Insights

Is Amazon Automation a Viable Business Model or Just Another Scam?

In the latest installment of the eCommerce Knowledge in Under 5 Minutes series, we tackle a topic that has been gaining a lot of attention recently—Amazon Automation. With companies claiming to create passive income by building and running an Amazon business for you, it sounds appealing, but is it too good to be true?

What is Amazon Automation?

Amazon Automation services promise to set up and manage an entire Amazon store on your behalf. After an upfront investment, these companies claim to handle everything: sourcing products, creating listings, managing inventory, handling fulfillment, running ads, and managing customer service. The supposed result? A steady stream of passive income shared between you and the company. While this might sound great in theory, there are significant pitfalls.

How Products Are Sourced

Many Amazon Automation providers focus on two models: drop-shipping and private-label products. Drop-shipping comes with substantial risks since it’s prohibited on major platforms, making it unreliable and potentially problematic. With private-label products, automation companies often source generic items from overseas manufacturers, making it difficult for sellers to stand out from the competition. This often leads to price wars and razor-thin margins, making it challenging to turn a profit.

Product Selection and Short-Term Focus

Automation services usually rely on basic product research tools or pre-existing supplier relationships to find products that are trending. Unfortunately, this short-term focus means they often overlook long-term viability, product uniqueness, and quality control. These businesses aim to scale quickly, which frequently leads to issues with sustainability and profitability.

Questionable Return on Investment

Although these services promote lofty income projections, the reality is often far different. Many investors report losses instead of profits, with inventory sitting unsold or the store facing suspension for violating Amazon’s policies. An example is DK Automation, a company that promised substantial returns but ultimately left most investors with losses, as noted by an FTC investigation.

The Hidden Costs and Profit Challenges

In most cases, Amazon Automation ends up being a losing venture. Why? Aside from taking a significant portion of any profit—often between 30% and 50%—these services frequently inflate expenses. Additional hidden fees for advertising, logistics, and markups on goods add up over time, eating away at what little profit might exist. This cost structure, combined with low-margin products, leaves investors with minimal, if any, returns.

Why These Products Don’t Sell

The lack of product differentiation is a major barrier to sales. Automation providers tend to source generic, oversaturated items, making it difficult to compete. Poor-quality products also lead to negative reviews, further hampering sales. Additionally, because the items are low-margin, sellers are often forced into price wars, making it challenging to maintain profitable pricing.

Does Amazon Automation Ever Work?

In most cases, Amazon Automation doesn’t deliver the promised results. By outsourcing the entire business, investors lose control over essential aspects like product development and quality. This lack of differentiation, combined with profit-sharing and hidden fees, makes it difficult to achieve sustainable profitability. Even when products sell, the margins are so slim that minor issues can wipe out earnings.

A telling question to ask is: if these companies were so successful at building profitable Amazon businesses, why do they need external investors? The reality is, many make more money selling the service than selling products on Amazon.

A Better Alternative: Building Your Own Brand

For those serious about succeeding on Amazon, building a unique brand is a much more sustainable path. By developing or sourcing high-quality, unique products and investing in branding, you can build a loyal customer base and create a long-term business. While this requires more effort upfront, it’s a much more secure and profitable strategy than relying on an automation service.

Conclusion

Amazon Automation might seem like an easy path to passive income, but the reality is far more complex and risky. Most investors lose money, and any profits are often far below expectations. Building a unique brand, on the other hand, gives you control, growth potential, and a truly sustainable business.

Watch the video below for a detailed breakdown of why Amazon Automation often fails and why building a brand is the better path to long-term success.