazon’s success results from its ability to diversify its revenue streams. Rather than relying solely on one product or service, Amazon has developed multiple sources of revenue that complement and reinforce each other.

A. Breakdown of Amazon’s Primary Revenue Streams

As an e-commerce seller , you’re aware that Amazon generates revenue in various ways. One such income source is their online stores ( sales of products), where they are the retailer or a third-party seller .

Other income sources include:

• Amazon Web Services (AWS) : Their cloud computing platform.
• Subscription services : Like Amazon Prime and Kindle Unlimited.
• Stores : Physical stores, including Whole Foods Market and Amazon Books.
• Advertising services: Where advertisers pay to display ads to Amazon users.

Each stream contributes to the company’s success and allows them to remain dominant in the global market.

B. The Significance of Amazon’s Cash Conversion Cycle

Cash is king, and Amazon knows it. Their cash conversion cycle is a critical part of the Amazon business model. What’s the secret to Amazon’s cash flow success ? It’s all in their cash conversion cycle. Let’s explore why it matters.

Amazon has a negative conversion cycle ( CCC ) than its competitors, so they receive payments before paying to the suppliers. This efficiency allows them to:

• Reinvest funds for growth.
• Offer competitive prices to customers.
• Expand their products, inventory, and services.

By maintaining a short CCC, Amazon capitalizes on its multiple revenue streams and sets itself apart in the crowded e-commerce landscape.

Diving into Amazon’s Product Ecosystem: From Alexa to Prime Video

This section will explore how Amazon’s diverse product ecosystem contributes to its business strategy . We’ll focus on two essential products: Amazon Alexa and Amazon Prime Video.

Introducing Amazon Alexa and Its Place in the Business Strategy

Amazon Alexa, the voice-controlled virtual assistant  complements your daily life by allowing you to schedule appointments, set reminders, and control smart devices in your home.

By integrating Alexa into various products such as Echo devices  and Fire TVs , Amazon has created a seamless, innovative home experience for its customers.

Alexa makes daily tasks easier for users and benefits Amazon’s business strategy by connecting users to their services like Amazon Music and Prime shopping. This encourages brand loyalty and more time spent using Amazon’s platform.

The Role of Amazon Prime Video in the Overall Business Plan

Amazon Prime Video is another critical component of Amazon’s product ecosystem . As a Prime member, you can access a vast library of movies, TV shows, and original series . This entertainment platform gives you another reason to maintain your Prime membership, increasing subscription revenue for Amazon.

Moreover, Prime Video’s  original content diversifies Amazon’s offerings and contributes to the company’s revenue streams through licensing and distribution. In turn, this increased revenue allows Amazon to invest in other business areas, strengthening its overall position in the market.

Amazon’s Business Model: The Financial Backbone

Amazon’s financial structure is pivotal in its success, shaping its business model to maximize profits and growth .

How Amazon’s Financial Results Reflect Its Business Model

Amazon’s revenue comes from various sources, including its retail business, third-party marketplace, and cloud services . Their high-growth strategy focuses on reinvestment for long-term gains. By consistently investing in new technologies, infrastructure, and acquisitions, Amazon creates a competitive advantage that keeps rivals at bay.

As you examine Amazon’s financial results, you’ll notice that their profits are often thin or negative ( Amazon reported a net loss of 2.7 billion U.S. dollars in 2022 ).

This is because they prioritize market share instead of short-term profits . This approach has led to Amazon becoming a dominant global player in ecommerce and cloud services.

Amazon’s Cost Structure and Its Implications

Amazon’s cost structure is as complex as its business model. The key components are:

• Fulfillment costs:  Warehouses, order processing, shipping, and customer support costs.
• Marketing costs : Advertising, sponsorships, and promotions.
• Technology costs:  Infrastructure development, R&D, and Amazon Web Services hosting.
• Content costs:  Purchasing licenses for streaming media on Amazon Prime.

As you can see, Amazon invests heavily in these areas to sustain its market presence and growth. They also benefit from economies of scale, reducing per-unit costs as the company grows, and this cost structure allows the company to offer competitive pricing and maintain customer loyalty.

Mastering Logistics: Amazon’s Supply Chain and Fulfillment Options

As you navigate the world of ecommerce, it’s crucial to grasp how Amazon’s robust supply chain and an assortment of fulfillment options make it a leader in the industry.

The Various Amazon Fulfillment Options

Amazon offers a range of fulfillment options, each designed to cater to specific seller needs:

• Fulfillment by Amazon (FBA) : Store and ship your products through Amazon’s fulfillment centers . They handle storage, shipping, returns, and customer service for you.
• Fulfillment by Merchant (FBM):  You manage your product inventory and shipping but can use Amazon’s Multi-Channel Fulfillment service when needed.
• Seller Fulfilled Prime (SFP) : Take advantage of Amazon Prime’s benefits by guaranteeing two-day shipping on eligible products while handling fulfillment in-house.

Becoming a Logistics Powerhouse: Amazon’s Renewed Business Playbook

Amazon has strategically invested in its logistics infrastructure, streamlining processes and enhancing customer experiences to stay competitive. Key initiatives include:

Understanding these various fulfillment options and Amazon’s logistics strategies will contribute to your success in the ecommerce space, helping you make informed decisions as you craft and grow your business.

The Flywheel Effect: Jeff Bezos’s Vision for Amazon’s Business

The concept of the flywheel in amazon’s business strategy.

The Flywheel Effect  is critical to Amazon’s business strategy. You should understand as an e-commerce merchant. It represents the self-sustaining momentum generated through a series of interconnected elements  reinforcing each other.

Amazon’s Flywheel revolves around four core elements:

• Customer experience,
• Seller success ,
• Infrastructure and operational efficiency,
• Profitable growth.

As each element improves, the momentum of the Flywheel increases, creating a cycle of continuous growth and success for the company.

Amazon’s Flywheel Approach to Customer Experience Optimization

Amazon’s primary focus is enhancing the customer experience, and the Flywheel approach is instrumental in achieving this goal.

• The company continuously improves the selection  and  availability of items , making it easy to find what you’re looking for.
• Low prices  are another crucial aspect of this approach, allowing Amazon to provide customers like you with the best possible value for your money .
• Driving down costs  while maintaining quality attracts more customers and increases sales for third-party sellers.

Amazon’s efficient , extensive logistics and fulfillment infrastructure ensures a reliable and fast delivery experience, leaving customers satisfied and eager to return. This relentless focus on customer experience strengthens the various aspects of the Flywheel, leading to long-term success and growth.

Acquisitions and Advertising: Amazon’s Pursuit of Expansion

From Whole Foods to Ring, Amazon’s acquisitions have allowed them to diversify and expand their offerings. Meanwhile, their advertising platforms have enabled them to reach new audiences and boost sales .

Analyzing Amazon’s Acquisitions and Their Connection to Its Goals

Throughout its history, Amazon has made  strategic acquisitions  to drive growth  and expand its offerings. Some notable examples include the purchase  of Whole Foods, Twitch, and Zappos. Each acquisition has played a pivotal role in helping Amazon achieve its long-term goals:

• Whole Foods:  By acquiring this grocery chain, Amazon expanded its retail market footprint while enhancing its grocery delivery capabilities.
• Twitch:  The acquisition of this streaming platform  allowed Amazon to strengthen its presence in the gaming industry and deliver engaging content to millions of users like you.
• Zappos : As an online shoe retailer, Zappos enabled Amazon to improve its fashion offerings and provide better customer service to online shoppers like yourself.

The Growing Influence of Amazon Advertising Business

Advertising has become crucial to Amazon’s expansion strategy. Over the years, the company has evolved from primarily an e-commerce platform to a formidable advertising player, allowing businesses to reach millions of potential customers like you.

Amazon’s advertising services include sponsored products, display ads, and video ads , allowing you to discover relevant products and offers while shopping. With the rise of its advertising platform, Amazon has the potential to challenge significant advertising giants such as Google and Facebook in the future.

As the heart of the Amazon ecosystem, advertising generates significant revenue for the company and enhances the shopping experience for customers like you. By delivering personalized and timely ads, Amazon ensures you find the products you need and desire, making your shopping journey more enjoyable and efficient.

In any business model, it’s vital to focus on customer-centric solutions  and leveraging the various services and tools provided by the platform. This will enable you to stay ahead in the highly competitive e-commerce market and successfully scale your business .

Remember to utilize data analytics and performance tracking to evaluate the effectiveness of your marketing strategies and optimize them accordingly. By staying data-driven and having a business model focused on customers, you can drive sustainable growth and maintain a profitable business model.

In a nutshell, the success of Amazon relies upon its ability to adapt  to the ever-changing e-commerce landscape . A well-developed business plan serves as the foundation for this adaptability. By staying true to these strategies and principles, you’ll position your business for long-term success on Amazon .

Frequently Asked Questions (FAQs)

Q. how does amazon’s business work.

Jeff Bezos Amazon operates as an online marketplace, connecting sellers with buyers . Sellers list their products, while buyers search and purchase items they need. Additionally, Amazon offers services such as Prime, streaming, and cloud computing  through Amazon Web Services (AWS).

Q. What is Amazon’s core business strategy?

Amazon is a customer-centric company  aiming to provide a seamless shopping experience. Amazon focuses on low prices , a vast selection, and fast delivery. By continuously investing in technology and optimization, they stay ahead of competitors.

Q. How significant is AWS to Amazon’s overall revenue?

AWS is crucial to Amazon’s income, accounting for a significant portion  of its overall revenue. AWS has become a primary profit driver  in recent years thanks to its high-margin business model and rapid growth in the cloud computing market.

Q. How does Amazon manage to keep its cost structure low?

Amazon keeps costs low by leveraging economies of scale , investing in automation , and using data-driven decision-making . They can reduce overhead and maintain competitive prices by analyzing customer data and optimizing supply chain management .

Q. What are some notable acquisitions? How do they align with its goals?

Over the years, Amazon has made several strategic acquisitions to expand its presence in various sectors and improve its customer experience.

Whole Foods Market: Acquired in 2017 to expand Amazon’s presence in the grocery sector and enhance its delivery capabilities. Zappos: Acquired in  July 2009  to strengthen its online shoe and apparel sales position. Kiva Systems:  Acquired in 2012 for warehouse automation, leading to the development of Amazon Robotics for improved efficiency in fulfillment centers. Ring: Acquired in 2018 to enhance their innovative home product offerings and bolster the connected home ecosystem.

These acquisitions align with Amazon’s goal of expanding its product and service offerings, improving customer experience, and increasing market share in various sectors.

Q. How does Amazon make money?

Amazon generates revenue through various sources, primarily e-commerce sales. They sell products directly to consumers through their website and mobile applications, as well as through third-party sellers who use Amazon’s platform to reach customers.

Besides e-commerce sales, Amazon generates revenue through cloud computing services, advertising, and subscription services, such as Amazon Prime, which offers free and fast shipping, movies and TV shows streaming, and exclusive deals.

8-figure Amazon seller and serial online entrepreneur since 2015. Research and practice various online business models, and apply his in-depth learnings to further expand and grow his businesses as well as help others to achieve greater successes. Ex-VP of a high tech VC in Vancouver and a Management Consultant with over a decade of experience in the industry. Master's Degree from HEC Paris.

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Blog » Uncategorized » Amazon FBA Business Plan – Complete Guide How to Build

Amazon FBA Business Plan – Complete Guide How to Build

Table of Contents

• 1 What Is an Amazon Business Plan?
• 2 Why Do You Need an Amazon Seller Business Plan?
• 3.1 Executive summary
• 3.2 Company analysis
• 3.3 Customer analysis
• 3.4 Competitive analysis
• 3.5 Marketing plan
• 3.6 Operational plan
• 3.7 Management and organization
• 3.8 Financial plan
• 3.9 Appendix
• 4 Amazon Seller Business Plan: Final Thoughts

Congratulations! You’ve nailed every aspect of your business plan, from product listings to supply arrangements, distributor partnerships, packaging, and Amazon system records.

But does that automatically make you a successful FBA seller? Unfortunately, the answer is no.

Given the low barriers to entry, almost anyone can start an FBA company. So, how do you stand out from the crowd? The key is having a well-thought-out plan to guide you toward success.

Crafting winning Amazon business plans from scratch can be overwhelming and time-consuming, but the rewards are worth it. The success of an FBA seller depends on their ability to create functional, measurable, and transparent plans that are flexible enough to adapt to changes in the market. Leveraging your competitive advantages is also critical.

To take your FBA company to the next level, be sure to check out our top tips for success in 2023, which include the secret recipe to succeed.

In this article, we’ll provide you with a comprehensive guide on how to create a business plan for Amazon that’s tailored specifically for selling on FBA.

What Is an Amazon Business Plan?

A business plan for Amazon is a detailed strategy that outlines how a seller intends to operate and succeed in the Amazon marketplace. It is a comprehensive document covering various aspects, including product sourcing, pricing, inventory management, marketing, and customer service.

A well-crafted Amazon plan should be transparent and measurable, providing clear goals and objectives that can be tracked and adjusted. It should also include an analysis of the competition and the target audience and a plan for leveraging the seller’s competitive advantages.

An Amazon business plan is crucial for success on the platform, especially considering the high level of competition and the rapidly changing market trends. With a solid plan, sellers can make informed decisions and take proactive steps to grow their company, increase sales, and ultimately achieve their goals on Amazon.

Why Do You Need an Amazon Seller Business Plan?

There are several reasons why an Amazon seller needs a business plan, including:

• Clearly defined goals and objectives : A plan helps the seller identify and set achievable goals and objectives for their company . It provides a roadmap for how to get there, outlining the steps needed to achieve success on the platform.
• Understanding the competition : An Amazon business plan includes a competitive analysis that helps sellers identify their strengths and weaknesses compared to other sellers in the same market. This information can differentiate the company from the competition and create a unique value proposition for customers.
• Targeting the right audience: With a business plan, the seller can define their target audience and create a marketing strategy that effectively reaches and engages that audience. This can help increase sales and build a loyal customer base.
• Inventory management : An Amazon business plan includes an inventory management strategy that helps sellers optimize their inventory levels, reducing the risk of stockouts or overstocking.
• Financial planning: A plan includes a financial forecast that helps the seller estimate the costs of doing business on Amazon and future revenue and profits. This information can be used to make informed decisions about pricing, product sourcing, and other aspects.

How to Write a Business Plan for Amazon FBA Business?

A solid plan is crucial for anyone looking to start an Amazon FBA business or grow their existing one. In this comprehensive Amazon FBA business plan template, we provide a detailed outline of the essential elements you should include in each plan section. By following this template and tailoring it to your specific company needs, you can increase your chances of success and achieve your goals.

Executive summary

The executive summary should provide a high-level overview of your business plan and be written last after completing all the other sections. It should be concise yet comprehensive, highlighting the most important points of your plan. 

Company analysis

Additionally, you may want to provide some background on the key individuals involved in the business, such as their experience, skills, and qualifications. It’s also essential to describe your unique selling proposition (USP), which sets you apart from your competitors.

In this section, you should also include details about your suppliers and your relationships with manufacturers or distributors. Discuss any partnerships or collaborations you have with other businesses and the impact they may have on your operations and growth.

Finally, outline any challenges or obstacles you may face as you operate and grow your Amazon FBA company . Then, discuss how you plan to overcome these challenges and mitigate any risks that may arise. This information will help potential investors or lenders understand your business better and make informed decisions.

Customer analysis

In the customer analysis section, you must identify your target market, which is the specific group of people or businesses on which you will focus your marketing efforts. To do this, you must create a detailed customer profile with demographic and psychographic information.

Demographic information includes:

• Geographic location

Psychographic information includes:

• Personality traits
• Lifestyle choices

Once you have defined your target market, you must identify their needs and how your products or services meet them.

Competitive analysis

To compete successfully in the market, conducting a comprehensive competitive analysis is important. This analysis should identify indirect and direct competitors, focusing on the latter. Direct competitors are other Amazon FBA sellers or other retail and eCommerce businesses with similar product lines. In contrast, indirect competitors include traditional brick-and-mortar stores, branded websites, or homemade products.

When conducting your competitive analysis, you should aim to gather key information about your competitors, such as:

• The types of customers they serve
• The types of products they sell
• Their pricing strategy
• Their strengths and weaknesses

Once you have gathered this information, you can use it to identify areas of competitive advantage for your business. For example, you may offer a broader range or higher quality product line, unique services, better customer service, or better pricing.

Documenting your areas of competitive advantage in this section of your plan will help you to develop a strong marketing strategy that sets your company apart from the competition. Understanding your competitors and highlighting your strengths can position your brand for success in the Amazon FBA marketplace.

Pro tip: Use SellerSonar to keep tabs on your competition. The tool allows you to monitor and check how the changes in the item’s Best Sellers Rank, historical prices, pricing, and reviews affect the sales. Track your competitors’ changes and get instant notifications to see the full picture. 

Marketing plan

In the marketing plan section, you will outline how to market your Amazon FBA business and the products you offer. This section is crucial to understanding how you will attract customers to your products on Amazon:

• Amazon PPC ads: Explain how you will use Amazon PPC (pay-per-click) ads to drive traffic to your product listings. Outline your budget, keywords, and bidding strategy.
• Off-Amazon advertising: Detail your off-Amazon advertising strategies, such as Google Ads or social media ads. Explain how to target potential customers and drive traffic to your Amazon listings.
• Social media promotion: Outline how you will use social media platforms to promote your products and drive traffic to your Amazon listings. Explain which platforms you plan to use and your content strategy.

Operational plan

In the operational plan, you will outline how you will effectively run your business and execute your strategies. To ensure that your plan is comprehensive and effective, it should include the following elements:

• Fulfillment and storage operations: Will you store and fulfill orders independently or use Amazon’s Fulfillment program? Your choice will depend on the size and scale of your business.
• Product sourcing: This section should cover where and how you will source your products. To sell private-label products, you must find reliable manufacturers and suppliers. To resell products, you must identify reliable retailers and brands.
• Software: Will your company require any software to grow? For example, SellerSonar and SageMailer provide features to help sellers run and grow their Amazon businesses more effectively.
• Logistics and prepping: If you must prepare and package your products before sending them to Amazon, consider using an Amazon prep center.
• Tracking and managing inventory: This section should cover how you will manage your stock and know when to replenish inventory. Use SellerSonar to get real-time alerts once your listings are out of stock. 
• Customer service: How will you handle customer inquiries and returns? You should have the plan to ensure that your customers receive timely and satisfactory responses.
• Accounting and legal: Do you have the right legal structure for your business? Do you have an accountant to help you manage your finances?

Management and organization

In the organizational section of your plan, you’ll provide an overview of your business’s structure and the roles and responsibilities of each team member. This section is where you can showcase the experience and skills of your team and highlight how they will contribute to the success of your brand.

Be sure to provide a detailed description of each team member, including their professional background and relevant skills. You should also describe their role and how they will contribute to the company’s growth. Additionally, include information on any key hires you plan to make and how these individuals will help take your brand to the next level.

Financial plan

In the financial plan section of your plan, you’ll provide an accurate picture of your business’s financial status. It includes specific figures for sales, profits and losses, projections, costs, and financial objectives.

If you’re seeking funding for your company , this section should be highly detailed to demonstrate your business’s performance. This will help potential investors evaluate the financial viability of your company and decide whether or not to invest.

Here are some essential components to include in this section:

• The repayment schedule for any current loans or credit lines, including outstanding balances and monthly payments.
• A profit and loss statement outlines your revenues and expenses over a specific period.
• A balance sheet that provides a snapshot of your business’s financial standing, including assets, liabilities, and equity.
• Cash flow statement that highlights your business’s inflows and outflows of cash over a specified period.
• A detailed list of expenses associated with running your company .
• Overview of revenue streams, including sales from products or services, advertising revenue, or any other sources of income.
• Break-even analysis that outlines the point at which your business will begin generating profits.

To make your business plan more persuasive, consider including your complete financial projections in the appendix of your plan. In addition, don’t forget to attach supporting documents that can make your proposal more compelling, such as your product line description or branding portfolio.

By providing potential investors or stakeholders with a comprehensive overview of your financial projections, you can give them a better understanding of the profitability of your brand. It can help them make informed decisions about investing in your venture.

Furthermore, supporting documents showcasing your product line or branding can add credibility to your plan and make it more appealing. It can help you distinguish yourself from competitors and demonstrate your unique selling proposition to potential investors or customers.

Amazon Seller Business Plan: Final Thoughts

While some businesses require meticulous planning, others thrive on taking action. For example, starting a coffee cart or applying a retail arbitrage FBA strategy may not require a complex plan but rather a willingness to take action and learn.

If you’re looking to create an FBA plan, our template and guidance can provide you with a clear understanding of what matters most. By focusing on the key elements that will drive success on Amazon, you can create a plan that is both realistic and effective.

Remember that the end goal should always be considered when creating a plan. Knowing where you want to go, you can determine the most important activities to focus on today to get you there.

Once you’re ready to launch your Amazon company , don’t forget to take advantage of third-party tools that can help you streamline and optimize your operations. For example, SageMailer is an Amazon email automation tool that can help you manage feedback, improve customer service, and generate more reviews. Using these tools, you can take your business to the next level and achieve your goals on Amazon.

Register for a free 30-day trial to save time and grow your Amazon company effectively!

Related posts:

• how to easily improve your seller feedback rating;
• how to prevent and remove negative reviews;
• why do you need an Amazon review generation tool;
• how SageMailer can enhance your feedback management.

2024 Amazon FBA Business Plan

Brian Connolly

December 18, 2023

Amazon Seller , Entrepreneurship , Uncategorized

Having a proper business plan helps you identify the goals of your business and what you need to do to achieve them. The same goes for running an Amazon FBA business . 

Sure, some sellers can wing it and be successful, but it is best to go in with a concrete plan to maximize the chance of gaining a return on your investment. 

In this article, we’ll go over what a business plan is, why you need a business plan for your Amazon business, and a template to create your own. 

Executive Summary

Company description, marketing plan, competitive analysis, operational plan, management and organization, financial plan, what is a business plan.

A business plan will help guide you through the process and challenges of running a business — especially during the beginning stages of launching. Your plan provides an overview of your business, the goals of your business, how you plan to achieve those goals and growth plans for the future. 

A proper business plan includes information such as an executive summary, company description, marketing plan and analysis, financial plans, and projections.

READ MORE | How to Start an Online Business

Why do you need a business plan for your Amazon business?

A properly thought-out business plan will also help you to secure financing in the future if it is necessary to grow. Investors will be able to see you have a clear idea of what your business is, what it can offer, how it will acquire customers, how it will profit, and where it can go in the future.

Use your business plan as a roadmap to get your business where you want to be. As time goes on and your business grows, you can adjust your plan based on your successes and failures. 

Amazon FBA business plan template

Before you start selling on Amazon, take some time to create a well-thought-out business plan. In this section, we will show you what you can include within your plan. 

An executive summary is used to summarize the key points of your business plan and to introduce your business to investors or stakeholders. Briefly explain what your business does, the business models you follow on Amazon, and any other important information. 

This tells the reader why they should continue to read your business plan. Make it compelling — point out a problem in the current marketplace and explain how your business will solve it. 

While this section will be first in your business plan, it is typically written last as a way to summarize the whole. 

This section should include all information about your business, including formation information, such as legal structure , the date the business was formed, its members, company mission, and location. 

Since you are operating an Amazon business, mention which business model(s) you follow. For example, arbitrage resellers , private label brands, wholesale resellers, dropshipping , and so on. 

State the purpose of your business, who your customers are, the products you offer or want to offer, the main objectives of your business, and milestones you have achieved. 

This section is vital to understand exactly what your marketing plan is for your Amazon FBA business. How do you plan to market your business and the products you offer? Outline that plan here. 

How will you drive customers to your products on Amazon? 

• Amazon PPC ads
• Off-Amazon advertising
• Social media promotion  

Here are some additional questions to answer in this section. 

• What is your monthly marketing budget?
• Estimated cost per sale 
• Target ACOS and ROAS
• Who is your target audience?

This section will highlight who your competitors are. If you are a reseller, for instance, your competitors will be other Amazon sellers listing the same products you are. If you sell a private label product, your competitors will be other brands offering the same or similar products. 

Identify your top competitors that you will likely compete with the most. 

• What products do they offer? 
• What are their sales (use Jungle Scout to figure out sales estimates)? 
• What are your competitor’s strengths and weaknesses?
• What is their pricing like?
• Where do they source their products from (use the Supplier Database to help find this information)?
• What are their seller feedback and product ratings like?
• Can you offer a better service and a better product?

The operational plan highlights how you will run your business and execute everything laid out in the previous sections. How will you meet your goals? What systems or processes will you implement to help run your business more efficiently?

Here are some things you can include in your operational plan:

• Storage and fulfillment operations : Will you be storing and fulfilling orders in your warehouse, or will you use Fulfillment by Amazon ?
• Product sourcing : How and where will you source inventory from? If you are a reseller, you source products from retailers and brands. If you sell private label, you source from manufacturers and suppliers .
• Software : Does your business require software to run and grow? For example, Jungle Scout provides a wide range of tools sellers can use to run and grow their Amazon businesses.
• Prepping and logistics : Do you need a space to prep and package your products for Amazon? If so, you may want to consider using an Amazon prep center .
• Quality control : If you are sourcing products from out of the country, you should use a third-party quality control company to inspect your products to ensure they’re ready for sale.
• Managing and tracking inventory : How will you manage your inventory and know when you need to replenish stock? Use Inventory Manager to let you know when you’re running low and when you should reorder.
• Customer service : How will you handle customer inquiries and/or return requests?
• Legal and accounting : Is your business structured properly, and do you have a system or accountant to help manage your profit and loss? A system like Sales Analytics can help you understand how much your business is earning and losing each month.

This section will highlight your organization, the experience and skill of each member, and the role they play in the business. 

Mention how you and/or other organization members will grow the company and ensure it is a success. 

The financial plan section is where you will highlight the exact financial status of the business. You will include exact sales figures, profit and loss, projections, costs, and financial goals.

If you would like to secure funding for your business, this section needs to be as detailed as possible, so possible investors can see how your business is performing. 

Here are some things to include in this section:

• The repayment schedule of any existing loans or credit lines, including balances and monthly payments
• Profit and loss statement
• Balance sheet
• Cash flow statement
• Expenses 
• Revenue streams 
• Break-even analysis

Appendix 

While this section is not required, it is used as a place to include any other information you did not provide in other sections. Use this section as a place to describe your business in a little more detail, such as:

• Product lines
• Patents and Trademarks
• Marketing materials
• Product and packaging designs
• Agreements or contracts 
• Credit history 
• Contact information 

Have you written your Amazon FBA business plan yet?

We hope this article and template will help you create a business plan for your Amazon FBA business. 

Do you have any more questions about creating a business plan? Let us know in the comments!

Want to learn more about how you can use Jungle Scout to launch, grow, and run your Amazon business? Click the “Learn More” button below!

Learn more about Jungle Scout

Brian is a writer and entrepreneur with over 6 years of experience in e-commerce and selling on Amazon.

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Amazon FBA Business Plan Template

Written by Dave Lavinsky

Amazon FBA Business Plan

You’ve come to the right place to create your Amazon FBA business plan.

We have helped over 1,000 entrepreneurs and business owners create business plans and many have used them to start or grow their Amazon FBA businesses.

Amazon Business Plan Template

Below is a template to help you create each section of your Amazon seller business plan.

Executive Summary

Business overview.

Smith & Lopez is a personal care company headquartered in San Francisco, California. The company provides numerous personal care products for all ages and genders. Some of these products include lotions, perfumes, bath bombs, hair care products, and skincare products.

Smith & Lopez is a Fulfillment by Amazon (FBA) company and will provide its products primarily on Amazon. The personal care products will be manufactured at a warehouse and sent directly to Amazon warehouses nationwide. When customers order our products online, Amazon will take care of all the packing, shipping, and customer service, ensuring a smoother and positive experience for the consumer.

Smith & Lopez is founded by Maria Smith and Hector Lopez. Both are committed to providing high-quality personal care items and utilizing the strength of Amazon’s business model. Maria has a background in marketing, and therefore will take care of the marketing aspects of the business. Hector has extensive experience in the personal care industry and is familiar with the FBA business model, so he will run most of the operations.

Product Offering

Smith & Lopez manufactures and sells a variety of personal care items that appeal to all demographics. Some of our product offerings include:

• Hair care products
• Skincare products

As an Amazon FBA company, Smith & Lopez will have Amazon handle all the packing, shipping, customer service, and returns aspects of the business.

Customer Focus

Smith & Lopez creates products that can appeal to all demographics. However, we expect females in the 18 – 40 age range will be our largest demographic. Traditionally, this demographic invests more in high-quality personal care items than any other, so we will primarily target them in our marketing efforts.

Though we are headquartered in San Francisco, we expect to reach the rest of the United States through the FBA business model. Through Fulfillment by Amazon, we will reach a much larger customer base than we would through a stand-alone e-commerce site. As an FBA seller, Smith & Lopez has access to millions of potential customers across 180 countries worldwide.

Management Team

Smith & Lopez is founded and run by Maria Smith and Hector Lopez. Both have been passionate about high-quality personal care items and used their passion to fuel their ideas for their own business.

Maria Smith will be a co-founder and the Vice President of the company. However, she has a background as a Marketing Specialist and a bachelor’s degree in Marketing. Therefore, she will handle all the marketing and advertising efforts until there is a need to hire a marketing team.

Hector will be a co-founder and the President of the company. He has an extensive history in the personal care industry and experience with the Amazon FBA program. He also has an MBA from UCLA. Therefore, he will handle all the operations side of the business.

Success Factors

Smith & Lopez will be able to achieve success by offering the following competitive advantages:

• Built-In Customer Service: With Amazon’s built-in customer service network, there’s someone available around the clock to offer support to customers, a perk that’s free being in the Amazon FBA business.
• Convenient shopping experience: Amazon’s website makes shopping quick, easy, and convenient for millions of consumers around the world. When consumers buy our products from Amazon, they will have a convenient experience that can’t be matched by other e-commerce sites.
• Fast shipping: Amazon’s two day shipping is legendary. Amazon Prime customers can take advantage of this perk when they buy our personal care items from Amazon.

Financial Highlights

Smith & Lopez is currently seeking $230,000 to launch its Amazon FBA business. The capital will be used for funding startup costs, staffing, marketing expenses, and working capital.

Specifically, these funds will be used as follows:

• Build-out and startup costs: $40,000
• Three months of overhead expenses (payroll, rent, utilities): $120,000
• Marketing costs: $40,000
• Working capital: $30,000

The following graph below outlines the pro forma financial projections for Smith & Lopez.

Company Overview

Who is smith & lopez, smith & lopez history.

Maria Smith and Hector Lopez have been passionate about high-quality personal care products for years. Over the past few years, they have designed and tested their unique personal care product ideas they were inspired to sell. After years of research and testing, Maria and Hector finally incorporated their company on April 3rd, 2022.

Since incorporation, the company has achieved the following milestones:

• Found an office location and signed a Letter of Intent to lease it
• Developed the logo and website for the company
• Finalized list of products the company will be able to provide
• Created an Amazon seller account
• Determined the office equipment and inventory requirements
• Found a manufacturer who will make the personal care products
• Began recruiting key employees

Smith & Lopez Products

Industry analysis.

The Fulfillment by Amazon business model is quickly becoming the most popular business model for small businesses in the United States. Globally, Amazon operates more than 175 fulfillment centers with over 150 million square feet of space. The company is also continuously hiring workers for these centers so that millions of products continue to ship out on time throughout the world. Therefore, Amazon has the structure and resources to help small businesses thrive so that these businesses don’t have to do everything on their own.

Furthermore, there are numerous perks to taking advantage of this program and many businesses have seen great success because of it. According to Amazon, nearly half of all American selling partners took advantage of FBA in 2020. These businesses reduced their shipping costs by an average of 30% and increased their sales by an average of 20-25%. In fact, small businesses who sell on Amazon are 2.5 times more likely to see revenue growth of 25% or more in a given year than businesses who don’t use Amazon. It’s clear that the FBA program is highly successful and will continue to be in the future. Therefore, this is a perfect time to take advantage of this rapidly growing industry and business model.

Customer Analysis

Demographic profile of target market.

Smith & Lopez will primarily serve U.S. consumers who shop for products on Amazon. Since females under the age of 40 are traditionally the target demographic for the personal care industry, we expect most of our sales to come from this demographic.

The precise demographics of individuals living in the U.S. are as follows:

Customer Segmentation

Smith & Lopez will primarily target the following customer profiles:

• Consumers under 40
• Customers who buy personal care items on Amazon

Competitive Analysis

Direct and indirect competitors.

Smith & Lopez will face competition from other companies with similar business profiles. A description of each competitor company is below.

Thea’s is a personal care brand that sells natural and organic skincare and other personal care items. They are particularly famous for their toners and moisturizers, which leave the skin looking youthful and glowing. Thea’s has been a major e-commerce personal care company for over a decade with millions of dollars of sales every year. However, Thea’s solely relies on their own e-commerce site and does not utilize FBA.

Miller & Miller

Miller & Miller has been a household personal care brand for generations, producing everything from skincare and moisturizers to toothbrushes and floss. Anything you need to stay healthy and looking good can be found in the MIller & Miller brand. Though Miller & Miller is a giant corporation that sells well through their e-commerce site and in stores, the company still utilizes Amazon and sells their best selling products on the site.

California Glow

California Glow is a new online personal care brand that sells lotions, makeups, and other personal care products. Like Smith & Lopez, they are a purely online brand and headquartered in San Francisco. They sell similar products and utilize FBA in addition to their e-commerce site. However, they sell far fewer products and are currently only a minor competitor.

Competitive Advantage

Marketing plan, brand & value proposition.

Smith & Lopez seeks to position itself as a respectable, upper-middle-market competitor in the personal care category of FBA sellers.

The Smith & Lopez brand will focus on the company’s unique value proposition:

• Offering unique and high-quality personal care products
• Offering a wide variety of products that appeal to all demographics
• Providing excellent customer service on a 24/7 basis through Amazon

Promotions Strategy

Smith & Lopez expects its target market to be online shoppers. The company’s promotions strategy to reach its targeted audience includes:

Amazon Advertising

Smith & Lopez will utilize the Amazon Advertising program provided by Amazon. This marketing program allows small businesses to advertise directly to Amazon consumers by purchasing sponsored ads. The program is highly effective. According to Amazon, the program reaches about 96% of consumers in the 25-54 age group every month. Since this is the majority of our target market, this will be an invaluable marketing and advertising tool.

Social Media Marketing

Social media is one of the most cost-effective and practical marketing methods for improving brand visibility. The company will use social media to develop engaging content that will increase audience awareness and loyalty. Engaging with prospective clients and business partners on social media platforms like Facebook, Instagram, Twitter, and LinkedIn will also help understand changing customer needs.

Word of Mouth Marketing/Amazon Reviews

Smith & Lopez will encourage customers to post reviews to give honest feedback about our products. Amazon reviews can be incredibly effective and help us gain numerous new customers with little effort on our part. The company will use reviews and recommendations to grow its customer base through the network of its existing customers.

Website/SEO Marketing

Smith & Lopez has a website that is well-organized and informative and lists all our available products. The website also lists the company’s contact information and has links to our Amazon store.  We will utilize SEO marketing tactics so that anytime someone types in the Google or Bing search engine “San Francisco personal care” or “California personal care products,” Smith & Lopez will be listed at the top of the search results.

Smith & Lopez’s pricing will be moderate, so customers will feel that they receive great product value. We will set our prices based on similar FBA sellers in the personal care category.

Operations Plan

The following will be the operations plan for Smith & Lopez.

Operation Functions:

• Hector Lopez will be a co-founder and the President of Smith & Lopez. His extensive background in the personal care industry (as well as his experience with Amazon FBA program) will help him run the general operations of the company.
• Maria Smith will be a co-founder and Vice President of the company. In addition to helping Hector run and maintain the general operations of the company, Maria will use her extensive marketing background to handle all the marketing efforts.
• John Smith will be the Procurement Manager and ensure that our products are always in stock at Amazon warehouses.
• Sheila Martinez will be the Accountant and handle all general accounting, tax payments, and monthly financial reporting.
• Kyle Martin will be the Administrative Assistant. He will assist Hector and Maria with all general administrative tasks.

Milestones:

Smith & Lopez expects to achieve the following milestones in the following six months:

06/202X          Finalize lease agreement

07/202X          Design and build out

08/202X          Hire and train initial staff

09/202X          Kickoff of promotional campaign

10/202X          Launch Smith & Lopez

12/202X          Reach break-even

Financial Plan

Key revenue & costs.

Smith & Lopez’s revenues will come from selling products on Amazon. The major costs for the company will be the cost of supplies and salaries of the staff. In the initial years, the company’s marketing spending will be high to establish itself in the market. Moreover, FBA membership and selling fees are also one of the notable cost drivers for Smith & Lopez.

Funding Requirements and Use of Funds

Key assumptions.

The following outlines the key assumptions required in order to achieve the revenue and cost numbers in the financials and in order to pay off the startup business loan.

• Average number of items sold per month: 500
• Average sales per month: $20,000
• Retail space lease per year: $100,000

Financial Projections

Income statement.

Balance Sheet

Cash Flow Statement

Amazon FBA Business Plan FAQs

What is an amazon fba business plan.

An Amazon FBA business plan is a plan to start and/or grow your Amazon FBA business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.

You can easily complete your Amazon FBA business plan using our Amazon FBA Business Plan Template here .

What are the Main Types of Amazon FBA businesses?

There are a number of different kinds of Amazon FBA businesses , some examples include: Reseller, Private Label, and Proprietary.

How Do You Get Funding for Your Amazon FBA Business Plan?

Amazon FBA businesses are often funded through small business loans. Personal savings, credit card financing and angel investors are also popular forms of funding.

What are the Steps To Start an Amazon FBA Business?

Starting an Amazon FBA business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.

1. Develop An Amazon FBA Business Plan - The first step in starting a business is to create a detailed business plan for Amazon FBA  that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast.  

2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your Amazon FBA business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your Amazon FBA business is in compliance with local laws.

3. Register Your Amazon FBA Business - Once you have chosen a legal structure, the next step is to register your Amazon FBA business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws. 

4. Identify Financing Options - It’s likely that you’ll need some capital to start your Amazon FBA business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms. 

5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations. 

6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events. 

7. Acquire Necessary Amazon FBA Equipment & Supplies - In order to start your Amazon FBA business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation. 

8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your Amazon FBA business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising. 

Learn more about how to start a successful Amazon FBA business:

• How to Start an Amazon FBA Business

Jeff Bezos’s longstanding leadership rules are showing signs of fraying inside Amazon

Good morning!

There are few companies that have created cultures as all-consuming as Amazon. 

Amazonians are famous for their six-page memos. They have a “two-pizza rule” that defines how small certain teams should be based on how much they need for a meal. But perhaps most importantly, they have 16 leadership principles. These range from “Customer obsession,” to “Bias for action,” to “Disagree and commit,” but they’ve all been encoded into the company’s DNA for decades. 

The upside is a company-wide understanding of mission, and a “granular level” knowledge up and down the corporate ladder about how things work within the company. The downside is a corporate culture that borders on fanaticism, with the occasional weaponization of principles to the detriment of people and groups with less power . 

But what was once an agreed-upon set of rules permeating every facet of company life has shown signs of fraying, writes my colleague Jason Del Rey in a new feature . Not only have they become more diluted, but many managers say the focus has shifted away from guiding good work, and more towards criticizing fellow employees.

The source of the change can be traced in part to the pandemic. Amazon did booming business during the height of COVID, doubling its headcount within two years, and hiring new executives from outside. These managers were introduced to company culture via Zoom rather than in-person gatherings, and were less familiar—as well as devoted—to the company’s old-school culture.   

The differences are noticeable. There are now PowerPoint presentations at times in place of the famous six-pagers. One VP has directed her team to begin with a one-page memo, and increase it to six as needed. And when Amazon was in the spotlight during the massive unionization efforts of warehouse workers, and sued by the FTC for alleged antitrust activity, the company’s attempt to add two more principles went over like a lead balloon: “Strive to be the Earth’s best employer,” and “Success and scale bring broad responsibility.” 

“They are clearly a marketing ploy and they devalue the rest of the Leadership Principles,” one former senior manager of more than 10 years who left the company recently told Fortune .

CEO Andy Jassy recently released an hour-long video explaining the principles. But the issue begs a larger question: Should companies stay true to their original playbook, or are they only useful to management during a certain period of time? 

“The company has shifted and grown,” says Beryl Tomay, the VP of Amazon’s transportation division. “So you have to keep adapting.”

Azure Gilman [email protected]

Today’s edition was curated by Emma Burleigh.

Around the Table

A round-up of the most important HR headlines.

After Intel’s shares tanked by 19%, the company announced it would cut more than 15,000 jobs in an effort to cut costs. The Guardian

Delta is now providing its employees two free travel passes following the chaotic CrowdStrike software outage, which left thousands of customers and staffers stranded due to canceled flights. NBC News

A Stanford economist says that employees who lose their job to AI won’t have a super difficult time finding work again. Business Insider

Watercooler

Everything you need to know from Fortune .

WFH epiphany. Tech firms are shying away from bullish RTO policies , as a new report shows that only 3% are asking their workers to return to the office full-time compared to 8% last year. — Orianna Rosa Royle

Cough it up. French taxi unions are demanding government compensation for work disruptions amid the Olympic Games in Paris, saying the event has been “hugely disappointing” for business. — AFP

Optimistic. Gen Z aspires to become teachers and health care workers, but staffers in those professions experience high burnout and breakdowns because of the stress, according to a report. — Orianna Rosa Royle

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This small business founder won't sell on Amazon. Here's what she does instead.

• Many emerging brands sell and advertise on Amazon to boost sales and attract new customers.
• But Kate Assaraf, founder of hair care brand Dip, says she has no plans to take that path.
• She's one of a chorus of small business owners who find selling on Amazon challenging.

Amazon owes part of its success as a retailer to small businesses selling their wares on its website.

But Kate Assaraf, the founder of hair care brand Dip, said she's resolved not to sell her products there.

Dip might seem like the ideal brand to benefit from the millions of shoppers that Amazon attracts — not to mention all the Prime members, who make up 75% of US shoppers. The brand's shampoos, conditioners, and body washes come in bar form, start at $14 each, and are meant to appeal to people who want to avoid personal care goods packaged in lots of plastic.

But Assaraf is skeptical of the retail giant. For one thing, she said, there are all the costs of selling on its website, from the fees all sellers pay to optional ones such as advertising.

All those fees add up for a business just getting its footing, Assaraf said. "Amazon is an aggregator of wealth," she told Business Insider in an interview.

For another, there are the risks to smaller businesses — and society — that Assaraf says Amazon presents. She pointed to the retail giant's track record of exercising power over specific markets , often at the expense of small, local retailers and companies, as a challenge for emerging brands like hers.

Instead, Assaraf said, she's taking other, if slower, avenues to grow her brand and reach customers.

For example, Assaraf said she distributes Dip's products through local stores, particularly those focused on selling zero-waste goods, and visits sites around the country to pitch her products to business owners.

Lest customers be tempted to search for replacements when they're almost out, the boxes for Dip's bars include a QR code that directs them to the nearest store where they can buy more. Shoppers can also order for delivery directly through Dip's website.

"There's something to be said about redirecting people in a community to shop in the stores in their community," she said. They're "integral to education and just keeping money circulating within your town."

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Assaraf isn't alone in her skepticism of Amazon as a way to grow her company.

Small business owners who have started selling on Amazon have said the fees and other costs have made it tough to actually make money, even if their products get more exposure than they would on other websites.

Even sellers who have found success on Amazon say it involves finding out which products sell best on the platform, including which ones provide the greatest return on advertising spending.

Plus, "sometimes, your savings buying through Amazon are not even that strong" for the purchaser, Assaraf said.

An Amazon spokesperson told BI that the company is "investing more than ever in supporting" small businesses that sell through its website. The spokesperson also pointed to various incentives for new sellers, such as discounts on Amazon's fulfillment options and money back on sales of brands that register with Amazon.

For brands focused on sustainability, Amazon also offers a Sustainability Solutions Hub, including data and guidance that can help brands highlight earth-friendly products on Amazon, the spokesperson added.

Roughly 60% of the sales on Amazon's website come from independent sellers, "most of which are small and medium-sized businesses," the spokesperson said.

Meantime, Dip works with ambassadors who represent the brand on social media, Assaraf said — but only if they are devoted users. "Please do not apply if you aren't already a customer of Dip," its website reads.

Many forms of advertising and acquiring new customers, including ads on Amazon, have become prohibitively expensive for new brands, Assaraf said. "Attention's the new currency, and the cost of cost of getting any of that is very high."

Do you work for Amazon or sell through its website and have a story idea to share? Reach out to this reporter at [email protected]

Watch: Meet the Amazon warehouse workers paying the price for fast, free shipping

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Choosing the right Business Prime plan

What Business Prime membership is right for your business? Learn about Business Prime Duo and Essentials Plans to discover what best benefits your small business. Mark Brinton, Small Business Leader, Amazon Business Prime, and Chris Brown. General Manager, B2B Cobrand Payments, will show you how small business owners put Business Prime to work. Learn about the perks and tools that can help your small business every day.

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Harris Chooses Walz

A guide to the career, politics and sudden stardom of gov. tim walz of minnesota, now vice president kamala harris’s running mate..

This transcript was created using speech recognition software. While it has been reviewed by human transcribers, it may contain errors. Please review the episode audio before quoting from this transcript and email [email protected] with any questions.

Hey, it’s Michael. Before we get started, I want to tell you about another show made by “The New York Times” that pairs perfectly with “The Daily.” It’s called “The Headlines.” It’s a show hosted by my colleague, Tracy Mumford, that quickly catches you up on the day’s top stories and features insights from “The Times” reporters who are covering them, all in about 10 minutes or less.

So if you like “The Daily”— and if you’re listening, I have to assume you do — I hope that means you’re going to “The Headlines” as well. You can now find “The Headlines” wherever you get your podcasts. So find it, subscribe to it, and thank you. And now, here’s today’s “Daily.”

From “The New York Times,” I’m Michael Barbaro. This is “The Daily.”

[MUSIC PLAYING]

Today, the story of how a little known Midwestern governor became Kamala Harris’s choice for a running mate. My colleague Ernesto Londoño walks us through the career, politics, and sudden stardom of Governor Tim Walz of Minnesota.

It’s Wednesday, August 7.

Ernesto, over the past few days, we watched Vice President Harris bring the final three contenders for her running mate to her house in Washington, DC, for a set of in-person interviews. And then we watched as she seemed to narrow her pool of choices down to a final two — the governor of Pennsylvania, Josh Shapiro, and the governor of Minnesota, Tim Walz. And now, of course, we know that she has made her choice. What has she told us about her campaign strategy, the way she views this race, in ultimately choosing Tim Walz?

Michael, I think what the choice tells us is that Kamala Harris was drawn to two qualities that Governor Walz brings to the table. And what’s interesting is they may seem to be in tension. For starters, here’s the ultimate everyday man, somebody who grew up in a small town in Middle America, served in the National Guard, was a high school teacher, a football coach, very plain-spoken, goes to campaign events wearing T-shirts and baseball caps, is a gun owner and very proud about it. He sort of embodies the Midwest.

And she clearly thinks that that is going to bring the kind of moderate, white, working class voters that the campaign needs in swing states to come to them, to make this feel like a balanced ticket and something that will give her enough of the crucial votes to defeat Donald Trump in the fall.

On the other hand, as governor, he passed a slew of pretty progressive legislation in the past couple of years, everything from abortion rights to gun control. So these things are likely to appeal to bread and butter Democrats.

But the question is, when voters have examined these two facets of Tim Walz, may it bring them enough enthusiasm from the base and enough undecided voters that the campaign desperately needs, or at some point, do these two aspects of him start canceling each other out?

Right. In short, you’re saying Harris is betting on a dual appeal from Walz to two essential constituencies, but the risk is that the appeal to one of them is just much, much greater than to the other.

Right. You could definitely see a scenario where voters, once they’ve examined Tim Walz’s story and legacy, may conclude that both of these candidates are quite liberal.

OK, so tell us the story of Tim Walz, a story that I think a lot of us don’t know because we really don’t know Walz all that well, and how he has come to embody these two qualities and that tension that you just described.

Michael, the origin story of Tim Walz’s political career is quite fascinating.

He and his wife were teachers in a small city south of Minneapolis. And in 2004, when George W. Bush was running for re-election, Walz took a group of his students to a political rally in his hometown. They wanted to just see the president make his case. And a strange scuffle happened when they were trying to get in.

Well, one of the kids had a John Kerry sticker on his wallet. And this is where the individual says, well, you’re not going to be allowed to enter. You’ve been deemed a threat.

Apparently, one of the students had a sticker for Bush’s rival, John Kerry, on his wallet. And security officials at the rally didn’t want to let them in.

And I said, oh, it’s OK. They’re with me. And who are you? And I said, I’m Tim Walz. I’m their teacher here, and showed them my ID. And they said, well, you two have been deemed a threat to the president. And I said, well, that’s not true. And it kind of escalated.

And this really ticked off Tim Walz. He was really upset. There was a fight and a confrontation at the rally.

At this point in time, I’m kind of nervous. I’m getting arrested. So I’m like saying, well, I’m Teacher of the Year in Mankato. And they didn’t care about that. And it was kind of a sad epiphany moment, how it felt for people to be looked right through by people. These people didn’t see me. And this is happening.

And ultimately, he sort of walks away from this moment feeling really sick of the Bush administration, the politics of the day. And he turns around and volunteers for the Kerry campaign.

And then the more interested he becomes in politics in this era, he starts looking around his congressional district, and there’s a Republican who’s held the seat for many, many years. This was a largely rural district in southern Minnesota. And there’s no reason to believe that a newcomer to politics, somebody without a donor base, could make a run for this seat and win.

But Walz signs up for this weekend boot camp, where expert campaigners train newcomers who want to run for office. And he gets really enthused by the idea that he can pull it off. So he starts raising money with the support of an army of students who become so thrilled and energized by the prospect that their nerdy and kind geography teacher is making this uphill bid for a congressional race.

So his campaign staff is basically his former students.

That’s right. And he proves to be a formidable candidate. He draws a lot of attention to his experience in the classroom and as a coach.

When I coached football, these stands held about 3,000 people. That’s a lot. It’s also the number of American soldiers who have died fighting in Iraq.

He’s a very strong advocate for pulling out of the war in Iraq.

Serving right now are kids that I taught, coached, and trained to be soldiers. They deserve a plan for Iraq to govern itself, so they can come home.

And one thing that happens in the campaign that is really surprising to people is he comes out as being in favor of same-sex marriage. Now, it’s useful to remember that this is 2006, when the vast majority of Democrats, Democrats running for most elected office, were not ready to come out in favor of same-sex marriage.

And here’s a guy who’s new to politics, who’s trying to unseat a Republican who’s held on to his seat for more than 12 years, taking what appeared to be a reckless position on something. And when he was asked about it at the time, Tim Walz told a supporter, this just happens to be what I believe in. And I’d rather lose a race that I’ve ran being true and consistent to my values than try to run as somebody I’m not.

And of course, he wins.

Yes. To everybody’s surprise, he pulled it off.

So from the get-go, he shows a kind of maverick, “politics be damned” quality, taking stands that he knows may be unpopular among the voters he’s trying to win over. But he’s got some innate political gifts that are all making it work.

Yeah, I think that first campaign showed us that Tim Walz had real political chops. He was a very effective campaigner. And people really liked him. When he was knocking on doors, when he was introducing himself to voters, they saw him as somebody who was very genuine and who was admirable.

So once he gets elected in this conservative leaning district in Minnesota, what does he actually do in Congress?

In Congress, he develops a reputation for being somebody who can work across the aisle. And this is a period where Democrats and Republicans were deeply polarized over the Iraq War. He spends a lot of his time lobbying to expand benefits for veterans, so it’s easier for them to go to college after their service, and also becomes a leading voice in the quest to repeal Don’t Ask, Don’t Tell, the policy that prohibited openly gay servicemen from serving in uniform.

And he remained really popular. He easily won re-election five times. The last time he runs for his seat happens to be 2016, when President Trump wins his district by about 15 points.

And still, voters kept Tim Walz in office.

I think it’s important to note what you just said. Walz is distinguishing himself as a Democrat who can take some pretty progressive positions, as he did in that first campaign on gay rights, as he did with Don’t Ask, Don’t Tell, and keep winning in very Trump-friendly districts of his state.

That’s right. And as he’s serving his sixth term in office, he sets his sights on the governor’s mansion and decides to run for office in 2018. He wins that race easily. And early on, during his time as governor, the eyes of the world are on Minnesota after a police officer kills George Floyd. And what we see is massive looting and protests in Minneapolis.

Right, and remind us how Governor Walz handles that violence, those protests.

Yeah, I think that’s a crucial chapter in Tim Walz’s political career and one that will come under scrutiny in the days ahead.

After George Floyd was killed on a Monday —

People are upset, and they’re tired. And being Black in Minnesota already has a stigma and a mark on your back.

— protests took root in Minneapolis.

Y’all want to sit out here and shoot off your rubber bullets and tear gas.

And they got progressively larger and more violent.

There comes a point where the mayor and the police chief in Minneapolis plead for help. They ask the governor to send in the National Guard. And crucially, that request was not immediately heeded.

This is the third precinct here. There are fires burning to the left of it at the —

And at the height of the crisis, a police precinct building was abandoned.

There’s someone climbing up the wall right now, kicking the window in, trying to climb up the wall.

Because city officials grew concerned that protesters were about to overrun it and may attack the cops inside their own turf.

[EXPLOSIONS]

And the building is set on fire.

Right, a very memorable image. I can recall it happening in real-time.

Yeah, and in the days that followed, I think there were a lot of questions of why the governor didn’t send in troops earlier and whether a more muscular, decisive response could have averted some of the destruction that spread through the city.

And how does Walz end up explaining his decision not to send in the National Guard more quickly?

The governor and his administration have said that they were really, really dealing with an unprecedented challenge. And I think there was a concern that sending in troops into this really, really tense situation could have done more to escalate rather than pacify things on the street.

But in the weeks and months that followed, there were a lot of questions about Governor Walz’s leadership. And there were critics who said, during what may have been the most challenging week of his life, we saw a governor who was indecisive and who waited too long to send in resources that ultimately allowed the city to get to a semblance of order.

Right, and it feels like this is a moment that will almost assuredly be used against him by Donald Trump and JD Vance, the Republican ticket, which has made law and order so central to their message in this campaign.

Yeah, absolutely. And here in Minnesota, that was certainly a liability for him when he ran for re-election in 2022. But voters kept him in office, and he won that race handily. And not only did he win, but Democrats managed to flip the Senate and have full control of the legislature on his watch.

And that sets in motion one of the most productive legislative sessions in Minnesota history, where Tim Walz and his allies in the House and the Senate managed to pass a trove of really progressive legislation, oftentimes on a party vote.

Tell us about some of that legislation.

Well, Minnesota becomes the first state in the wake of the Supreme Court ending the constitutional right to abortion to actually codify this right under state statute. And they did a lot more stuff. They had a huge budget surplus, and they used that, for instance, to fund meals for all school children.

They managed to pass a couple of gun control laws that were very contentious. They gave the right to undocumented immigrants to get driver’s licenses. They legalized recreational marijuana. And finally, the governor takes a pretty bold stance on this issue of gender affirming care for transgender kids and teenagers, and says that Minnesota will be a safe haven for people who want that health care.

So, Ernesto, so how should we think about that blitz of legislation and the largely progressive tone of it, given the way that Walz had campaigned and succeeded up to that moment as somebody with such broad appeal across the political spectrum?

When the governor was asked whether this had been too much too quickly in terms of progressive legislation, his answer was that these were broadly popular policies, that these are issues Democrats had campaigned on. And here, Democrats had a window of opportunity where they were in control of the governor’s mansion and control of the House, the Senate, and that when you have political capital, you spend it.

But when you start listening to Republicans in Minnesota, they say, here’s a guy who campaigned on this mantra of “One Minnesota.” That was his campaign slogan. And he sort of came into office with this promise that he would govern in a bipartisan way, reach across the aisle.

But when they had all the votes they needed to pass their policies, Republicans felt that Walz was not bothering to bring them into the fold and to pass legislation that was going to be palatable to conservatives in the state. So I think people who once regarded him as a moderate now start seeing him as somebody who, when he had the power, acted in ways that were really progressive and liberal.

So at the height of his power, Governor Walz emerges as somebody who, when given a shot at getting done what he really wants to get done with a Democratic legislature, is a pretty progressive leader, even at the risk of being somewhat at odds with his earlier image as more moderate, because in his mind, enough people in the state are behind these policies.

Yeah, and I think he assumed that he had banked enough goodwill and that people across the state liked him enough to tolerate policies they may have disagreed with. And I think it’s safe to say, among the people who cover him here regularly, there was never any real hint that Tim Walz was eyeing a run for higher office. He’s not somebody who has written the kind of political memoir that oftentimes serves as a case of what you would bring to a national ticket or to the White House. And he seems pretty happy with a state job.

So it was a huge surprise when Tim Walz starts going viral through a string of cable news appearances right after President Biden drops out of the race, and the Democrats are scrambling to put Harris at the top of the ticket. And what becomes clear is that Walz is very forcefully auditioning for the role of vice president, and Vice President. Harris starts taking him very seriously.

We’ll be right back.

So, Ernesto, tell us about this cable news audition that Governor Walz undertakes over the past few weeks and how, ultimately, it seemed to help him land this job of being Harris’s running mate.

I think Walz does something really interesting, and that is that he says that Democrats shouldn’t be talking about Trump and Vance as existential threats. He kind of makes the case that Democrats have been in this state of fear and paralysis for too long, and that it’s not serving them well. So the word he latches onto is “weird.”

Well, it’s true. These guys are just weird.

It is. It is.

And they’re running for he-man women hater’s club or something. That’s what they go at. That’s not what people are interested in.

And I think one other thing we see in Walz is somebody who’s putting himself out there as a foil to JD Vance.

That angst that JD Vance talks about in “Hillbilly Elegy,” none of my hillbilly cousins went to Yale, and none of them went on to be venture capitalists or whatever. It’s not —

I think the case he’s making is that Tim Walz is a more authentic embodiment of small town values.

What I know is, is that people like JD Vance know nothing about small town America. My town had 400 people in it, 24 kids in my graduating class. 12 were cousins. And he gets it all wrong. It’s not about hate.

And behind the scenes, people from Tim Walz’s days on Capitol Hill start calling everybody they know in the Harris campaign and the Harris orbit and saying, here’s a guy who has executive experience as governor, but also somebody who has a really impressive record from his time on Capitol Hill and somebody who could be an asset in helping a Harris administration pass tough legislation. So you should take a hard look at this guy.

Which is, of course, exactly what Harris ends up doing. And I want to talk for a moment about how Harris announces Walz as her running mate on Tuesday morning. She did it in an Instagram message. And it felt like the way she did it very much embraced this idea that you raised earlier, Ernesto, that Walz contains these two appeals, one to the Democratic base, one to the white working class.

Harris specifically cites the work that Walz did with Republicans on infrastructure and then cites his work on gun control. She mentions that he was a football coach and the founder of the high school Gay Straight Alliance. She’s straddling these two versions of Walz.

But I want to linger on the idea for a moment of Walz’s vulnerabilities, because once he becomes Harris’s running mate, Harris and Walz are going to lose a fair amount of control over how they present him to the country, because he’s going to become the subject of very fierce attacks from the Republicans in this race. So talk about that for just a moment.

Yeah, I mean, it’s important to keep in mind that Governor Walz has never endured the scrutiny of a presidential race. So the questions he’s going to be asked and the way his record is going to be looked at is going to be different and sharper. I think the Harris campaign is billing him as, first and foremost, a fighter for the middle class. And I think that certainly will have some appeal.

But I think in coming days, there’s going to be a lot of attention drawn to parts of his record that may be unpopular with many voters. For instance, giving undocumented immigrants driver’s licenses, which Governor Walz championed. It’s likely to provide fodder for an attack ad.

The very dramatic footage of Minneapolis burning in 2020 is also something that I think people will be drawn to. And there’s going to be interest in reexamining what the governor did and what he could have done differently to avert the chaos.

And on Tuesday, we saw that the Trump campaign wasted no time in trying to define Tim Walz as soft on crime, permissive on immigration policy. And they also made clear they wanted to relitigate the era of George Floyd’s killing. And specifically, they want to try to tie him to the effort at the time to defund the police, which is a movement that Walz personally never endorsed.

So the Republican attack here will be pretty simple. Walz is liberal. Harris is liberal. So, in their efforts to speak to especially white working class and rural voters in swing states, the Trump campaign is going to say this is not the ticket for that group of voters. This is the ticket of burning police precincts and gun control. And of course, that may not be fair, but that’s very likely going to be the message over the next couple of months.

Right. I think there’s going to be effort to portray him as a radical liberal who has used his small town roots to put on this sort of veneer of being a moderate and a really sort of understanding and being part of the segments of the electorate that I think are critical in this election.

I want to speak for just a moment about the person Harris did not pick when she chose Walz because many Democrats had felt that Walz was a potentially too liberal seeming running mate for a candidate, Kamala Harris, who herself comes from a blue state and is caricatured by the Republicans as liberal herself.

And the person she didn’t choose was Governor Josh Shapiro of Pennsylvania, who was seen as having a huge appeal in that particular key swing state, but also presented risks of his own of alienating parts of the Democratic base with his well-documented support for Israel and his criticism of campus protesters. How should we think about the fact that, ultimately, Harris chose Walz over Shapiro?

Yeah, I think in the final stretch of this campaign to be the vice presidential pick, we started seeing a lot of acrimony in pockets of the Democratic base, drawing attention to the fact that Governor Shapiro could be divisive on Gaza, which has really sort of split the party in recent months.

So I think at the end of the day, they made a calculation that Tim Walz would be more of a unifying figure and would be somebody who would inspire and energize enough pockets of the electorate that they need, particularly in the Midwest, to make him the stronger and more exciting pick and somebody who wouldn’t force them to go back to defending and relitigating the Biden administration’s record on Israel and on the war in Gaza.

Right, and then, on Tuesday night, we got our first glimpse of Harris and Walz together on stage for the first time at a campaign rally. I’m curious, what struck you about their debut together.

Good evening, Philadelphia.

I think everybody was watching the opening scene of this rally to see what the chemistry between these two people was going to be like. And they both seemed giddy. They were literally, at times, bouncing with enthusiasm.

Since the day that I announced my candidacy, I set out to find a partner who can help build this brighter future.

So Pennsylvania, I’m here today because I found such a leader.

Governor Tim Walz of the great state of Minnesota.

They soon got down to business. And that business was how to define Tim Waltz for voters who don’t know him well.

To those who know him best, Tim is more than a governor.

And right off the bat, we saw that Kamala Harris really highlighted a lot of pieces of his pre-political career.

To his former high school football players, he was Coach.

She repeatedly called him Coach Walz, Mr. Walz, evoking his time in the classroom, and even used his military title from his days in the Army.

To his fellow veterans, he is Sergeant Major Walz.

And then when it came time for Tim Walz to introduce himself on this massive stage —

Welcome the next vice president of the United States, Tim Walz.

— he drew a lot of attention to his small town roots.

I was born in West Point, Nebraska. I lived in Butte, a small town of 400.

He said something that he said repeatedly recently in campaign appearances, which is —

In Minnesota, we respect our neighbors and their personal choices that they make. Even if we wouldn’t make the same choice for ourselves, there’s a golden rule — mind your own damn business.

The golden rule of small towns is you mind your own damn business, which is something he said in the context of his argument that Republicans have been limiting, rather than expanding, people’s rights. But he also drew attention to the fact that he’s a gun owner.

By the way, as you heard, I was one of the best shots in Congress. But in Minnesota, we believe in the Second Amendment, but we also believe in common sense gun violence laws.

And then when it came time to draw a sharp contrast with their opponents, Tim Walz said, these guys are phonies.

Donald Trump is not fighting for you or your family. He never sat at that kitchen table like the one I grew up at, wondering how we were going to pay the bills. He sat at his country club in Mar-a-Lago, wondering how he can cut taxes for his rich friends.

He said it’s actually people like me and Kamala Harris who come from humble origins and showed what is possible in America when you hail from a working class background, and you seize opportunities that were available to you.

Thank you, Philadelphia. Thank you, Vice President. God bless America.

So when it comes to this question of Walz’s dual identities and dual appeals, what did we learn on day one of this new Democratic ticket, do you think?

I think the campaign is trying to convey that these two facets of Tim Walz’s life are not mutually exclusive, that they don’t need to be in tension. They don’t cancel each other out. They’re both part of Tim Walz’s story. And I think that’s how they’re going to present him from now until Election Day.

Ernesto, thank you very much. We appreciate it.

It’s my pleasure, Michael.

Here’s what else you need to know today. On Tuesday, Hamas said that Yahya Sinwar, one of the masterminds behind the deadly October 7 attacks on Israel, had consolidated his power over the entire organization. Until now, Sinwar had held the title of Hamas’s leader in Gaza. But with the assassination of Hamas’s top political leader by Israel last week, Hamas said that Sinwar would take on that title as well. Sinwar remains a major target of Israel and is believed to have been hiding in tunnels underneath Gaza since October 7.

And the US Department of Justice has charged a Pakistani man with ties to Iran with trying to hire a hitman to assassinate political figures in the United States. The man recently traveled to the US and was arrested in New York last month. American authorities believe that his potential targets likely included former President Trump.

Today’s episode was produced by Alex Stern, Eric Krupke, and Olivia Natt. It was edited by Lisa Chow and Patricia Willens, contains original music by Pat McCusker and Marion Lozano, and was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly. Special thanks to Nick Pittman and Minnesota Public Radio.

That’s it for “The Daily.” I’m Michael Barbaro. See you tomorrow.

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Produced by Alex Stern Eric Krupke and Olivia Natt

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Engineered by Alyssa Moxley

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Earlier this summer, few Democrats could have identified Gov. Tim Walz of Minnesota.

But, in a matter of weeks, Mr. Walz has garnered an enthusiastic following in his party, particularly among the liberals who cheer on his progressive policies. On Tuesday, Vice President Kamala Harris named him as her running mate. Ernesto Londoño, who reports for The Times from Minnesota, walks us through Mr. Walz’s career, politics and sudden stardom.

On today’s episode

Ernesto Londoño , a reporter for The Times based in Minnesota, covering news in the Midwest.

Background reading

Who is Tim Walz , Kamala Harris’s running mate?

Mr. Walz has faced criticism for his response to the George Floyd protests.

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We aim to make transcripts available the next workday after an episode’s publication. You can find them at the top of the page.

The Daily is made by Rachel Quester, Lynsea Garrison, Clare Toeniskoetter, Paige Cowett, Michael Simon Johnson, Brad Fisher, Chris Wood, Jessica Cheung, Stella Tan, Alexandra Leigh Young, Lisa Chow, Eric Krupke, Marc Georges, Luke Vander Ploeg, M.J. Davis Lin, Dan Powell, Sydney Harper, Michael Benoist, Liz O. Baylen, Asthaa Chaturvedi, Rachelle Bonja, Diana Nguyen, Marion Lozano, Corey Schreppel, Rob Szypko, Elisheba Ittoop, Mooj Zadie, Patricia Willens, Rowan Niemisto, Jody Becker, Rikki Novetsky, Nina Feldman, Will Reid, Carlos Prieto, Ben Calhoun, Susan Lee, Lexie Diao, Mary Wilson, Alex Stern, Sophia Lanman, Shannon Lin, Diane Wong, Devon Taylor, Alyssa Moxley, Olivia Natt, Daniel Ramirez and Brendan Klinkenberg.

Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly. Special thanks to Sam Dolnick, Paula Szuchman, Lisa Tobin, Larissa Anderson, Julia Simon, Sofia Milan, Mahima Chablani, Elizabeth Davis-Moorer, Jeffrey Miranda, Maddy Masiello, Isabella Anderson, Nina Lassam and Nick Pitman.

An earlier version of this episode misstated the subject that Walz’s wife taught. She taught English, not Social Studies.

How we handle corrections

Ernesto Londoño is a Times reporter based in Minnesota, covering news in the Midwest and drug use and counternarcotics policy. More about Ernesto Londoño

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