There are a few posts out there covering this topic by the likes of Jungle Scout and Empire Flippers. You’ll find the common comparisons in terms of complexity, profit, time to first profit etc.
What you won’t necessarily find is a personal view of a business owner in those situations. In other words, you get the comparison of features, but you don’t understand the full benefits and problems with either model.
I come from the engineering industry. That’s the design, manufacture and installation of large and small components and pieces of equipment. The complexity in the industrial supply chain demands that there are multiple layers, each with a tranche of businesses who specialise at being in THAT part of the chain.
When you simplify the product enough, it’s possible to reduce the complexity in the multiple stages of the supply chain. That’s what they call “vertical integration”.
Amazon FBA is the ultimate in vertical integration.
It takes out a whole host of buyers and resellers and places single businesses or just entrepreneurs, in a position that was occupied by many stages previously. Think about the Wholesale model with FBA, this is an example of a supply chain that isn’t fully vertically integrated – there’s still a buyer and a reseller involved.
Not only that, this vertical integration fragments the market into a million choices for the end consumer. People who used to be resellers are now private labellers. So instead of 10 resellers selling the same product from a wholesaler, they each now have their own “brand” because it’s ‘just as easy’ to do so.
However…
With this vertical integration does come a requirement to “master more”. It’s not good enough to be great at one thing, you need to be great at a bunch of things.
If you’re hell bent on outsourcing everything, you’re then giving away margin to other members of the new “supply chain” which simply isn’t viable as margins get squeezed.
Sure, you can go and hire a full service Amazon agency, but they will need their cut.
Even then, that full service probably still limits itself to management of the Amazon platform. That leaves you with the daily demands of inventory management, supplier relationships and cash flow.
Once again, you can outsource these aspects of your business and simply act as the “investor manager”. By then, a significant portion of your margin will have disappeared, making you wonder from an investment perspective whether it’s worth it.
Operating an Amazon FBA Business as a solopreneur investor
You see, the FBA model leverages the ability for a single person to be able to perform several tasks and responsibilities. Supply chain manager, PPC optimisation, Graphic design, Brand manager, Financial Controller and more. If you can manage to do all of those things well, you’re worth a decent hourly rate. For that reason, you won’t find these people growing on trees. Typically, you’ll find them leveraging these skills in running their own business.
Other businesses would need a team of people to perform all of these tasks, regardless of the amount of work there was to be done. Simply because the diverse skillset required is so broad.
Of course, as your FBA business grows, there can be this level of specialisation. You can start to carry a bigger overhead and afford more staff. But you’ve got to grow to get there first.
Once you do grow and get there, you’ve got a fully fledged eCommerce operation that you need to manage. This is where R & D becomes really important. Your small speedboat of a business has reduced in agility as you now have to co-ordinate the efforts and movements of several people, potentially even departments.
You as the FBA Business owner are going into business to create yourself a job as an eCommerce business manager. Regardless of how you structure your business, or what job title you give yourself, you’re going to have to manage an eCommerce business at some level. In fact as the company grows, you’ll need to manage it at every level throughout the growth journey.
This is a hustle.
A full time hustle.
Probably a 5 year hustle if you’re well backed financially.
5 years gives you an opportunity to get to $3.7m revenue at 50% year on year growth with a first year trading revenue of $500,000 for reference
50% year on year growth puts a strain on cash flow, but is possible with FBA.
So ultimately investing in an FBA Business is like growing any other business, like a brick and mortar business or agency. Your average hourly rate doesn’t get better, as you take on more resource to cover the extra capacity and skill requirements.
Investing in an FBA business is not like investing in an asset or stocks and shares. You’re building or buying a going concern that will need money, innovation and resource.
Further to that products themselves have a “lifecycle”. What’s hot this year, won’t be hot next year.
If it is hot, it’s likely it’ll be copied and you’ll have to share the pie. Profits are initially great, then they’re ok, and then eventually they’re not ok.
You launch products knowing they have a lifespan. Knowing you need to squeeze the value out of them whilst they’re hot.
So there’s an ongoing need for product development and general research and development JUST to stay stationary. Let alone grow.
How does the operation of an Affiliate Site compare with running an Amazon FBA Business?
Let’s compare that with building a traffic site or an affiliate site.
You research topics to cover.
You get the content written.
You do some basic SEO.
The content ranks in Google, therefore you get traffic.
Over time you may go up or down in rank, but nominally this is counterbalanced by the ageing of your site and the growth of it’s authority.
Your website becomes STRONGER with age. This is unlike the “product lifecycle” of physical products. Content lifecycles vary massively. Some being eternally evergreen – they don’t really fall out of favour or die.
This is MUCH more like investing in an asset, stocks or shares.
If you stop investing and simply let the asset age, it’s not going to deteriorate rapidly.
There aren’t complex operations to master.
Don’t get me wrong, you could make things as complicated as you want inside your business, but there aren’t cash flow management demands that could see you going out of business.
Instead your investment isn’t in “maintenance work” as with keeping an FBA business going, your investment is in “enhancement of the asset”.
Adding more content.
Enhancing authority through SEO.
Ultimately the skills you need access to are low in diversity and they’re also low cost skills.
Researching and writing.
Keyword research.
Content uploading to WordPress.
Maybe a bit of technical WordPress management.
All are low cost skills in comparison with the skills required to run an FBA business.
You can also choose to invest in these skills for a little while, then switch off the investment, only to switch it back on a little while later.
Ultimately, as a traffic or affiliate site owner, you aren’t creating a complex job for yourself as with an FBA business. You’re enabling yourself to behave like an investor.
As an entrepreneur, we all want to achieve escape velocity (or at least I think we do).
Transcending from “full time hustler” to “Business manager” to “investor”
In other words…
The ultimate goal is to reach the “investor level” where you have a choice in how technically involved you are in the day to day running of your business.
Don’t get me wrong. Amazon FBA businesses can help you get there, but you need to grow quickly and with great liquidity to allow yourself to step back from the asset and let it “run itself” with you providing the strategic direction and management.
With a content site you can almost step back and take that strategic position from Day 1.
So the question when comparing these 2 business models is actually a very personal one for the business owner.
What do you want to be – Operations Manager or Investor Manager?
An operational manager of an eCommerce business managing cash, resource, quality, research and development and the rest.
Or, an investor manager of a traffic or affiliate site managing an investment budget.
The dreams of passive income are truly that. Dreams.
However, that doesn’t mean there are differing levels of physical effort and reward.
An argument could be made that traffic or affiliate sites take a lot of effort, especially when writing the content and performing all the technical aspects yourself. However, the perspectives shared here are assuming that there’s a deployment of capital in either approach to business, even if it’s just $30,000.
$30,000 isn’t a lot to keep an eCommerce business liquid.
$30,000 could buy you a content site generating $1,000 a month profit…
It could probably build you a content site generating $2,000 a month profit inside 2 years.
The eCommerce business needs the money and you to manage it closely.
The content site needs the money and a good investment eye.
Some might say that this is all about effort vs reward in another way.
ROI of Niche Sites VS Amazon FBA Businesses
Amazon FBA provides more reward for that cash. If you’re talking Gross ROI over the course of a year, maybe so.
Content sites have a trick up their sleeves in the fact that they generate monthly income, but they also carry very stable value. A site that has a $2,000 monthly net profit would fetch somewhere in the region of $70,000.
Meaning within the 2 years, you have an asset you paid $30,000 to build that’s generating $2,000 a month in profit, meanwhile it carries a value of $70,000 if you wanted to cash out.
You’ve turned your $30,000 into $70,000 plus the income generated in that time.
You’ve probably spent 4 months of effort on and off on the project.
So ignoring the income generated by the site in those 2 years, you’ve just got paid $40,000 for 4 months work.
That’s $10,000 a month…
If you could do that with 3 sites simultaneously, you’ve got yourself a part time job for 2 years that generates $10,000 a month in income or $120,000 a year.
The only catch is that you’ll need $30,000 for each site of course.
So $90,000 isn’t something the average worker has lying around.
But this is the level that can be achieved over time.
Ok some projects aren’t going to work out that way, but hey, what if I’m out by 100%. It’s only $5,000 per month for a part time job (50% of time working).
That’s $60,000 a year, for 24 weeks work
$2,500 a week
or $500 a day
As a part time investor, without the burden of managing a team, you’re then afforded the flexibility that the content site model brings. Exit and sell the asset for a profit, or sit back and enjoy the $6,000 a month income from the 3 sites (ok, you might invest a couple of thousand dollars a month back into the sites on an ongoing basis to grow and secure them for the long term).
Either way, you’re behaving like an investor and you have liquid cash coming in to build the next venture.
A couple of resources comparing FBA and affiliate / using both together:
check keywords ranked for: https://www.feedbackwhiz.com/blog/amazon-affiliate-program/
