The Complete Guide to Making Passive Income on Amazon

12 min read

When most people hear the term “passive income,” they likely think of savvy investors buying stocks or real estate. It is true that these types of investments can lead to huge financial gains without requiring any physical labor. But, these are not the only ways to make passive income.

You don’t need to take a risk buying stocks, or have enough extra capital to invest in real estate in order to earn passive income. There is a much more accessible, low-risk way to earn passive income. Not only that, but it’s a method you’re probably already very familiar with.

Amazon sellers can earn passive income by setting up an online store on the platform. There is work involved in setting up an Amazon store initially. But, once the store is up, you don’t need to be very active in order to make money. How does this Amazon passive income stream work, you might ask? The answer is dropshipping, or, more specifically, Fulfillment By Amazon (FBA).

The FBA arrangement allows sellers to enlist Amazon’s vast network to fulfill customer orders. Want to learn more? Here’s everything you need to know about how to make passive income on Amazon.

Understanding Amazon Passive Income

For tax purposes, the IRS defines passive income as income from activities in which one does not “materially participate.” In practice, most people think of passive income as income that does not require any work at all. This latter definition can be a bit misleading at times, as there is usually some work required to get started.

When making passive income selling on Amazon, that work involves setting up a store and deciding what to sell. This process can involve fairly extensive research, as well as setting up contacts with Amazon or other suppliers.

However, once your Amazon store is set up, it can start generating passive income for you fairly quickly. Your level of involvement with the store can be as low (or high) as you want. If you sell the right products, at the right price, your Amazon store can make a profit without requiring you to lift a finger.

Amazon FBA passive income

The simplest way to generate some Amazon store passive income is to use Fulfillment By Amazon. Fulfillment by Amazon takes a lot of the heavy lifting out of the hands of the seller. To illustrate how much easier this system makes it, let’s imagine trying to set up an Amazon store without it.

Without a system like Amazon FBA passive income in place, all sellers on Amazon would need storage for their entire inventory. When purchasing products wholesale, as most sellers do, this would likely be an impossible task. If you’re trying to make passive income, you probably are working from your own home. It’s a safe bet that you don’t have an industrial-sized warehouse in your backyard. Without this, you have no way of keeping your inventory safe and secure while you wait to ship it out.

Speaking of shipping, it can get both expensive and complicated. Being able to pay for shipping is challenging enough as it is. The logistics involved can also turn into a full-time job on their own. Forget “passive income” in this case.

Suffice to say, affording storage and shipping are ordinarily two of the biggest obstacles to starting an online business. But Fulfillment by Amazon removes both of these tasks from the equation.

Amazon already has an established network of warehouses (Fulfillment Centers) and its growing fleet of delivery vehicles. FBA sellers can agree to use these services to fulfill all purchases made on their Amazon store. This means that as long as you have inventory and a functioning Amazon store, you can easily generate passive income.

Fulfillment by Amazon pricing

If you’re going to sell on Amazon, you should also be aware of the fees involved. Amazon makes it easy for sellers to join their marketplace. Part of this seller-friendly environment includes their relatively low fees.

Amazon has two basic seller payment plans. The Individual Plan charges $0.99 per item sold in your store. The Professional Plan, meanwhile, charges a flat monthly fee of $39.99. Which plan you should use depends on your sales volume. A low volume of sales is probably better suited for the Individual Plan. However, if you sell more than 40 items per month, you’re better off with the Professional Plan.

There are also fulfillment and storage fees for sellers who use Fulfillment By Amazon. These fees vary based on the type of item and when they are being sold. Be sure to study these fees carefully when making your store, as it can make a difference.

However, as long as you understand how to price products appropriately, you should always make a profit.

Advantages of Setting Up an Amazon Store For Passive Income

Now that you know how to make passive income on Amazon, you may be wondering why you should do it. It’s true that an Amazon store may not offer as much of a return as some other passive revenue streams. But selling on Amazon is still more than worth it if your goal is to make money without much work. Here are some of the benefits of selling on Amazon for passive income.

Easy to get started

The first advantage of using Amazon for passive income is that just about anyone can do it. The same can’t be said for investing in real estate, for example. To get started as an Amazon seller, all you need is an internet connection and a willingness to do it.

The financial investment is fairly minimal, and is quickly negated once you start selling. True, you should do some market research before getting started. But the level of work is fairly minimal considering how quickly you can start earning passive income.

Low risk

Selling on Amazon also comes with much lower risk than passive income streams from stocks and investments. When you sell on Amazon, your expenses are low and fairly easy to recover. Most of your fees are dependent on the items being shipped. As long as you sell at an appropriate markup, these fees are covered by your revenue.

You might also invest in paid advertisements to increase sales. This is a minor risk that most businesses are comfortable taking because it can be effective.

Scalable

An under-appreciated advantage of Amazon passive income is how easy it is to scale up. Once you start making some money through your Amazon store, it’s relatively easy to expand your inventory.

Using FBA eliminates ordinary obstacles that come with scaling your business. There is no need to add storage space, hire new workers, or increase manufacturing. You simply add new listings to your online storefront, and Amazon can continue fulfilling customer orders for those items.

Huge market

You likely already know this, but Amazon is the largest online retailer in the world, with over 300 million customers. When you sell on Amazon, you not only have access to the ecommerce giant’s network of warehouses and shipping resources.
You also have access to the enormous international consumer market. Amazon is usually the first place many people go when they are shopping online. If you have a spot in that marketplace, you can sell to just about anyone.

Amazon Passive Income Ideas

Want to start selling on Amazon, but don’t know what to sell? As you know by now, choosing the right product to sell is one of the keys to success on Amazon. The key is to identify items that are in high demand with relatively low competition. Good profit margins can also be an advantage, so be sure to pay attention to fulfillment fees here as well.

Here are some amazon passive income ideas to help you get started on figuring out what to sell.

Clothing

Clothing can potentially check all of the boxes when it comes to profitable passive income products. Clothing is lightweight, thus making it affordable to ship. It’s also in very high demand, meaning there will always be a market for it.

But clothing can also be niche enough that you can easily find a unique market for yourself. You might specialize in selling one particular type or style of clothes, rather than trying to sell everything. This can give you a large, but concentrated, customer base for your Amazon store.

Cosmetics & personal care

Another staple of FBA and dropshipping businesses are cosmetic products. These, again, are lightweight products that everybody needs. And there is enough variety within cosmetics and personal care that most stores can find a niche for themselves.

Home decor & office supplies

Yet another essential everyday item that will always be in high demand. Some items in this category are on the bulkier side, thus making them more costly to ship. But home decor, like bedding, curtains, and picture frames are relatively easy to ship, and are always needed. This, again, is also a category with enough variety to find a niche market and avoid having too much competition.

Ecwid is here to offer sustainable ecommerce solutions for those ready to start a successful online business. Build your business, run a successful online store, and generate passive income with ease.

Sell online

With Ecwid Ecommerce, you can easily sell anywhere, to anyone — across the internet and around the world.

Get started

Selling Online

Dec 1, 2022

About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.