If you are an online shopper, chances are you or someone you know uses the Amazon marketplace to make purchases. If you are an e-Commerce small business owner that sells products, you undoubtedly have thought about listing your products on the Amazon marketplace versus your online store or your website.
The challenge in deciding whether to enter the Amazon marketplace is determining if selling products on Amazon is worth it for you as a small business. For many small and medium businesses, the answer is “yes” as long as either can navigate the rules that pertain to the Amazon platform.
The following is an objective assessment of the pros and cons of using the Amazon marketplace to sell products as an e-Commerce business owner.
Amazon Pros for Ecommerce Sellers
There are several positives that selling on the Amazon website brings to the business process for small and medium businesses that other online marketplaces do not. Here are a few things to think about on the “pro” side.
Market Access a Vendor’s Own Website Does Not Provide
The most significant benefit for many sellers on Amazon is access to an incredible market. eMarketer, the market research company, estimates that Amazon will reach almost 40% of the US retail e-commerce online shopping market.
40% of the US retail e-commerce market translates into over $300 billion in sales and over 200 million US customers annually.
No matter what you sell, chances are you can sell it on the Amazon marketplace. More to the point, no matter how you advertise, you could never reach that type of market on your own. Plus, most buyers that utilize Amazon, search for specific products rather than the “buckshot” approach that traditional advertising takes.
That reality can make search engine optimization within product descriptions very important, but the availability of the Amazon market is undeniable.
If you are looking for more customers, taking advantage of Amazon’s size is a No-brainer. Not only do you get access to a larger potential audience, but most of that audience also searched on and wants to buy your products.
The reason these are “built-in” buyers is that sales only originate from shopper searches, making Amazon an easy way to pick up a willing shopper-base.
Most small businesses that run their site have a limited potential base of patrons unless they spend a lot of money advertising what they are selling in multiple venues. Sales on Amazon happen in most cases, just by listing a product. For a small company, selling on Amazon is as close to getting paid for showing up as is possible.
Try this thought experiment. Say you wanted a particular widget and searched for it via Google. The results that came up were an Amazon seller, a listing on another online small business retail site, a couple of third-party sellers, and then several individual listings from sellers that own small businesses that you did not know existed.
What site are you going to trust?
Even if you look at the other small business site or the listing of individual small businesses
or even the third-party sellers, chances are as long as Amazon has the same or lower prices, you will go with them. Even if Amazon is more expensive, you will still go with them because they are a trusted name if you have never heard of the other retailers.
When you start selling goods on Amazon, you gain instant credibility that other non-Amazon sellers do not have.
It is Easy to Build a Customer Base
Since most Amazon customers come to the site with a product already in mind, it is easy to convert them to loyal customers. Getting site visitors to your site is challenging enough.
Selling Products simply because you were an Amazon seller and they were looking for what you were listing makes relying on your site to attract customers seem silly. You will never have access to that many shoppers as your seller.
If you start selling on the Amazon marketplace, deliver what shoppers are looking for, keep your fulfillment up to date, and have attentive customer service, customer satisfaction, and building customer loyalty is easy.
International Market Expansion Potential
Amazon Is Trusted worldwide. It is also the second-largest online retail seller (after Alibaba.)
If you have plans to expand internationally or already sell internationally, Amazon is the obvious choice by virtue of their size; additionally, the fulfillment by Amazon (FBA) operation ships to over 100 countries worldwide.
Amazon is also easier to use for business expansion when compared to other online retail sites or trying to expand via your site. Most of the other sites require small businesses or any online seller expanding into a different country have a country-specific shop.
For Example, if you want to expand into South America from Chicago, IL, USA, you need to open up 12 different “shops,” one for each country.
Opening a new shop without knowing if your products will sell in the new country is a lot of work for something that might not pan out. With Amazon, you can use the US site and their international shipping options to test your products in other countries. Amazon provides both national and international order fulfillment and localized customer support.
Low Startup and Marketing Costs
Amazon’s customers seek out vendors by searching for different products. Even if a person is not sure exactly what they want, you can get your product in front of them just by working with Amazon. That is possible because Amazon has its own search engine and customers actively search for the products on their site.
Another affordable option is to advertise on Amazon. There are no upfront fees and the pricing.is cost-per-click. Additionally, you set the budget, which means there are no-cost overruns.
There are four types of advertisements on Amazon:
- Sponsored Products
- Sponsored Brands
- Lockscreen Ads (for book vendors)
- Sponsored Display Ads
No Online Store Inventory Management Requirements
Amazon can manage your inventory, package it and ship it to your customers. The company operates over 175 fulfillment centers around the world. The most important aspect of Amazon’s operation is that you do not have to worry about fulfillment. One of the challenges of small businesses that are growing rapidly is keeping up to date with fulfillment.
All units sold mean you will have shipping costs, which can get out of hand if you grow rapidly. That can end up eating into your profit margins.
With Amazon FBA, all your inventory is kept in Amazon’s warehouses and the company serves as a manager and shipping agent for sellers, saving a lot of money in fulfillment and storage costs.
Additionally, sellers get the Amazon FBA service network of delivery drivers and vehicles.
Amazon Cons for Ecommerce Sellers
The pros of selling on Amazon are undeniable and formidable. There are, though, several Amazon cons. Here are a few.
The most obvious and perhaps the most challenging of the Amazon cons is that you have to assume that your competitors are using Amazon as well. That includes competitors you did not even know existed. This is because Amazon is a much bigger pond than most small business e-commerce organizations are used to dealing with.
Amazon, for the uninitiated, is virtually in a league of its own. Any other platform is tiny compared to what Amazon offers, for consumers and sellers. When you sign up, you need to be committed to using the platform and have a plan. Otherwise, you will get lost in the shuffle.
Part of this is because of how Amazon orders its product pages. They are not grouped by vendor, but by the products being sold and category of item, which can kill most selling plans. That means the search results page that lists your product also lists your competitors.
In addition, Amazon determines what seller is the best fit based on the customer’s search terms and that is what the customer sees first.
Fees for Advertising on the Amazon Marketplace
The second of the Amazon cons are the Amazon fees you will pay to sell your products and the costs involved with using the Amazon FBA program to fulfill your orders. Making sure you know all the details is imperative. You do not want to owe Amazon simply because you did not calculate a selling and fulfillment fee into your product expenses projections.
Between fees associated with presenting and selling products as well as fulfillment fees associated with the FBA program, using Amazon can get costly very quickly.
Subscription or Commission
Amazon has two basic fee arrangements for sell on the platform:
- A flat “subscription” fee of $39.99 but no per item fee called the “professional plan”
- No subscription fee, but a commission of $.99 per item sold called the “individual plan”
If you plan on selling less than 40 items a month, the commission makes sense. If you will sell more than 40 items per month, the subscription makes the most sense or you could end up having to pay a hefty commission.
You also will need to pay a referral fee. The percentages per product category are listed on Amazon’s site under “pricing” and range from 3% to 45% depending on what you are selling.
The fee percentages also have several formulas and stipulations that either control the fee owed Amazon or increase it based on certain criteria. Here are a few examples:
- Compact Appliances: 15% up to $300; 8% for anything greater than $300
- Books: 15% plus a $1.80 flat closing fee
- CellPhones: 8%
- Health & Personal: 8% for a total sales of $10 or less; 15% for greater than$10
Each item has a minimum of $.30 per unit sold.
If you let Amazon do the fulfillment, which is recommended if you have a large volume of sales or no place to store inventory, you will owe them a fulfillment fee. You will also be charged a monthly storage fee that covers inventory management for any inventory you have with them, no matter what you sell. That fee increases during peak months (October through December.)
Photo credit goes to repricerexpress.com
There are also several other sales fees associated with selling on Amazon that can add up:
- Disposal order
- Refund & Returns processing
- Special handling
- High volume listing
- Long-term storage
This list is not comprehensive.
Small and medium-sized businesses must crunch the numbers and determine if selling on Amazon and having Amazon handle fulfillment and inventory storage makes sense. To get an idea of what you need to sell and the necessary price points, Amazon does have a Cost Calculator for sales and fulfillment-related fee estimates (it includes an FBA calculator.)
Final Thoughts on Amazon Pros and Cons for e-Commerce Vendors
Selling on Amazon can be great for small and medium-sized businesses as well as large enterprises. It is a way to quickly build a customer base. It comes with several notable cons that might make it not worth the effort for some sellers. Knowing and understanding Amazon’s pros and cons is vital, however, if you want to succeed as a seller.