It is well known how difficult it is to sell with your online shop. That is why there are more and more entrepreneurs thinking about using Amazon as a channel to sell their e-commerce products.
Today, we are going to deal with the advantages and disadvantages of selling on Amazon so you can check if it would be convenient for you to join the Internet giant.
Are you ready to find out if this alliance would work for you?
First ideas about selling on Amazon
And it’s growing like not many online businesses have grown before. Amazon has become a giant and its owner, Jeff Bezos, is the wealthiest person in the world.
Can we ignore this situation? We shouldn’t.
He has built an empire that is changing the way we search and buy online and, if it doesn’t already, it will most definitely come to dominate transactional searches on the Internet.
Information-related searches will be carried out with Google while most of the searches geared toward a purchase will be made via Amazon.
This leads to many e-commerce shop owners thinking about the possibility of using its marketplace to sell their products.
At first glance, everything seems wonderful, but we are going to give you all the information that you need to know in order to make a good decision.
There are also people those who think that its fall from the top will happen just as fast as it rose there.
There are powerful arguments supporting both sides, so let’s start analyzing them.
How to sell on Amazon
Let’s start by having a look at the possibilities.
A person who is starting out and who has little knowledge about this platform may feel overwhelmed by all the different options available to sell their products on Amazon.
These are the 3 main options. The first two options belong to Amazon Seller Central and the third one to the Amazon Vendor Central program.
1. FBM (Fulfilled by merchant)
This is the first option that comes to mind when we talk about selling on Amazon.
It is about using the marketplace as it is. Sellers upload lists of their products, they fill in the information form and they can be selling after just a few steps,
If you are used to using the Amazon website, you’ve seen how in some product cards you can read “Sold and shipped by…” and the name of the seller. Have a look at this Fulfilled by Merchant example.
You are in charge of the selling, the shipping, the returns, and any other post-sale services that the client requires.
This is the easiest option, and in some cases, the best. However, it would be a waste of time and money for some products.
One of the main characteristics of selling on Amazon is the fact that there are no clear guidelines that work for all types of products.
As soon as you start looking for reviews, you’ll find all sorts of opinions.
You’ll hear harsh criticism about the selling conditions, yet there are also people who are doing just fine. Everyone gives their opinion based on their personal experience, but we can tell you that it would be extremely rare for you to get rich selling on Amazon.
We’ll see why later.
2. FBA (Fullfilled by Amazon)
In this second option, Amazon gives you the option to use its logistics network in order to sell and ship.
Imagine that you manufacture a product or that you’ve found a supplier who serves you directly. With FBA what you do is send Amazon all of your stock for them to manage the storage, the shipping, and the returns.
It’s a type of dropshipping in which you provide the products. Whenever you see a product card saying “Sold by X, managed by Amazon”, it’s a Fulfilled by Amazon product.
It seems simpler, doesn’t it?
You get to forget about the inconvenient logistics and you just sit back and wait for your earnings to grow.
We wish it were like that, but Amazon itself also comes into play at this point, especially when it comes charging you. We will go through the pros and cons later.
3. Amazon Vendor
Both of the previous options from Amazon Seller are meant for businesses that are not too big. We can then consider Vendor to be the VIP option.
Just like with any other exclusive event, you need a special pass to be VIP. In this case, you need an invitation from Amazon itself to become a Vendor.
A vendor becomes an Amazon supplier—it is a wholesaler that sells to Amazon, who then sells to end clients as a retailer.
You send an order to their warehouse and they take care of everything—even setting the market price and what that they are going to pay you. The price is set by their algorithm and it is always the lowest one possible, so negotiation is not an option.
Buyers tend to like the “Sold and shipped by Amazon” tag quite a bit.
How to become a Vendor
Having the “honor” of serving Amazon may be the result of several things:
- You have a very powerful product.
- You sold loads as a Seller.
- You are a consolidated brand and Amazon is interested in including you in its ranks.
Again, it may sound terrific. But, once again, don’t stop reading and don’t go rushing off to find Bezos’ number to ask for your Vendor invitation. There are quite a few things you need to know first. ;)
Advantages of selling on Amazon
The plus side part of all this.
1. It is easy and fast
Finding out how to sell on Amazon is easy. You just need to read the instructions , fill in their form, and start publishing your products.
There are no real difficulties to entering the platform, so in just one day you can start selling without investing a single euro.
In addition, you will save yourself the hassle of thinking about the design, the structure, or the website configuration, which you would have to do if you were using your own shop. By using Amazon, your only worry would be to manage the catalog.
In order to become a Vendor, remember that you need Amazon to come knocking at your door, while becoming a Seller can be done by means of these two options:
- Individual Seller: limited to 40 references.
- Pro Seller: more than 40 products and various advantages over the individual one.
If it’s really piqued your interest, the easiest option is the first one. There will always be time to grow and invest later.
2. Maximize your visibility
Amazon is one of the most visited websites in the world, it has million of daily users. Just by appearing on it, your potential audience will be multiplied exponentially.
Without worrying about the SEO, SEM, or networking, visitors will come, and with them, the sales.
It doesn’t matter if you registered yourself in a specific country (.es, .com, etc.)—you’ll have a global reach and you’ll learn if you’re able to make sales in international markets.
This is the main argument used by those who opt for this option. The problem is that this visibility may come at a pretty high cost.
3. It generates immediate trust
Even though buying on the Internet is becoming a normal thing to do,selling on Amazon will make the client feel safer because of the big company guarantee.
Buying this way, the client has the guarantee that, in case of a problem, it will be solved immediately.
Besides, it is Amazon itself which will take care of this customer service , which means saving both time and money for you.
This trust is greater if the item has the “Fulfilled by Amazon”, which only happens when you are a Vendor. Among the other options that we have seen, FBA is the best since there are many people who trust Amazon shipping more than any other third party.
Disadvantages of selling on Amazon
Let’s see what the richest man in the world doesn’t like people to say.
1. You must pay a fee
Unfortunately, if you work with low profit products, it may not be profitable for you to sell on Amazon .
Fees range between 10% and 15% per sale, which is the reason why it is advisable to have big profit margins.
You have two options:
- Individual seller: €0.99 for each product sold. You only pay when you sell a product. It is limited to 40 items per month.
- Professional seller: there are no limits, and the fees are smaller than those for individual sellers, although there is a fixed fee of €39 plus taxes.
In addition to that, FBA charges you for storage and shipping management.
A. Fulfillment fees
The cost of processing the order (what they fulfillment fees) are typically between €2 and €3 per order, although it depends on the product size:
- Small: €2.07.
- Medium: €2.40.
- Large: €2.93.
You can see the official fees here.
B. Management fees
The fee to store your products also depends on the size, obviously, although the fees related to time are surprising.
- First 6 months: €26 per cubic meter during low season and €36 during high season (October-December).
- From 6 to 12 months: Amazon severely punishes low rotation and the cost reaches €500 per cubic meter. Yes—you read it correctly—the price is almost a 2000% increase. And that’s not all…
- More than 12 months: each cubic meter costs €1000.
If your products haven’t been sold in 6 months, you’d better give them away. Otherwise, it would be cheaper for you to rent a whole floor at the Ritz hotel than to store your stock.
As you can see, it is not all roses.
C. Amazon Vendor fees
This option is free of charge, especially since you were invited. There are, however, some related services that you need to pay for.
You are assigned a specialized advisor, who you must pay, and who gives you recommendations regarding your account. It’s advice that normally cost something, such as ads in the display network or strategies to get the Buy Box.
In addition, you will have to pay for access to Retail Analytics, a comprehensive panel with all the metrics related to your products.
2. It is difficult to foster loyalty
First of all, Amazon seeks its own benefit before its sellers’. The platform is designed to highlight products, not the sellers behind them. Forget about the idea of personalizing your profile; both your interface and your products’ organization will be controlled.
All these details make it difficult for customers to identify you and to create a long term relationship with you.
What if you decide to sell your products using your own platform?
There will be no chance of getting access to those clients who bought your products through Amazon.
After all, they buy from Amazon, not from you.
3. They spy on you
Apart from the huge disadvantage of having to deal with the huge number of competitors who sell the same product as you, you also have to compete with Amazon itself.
By selling on Amazon, you are providing all your sales information.
The platform has access to your data and knows exactly which products are the most successful. It is no secret that Amazon uses this knowledge to add its own products in those market niches in which they can gain a profit.
When you register yourself as a seller, besides all your data, you need to tell them who your suppliers are. If your product is really successful, all they have to do is contact them directly and skip the middleman, which is you.
Plus, you would have given them descriptions in your product cards and a lot of valuable statistics about rotation and pricing.
If that weren’t already enough, when you want to go back to selling via your e-commerce shop, they would already have better Google positioning. That is to say, what started out as a nice channel for selling has ended up devouring your whole business.
You should never forget that since you are using its platform, Amazon has a powerful position over you. At any time they could reduce your products’ exposure, they could copy successful selling formulas and start selling similar products for a cheaper price.
4. Amazon may return your products
Imagine that they called you to become a Vendor. You have a e-commerce shop for clothes and you become a supplier. They placed a €10,000 order and you are happy.
The signed agreement includes a clause that says that Amazon has the right to return the products.
That is to say, if after 8 months they decide that they are no longer interested in selling them, they can return €7,000 worth of stock that they don’t want. It doesn’t matter if they belong to another season or if you don’t sell those products anymore—you have to accept the return.
5. They pay after 90 days
People say that this is the real Amazon business. They charge clients immediately and you ship products immediately, but you don’t get the money until three months later.
Besides, if you are sending your products as a Vendor and there is a competitor who decreases the price of the product during those 90 days, the algorithm will define the new quantity that you are going to get—a lower one, of course.
6. They offer an exquisite service to clients at your expense
Buyers love Amazon, among other things, because of how easy it is to return products. They offer ‘no questions asked’ return system because it is the seller who pays the costs, not Amazon.
They play around with your money and, on top of that, if they determine that you have too many returns, no matter how stupid the reason may be, they can close your account for 90 days while you make a complaint.
7. Disadvantage against foreign sellers
If you sell from Spain, you have to pay the 21% VAT.
Sellers from other countries that ship from outside Spain don’t have to pay this fee. Competing with price, the key to selling on Amazon, becomes even more difficult.
Then, what do I do?
We advise you not to depend 100% on Amazon and its selling platform.
If you are serious about developing your business, having your own own online shop will allow you to create strong branding and foster loyalty in customers that will earn you profits over the long haul.
What is certain is that Amazon is a tremendously lucrative sales channel for many sellers and there is no reason not to make good use of it. You just need to be aware of the conditions you are agreeing to and their possible consequences.
Especially if you are just starting out, it could be a great opportunity to test things out, to start to move your products, and to make a bit of money to put towards your shop’s future operations.
However, always keep in mind that that ultimately, only you can decide if selling on Amazon is best for you or if it’s better to do it through your own platform.