Amazon is one of the largest e-commerce marketplaces, and it’s no wonder almost every brand will consider whether selling on Amazon is right for their business. The online marketplace boasts 300 million active Amazon customer accounts and more than 1.9 million selling partners worldwide. And sales by third-party sellers are growing at 52% annually, compared to 25% for sales by Amazon.
How can a company tell if selling on Amazon is right for their brand or small business? While the potential is incredible, results will vary for different businesses. Thinking through all the pros and cons of selling on the Amazon marketplace is critical for any brand considering making the leap.
Is it actually profitable to sell on Amazon?
There is no doubting the Amazon effect, and selling on Amazon can be extremely profitable for sellers—if the integration is handled in the right way and selling on the e-commerce platform is the right choice for the business. Competition for customers on Amazon has increased over the past few years, but the overall demand for e-commerce has also increased. That means that as long as brands are strategic about how they sell on Amazon, they can still be profitable.
Pros of selling on Amazon
As one of the biggest players in e-commerce, there are many benefits to selling on the Amazon platform. Exploring those benefits is one way for brands to decide if selling on the e-commerce platform is right for them.
Large customer base
Amazon has more than 300 million active Amazon customer accounts, so selling products on the Amazon platform opens a brand or small business up to a whole new audience of potential customers. Listing products on Amazon also immediately adds credibility to a brand’s listings. Customers are more likely to buy from Amazon’s marketplace than a brand they’ve never heard of.
One of the critical things to realize about customer behavior on Amazon is that customers generally head to Amazon to make a purchase, not to look for products from a specific brand. However, that can work in your favor. The power is in the discovery. A customer might start looking for a specific product and find a specific brand in the process. What the brand does with that power is up to them. If the brand provides a top-notch customer experience, it can expect to win a repeat customer in the process. That’s why it pays to ensure your Amazon SEO for your product listings are well optimized.
Convenient and user-friendly platform
Getting started selling products on Amazon can be a lot easier and faster than setting up a standalone e-commerce store. Brands don’t need any technical skills to start listing products on the platform.
However, just because it’s easy to get started doesn’t mean there aren’t ways for sellers to optimize their listings and stand out from the competition. Because the platform takes care of so much of the setup and logistics, brands can spend more time focusing on things like optimizing product listings and digital marketing.
FBA option
One of the biggest considerations of Amazon selling is the ability to use the Fulfillment by Amazon option. Participating in the program allows brands to offer Amazon Prime shipping, and pay a single bill for online marketplace fees and fulfillment. Brands also get access to Amazon’s extensive network of order fulfillment centers and logistics operations.
Strong brand reputation
It’s no secret that Amazon’s brand recognition is unmatched, and selling on the platform allows brands to leverage that brand recognition. Buyers trust Amazon, and they trust third-party sellers on the platform. Amazon has been #2 on Fortune’s list of the World’s Most Admired Companies for the past six years.
Marketing and advertising opportunities
When it comes to how to increase sales on Amazon, the marketplace giant has several advertising options for brands, including Amazon’s demand-side platform for off-site advertising, audio, and video ads, and sponsored brands, display, and products. Having access to these digital marketing and advertising opportunities means brands don’t need to pay for other advertising services—at least to start.
Cons of selling on Amazon
Deciding to sell on any e-commerce marketplace is a big decision for brands, so taking stock of all the benefits and all of the potential downfalls is an important step.
Competition from other sellers
While Amazon’s popularity is part of the reason it’s a great opportunity to increase reach and sales, it also means increased competition. And it’s not just competition against other third-party sellers but competition against Amazon itself. Just take a look at the Amazon Basics line, which is the brand’s line of items that are duplicates of top-selling products.
Amazon’s fees and commissions
Amazon charges high commissions on product sales and high fees. There are two options for fees: an individual plan that charges $0.99 per unit sold, and a professional plan that charges $39.99 per month for an unlimited number of units sold. Amazon also charges referral fees, which range from 8% to 45% and vary by product category. It’s also important to realize that while Amazon charges customers right away and brands ship products right away, Amazon does not pay third-party sellers until 90 days later.
Limited control over customer experience
While sellers on Amazon’s marketplace benefit from the brand’s reputation, sellers have limited control over the customer experience. Amazon is the one who processes the sales and (if a brand participates in Fulfillment by Amazon) ships the order to the customer. The Amazon marketplace also provides very little in terms of customer data, which can hinder a growing brand looking to nurture a customer base.
Possibility of counterfeit products
Most e-commerce brands have heard horror stories about counterfeit products being included under a brand’s product listing. In fact, shoe retailer Birkenstock pulled all its products from Amazon’s marketplace because of counterfeiting. Counterfeiting can lead to lower sales (since those items are often priced much lower) but also to negative reviews of the original product. Those negative reviews can also impact sales as well as a brand’s reputation.
Dependence on Amazon’s policies and algorithms
When a brand sells on Amazon’s platform, Amazon makes the rules. And Amazon can change the rules with little to no notice. Amazon’s primary focus is on keeping its customers happy, not keeping its sellers happy. Amazon can be quick to shut down accounts with negative reviews, and the process to reopen a professional account isn’t easy—or quick.
Amazon also has the final say when it comes to fees, including referral fees and Fulfillment by Amazon (FBA) fees. Many e-commerce brands report an initial spike in profits after outsourcing marketplace fulfillment services to FBA, but much of that profit is consumed by FBA fees like fulfillment fee consolidating, order handling, pick and pack, and weight handling. In fact, a 2023 report found that Amazon now takes about 50% of each sale. And those fees are always subject to change. Amazon has raised FBA fees every year, and brands who depend on that service have to weather the increases or find a new fulfillment partner.
Deciding whether selling on Amazon is right for your business
Like selling on most marketplaces, Amazon can provide a quick way for businesses to get started, especially if they opt into the Fulfillment by Amazon service. Amazon is undeniably a huge player in the e-commerce space, and an estimated 63% of consumers start their online shopping journeys on Amazon.
Brands should carefully think through the pros and cons of selling on Amazon’s platform and determine the right choice for their business.
Supercharge your Amazon store with Flowspace
Flowspace supercharges Amazon stores by seamlessly integrating a powerful system that makes storing, fulfilling, and shipping products a breeze. It takes less than five minutes to integrate Flowspace with an existing Amazon store.
Flowspace also offers an alternative to Fulfillment by Amazon. Flowspace enables sellers to readily respond to demand without exerting the extra cost, time, and effort of complying with Amazon’s strict rules and excessive fees.
Flowspace provides storage, transportation, product inventory management, and all the warehousing services brands need for their inventory month over month. The Flowspace platform provides a seamless Amazon integration, handling the picking, packing, and shipping of Amazon orders directly from its networked, distributed order fulfillment centers. Unlike Amazon’s warehouses, Flowspace has no space minimums, so brands can eliminate the issue of overpaying for unneeded space and improve the logistics network.
Learn how Flowspace can supercharge your Amazon store today!
Sources:
Howland, Daphne. 2016. “Birkenstock Pulls Products from Amazon over Counterfeiting Concerns.” Retail Dive. July 21, 2016. https://www.retaildive.com/news/birkenstock-pulls-products-from-amazon-over-counterfeiting-concerns/423027/.
Soper, Spencer. 2023. “Amazon Is Taking Half of Each Sale from Its Merchants.” Washington Post, February 13, 2023. https://www.washingtonpost.com/business/on-small-business/amazon-is-taking-half-of-each-sale-from-its-merchants/2023/02/13/05d7d80c-abb2-11ed-b0ba-9f4244c6e5da_story.html.
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