6 Tips From a Top Amazon Seller With $200 Million in Sales

Scott Needham began selling on Fulfillment by Amazon (FBA) with his brother in 2013.
He has since learned the key things that set apart those who succeed and fail on Amazon FBA.
Understanding your profit margins and keeping up with changing trends are crucial.

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Scott Needham began his career as a software engineer after graduating from the University of Southern California with a computer engineering degree in December 2010. But by 2013, he had taken interest in Fulfillment by Amazon after his brother, a toy seller on the platform, surpassed $1 million in sales.

Needham decided he wanted to join him.

At first, he put his software skills to work, developing internal tools that would enable them to track profits and inventory in a much more efficient way. His brother had been doing these tasks on a spreadsheet. It was a manual, time-consuming process, Needham said.

This was one of the first problem-solving encounters he faced as a seller. It led him to develop a public software tool called SmartScout, which provides data on Amazon competitors.

One thing Needham has learned from being an Amazon seller for over a decade is that the business is far from passive. After 2013, he would spend the next 10 years troubleshooting numerous problems, learning to adapt to change, and readjusting to remain competitive.

In the early years, the brothers began as resellers, which is when you order generic products from a manufacturer and sell them on Amazon. It's an approach that puts you up against hundreds of other competitors selling the same product. They sold everything from toys to kitchen products.

This strategy worked for many years. Between 2018 and 2022, the Needhams had over $208 million in sales, with over $30 million in gross profits and about -$450,000 on net. They were profitable for two of the five years, according to a profit and loss statement viewed by Insider. The cost of goods and Amazon fees made up 85% of the sales.

The website SellerRatings.com ranked them as one of the top 100 Amazon sellers in the US marketplace, listed at 18, in 2019, based on positive feedback reviews. Their Amazon store, BuyBoxer, has 4,325 ratings at an average 4.9 stars out of five.

By 2020, they realized it was becoming increasingly difficult to continue scaling as resellers. Last year was the final leg in this business model and by October, they halted buying new inventory. The sheer size of their operation meant that they needed to maintain larger profit margins by taking a different approach.

Needham told Insider at their peak, they had 130 employees of their own. Meanwhile, labor costs from 2013 to 2022 had more than doubled what they had to pay hourly and in benefits. This was shaving off their margins. So while reselling remains a great option, doing $20, $30, or $40 million on Amazon is difficult, he said. They now have six employees.

They moved to private-label selling on Amazon, which is when you sell products under your own brand and even register it with the United States Patent and Trademark Office. It strikes down some of the competition because you're the only seller of a specific product. And while you'll still compete with other sellers, it won't be for the exact same product, he noted.

Needham has taken the lessons and trends he has learned over the years and shared them with others in numerous ways, one of which is "The Smartest Amazon Seller '' podcast, through a newsletter with over 30,000 subscribers, and a paid online course. He told Insider he has spoken to hundreds of Amazon sellers at trade shows, speakers events, and regularly responds to questions from his social media followers, which is another avenue that has taught him a lot.

Below are six key things he says could set apart the successful Amazon seller from the ones who fail.

6 key determining factors

Understand your margins. Something that happens a lot is that people chase revenue, he said. Simply put, this is when a seller invests in growing their business by overspending on things such as inventory or advertising at the cost of undermining their margins. This approach only increases losses, he said.

It's a mistake that he has also been guilty of. It's easy to get carried away when you're seeing money coming in but if your accounting isn't tight, operational expenses could catch up. There are many expenses you need to account for including FBA fees, inventory, shipping, and advertising, he noted.

There are FBA calculators online you can use to determine what your margins are for each product. Amazon also provides a calculator. Additionally, he recommends the book "Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine" as a great resource for this.

Keep up with the latest changes and tactics. Amazon's marketplace changes regularly. This includes fees, rules, and the way its algorithm places products on its front page. Those that don't adapt, fail, he noted.

"I would say every year there are two or three things that are big enough that force some re-strategizing," Needham said.

For example, one consistent change he has witnessed every year is that Amazon increases its FBA fees, usually by about 5%, he said. Another example is in the last few years, Amazon adjusted how it responded to price gouging. At one point, they suspended the seller. Lately, they have been suppressing the listing, he said. The policy around reviews has also changed. The platform is cracking down on strategies used to solicit reviews, like giving away free products in exchange for a review. If you're a repeat offender on some of these policies, you could get suspended for life, he added.

Needham recommends staying up to date with the latest adjustments by following the Fulfillment by Amazon subreddit.

You must find new ways of improving your offering. You can start with a great product but the competition can steal your margins. This is mainly done by selling a similar product for a few dollars less, he said.

When it comes to product pricing, there's always the least expensive product, a middle-tier option, and then there's the expensive option. Each one will attract a different customer. Some are looking for a budget-friendly option, while others want the best quality available, he noted.

For example, the Needhams offered a pancake cast iron skillet that had at least 10 other competitors. Instead of competing through price, they added a cookbook. This made their product a better option for those looking to purchase it as a gift and it allowed them to keep their price point higher.

Another successful seller Needham knows will launch a slightly different product at all three price points. This allows him to target the entire market for that product.

Build relationships of trust with your supplier and partners. If you are using a manufacturer, they can be your biggest risk or your greatest strength, Needham noted. If you have the resources, he recommends visiting them in person. If you can't do that, you can send a gift during the holidays or communicate regularly with them. Finally, nothing builds trust more than consistent ordering.

There's no shortage of horror stories about manufacturers breaking an agreement by selling your product themselves or not shipping out in time, he said.

Become an expert in your niche. Specializing opens more doors than it closes, he said. This is because each product has a different set of issues you'll need to address as a seller. For example, apparel has a high volume of returns. If you don't have experience with handling this, you could end up throwing away a lot of products. A specialized shoe seller knows how to repackage returns to get the most value out of their inventory, he said.

Logistics and supply chain budgeting and forecasting are important skills to develop. Remaining stocked takes a lot of preplanning. Making a mistake in this department could be very costly, he said.

"In the last three years, if you look at container prices, they have exploded from like $3,000 a shipping container to about $20,000," Needham said.

Seasonal products are one of the biggest challenges but they're also an opportunity to explode sales. So if you're stocking up for Christmas, often that planning starts in June, he noted. If you're planning on doing a big push for Amazon Prime Day, that planning starts in January, he added.

In 2020, supply chain delays caused their seasonal Christmas products to arrive six weeks late, he said. By the time the listings were up, it was the week of Christmas. This led to a loss of sales, he said.

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6 Tips From a Top Amazon Seller With $200 Million in Sales

6 key determining factors