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Selling on Amazon–Is it Right for Your Business?

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Thinking of selling your product through Amazon?  Want to know if it’s worth it?  We certainly struggled trying to decide and getting it all set up.  I can say, after getting through the initial steps and working the kinks out, it runs very smoothly (as long as you keep the inventory in stock).

When trying to decide if you should sell on Amazon, consider what you are selling, the demand for your product, and what your margin is.  That information will help you determine which option to choose, because you can do it a couple of different ways.  First, You can simply list your products on Amazon, do the shipping and the customer service yourself. Or you can send your products to Amazon and they handle everything (from A to Z!). This is referred to as FBA.  Of course, everything comes with a price, and only you can decide if it’s really worth it to you.

Let’s start with just listing your product on Amazon.  When you do this, you will be doing all the shipping and customer service.  This is a great way to start out to see if your product is going to sell.  You can charge the customer a shipping fee and potentially make some profit on the shipping and handling cost as well as your product.  In addition to a smaller fee, you are also more plugged in to your customers and are able to answer any questions or issues they have.  One downfall to just “listing” is that your item will not be considered “prime” eligible.  People prefer to buy on Amazon for their competitive prices and fast shipping.  If a customer has to wait a week or more to get their item, they are likely to try and find something similar that is prime eligible.  If you have a unique item, you may do okay but being prime eligible will really boost your sales.  The estimated number of Prime members is 40 million.  And they spend an average of $875 more per year than non prime members.  

If you decide to go all in and have Amazon fulfill (FBA) and do the customer service, you will be paying a higher fee.  So that is a drawback.  However, your item will be listed as prime eligible which will attract more buyers, and more sales = more $$$.  Another potential drawback is having someone else do your customer service.  Keep in mind that they don’t know anything about your product, and are trained to please the customer—not you.  So you will see a higher amount of returns, and there are fees associated with those as well.  You may also see a few more mediocre reviews, because customers aren’t getting the information and attention they would get from you. To get into some specifics about numbers and the initial decision…

Let’s say you have a small, lightweight product (6”x6”x1” and 3 oz) and on average sell 1000 units a month through your ecommerce store.  If your cost is $3.00 and you are selling items for $30, that is a great margin, and you can afford to absorb the fees that Amazon will charge you.  For simply listing this item, you can expect to pay roughly $6-$7 each in fees.  If you want Amazon’s FBA to handle everything, you can expect to pay around $12-$13 per item.  The fees also depend on the size and weight of your item, and what category they are in, so these fees can vary.  With this example, with a great sales history and a high margin it would be a win to list your item on Amazon.

Conversely, let’s say you only sell 100 units a month of the same product mentioned above. In this case you will be giving up a minimum of 16% of your profit, possibly more.  In this case I would only sign up if you feel like the exposure on Amazon can boost your sales. If you are selling less than 100 units a month, you can still list your product, but do so knowing that you will not be making a lot of profit, and you should really only do so as a test.  Additionally, if your product sells for less than $10 I definitely would not advise listing on Amazon unless you have a low margin and will turn them over quickly at a high volume.  Otherwise you will be drowned in fees.

Check out Amazon’s profitability calculator to get an idea of the costs, and what your profit would be, depending on the weight and dimensions. https://sellercentral.amazon.com/hz/fba/profitabilitycalculator/index?lang=en_US

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  1. There’s also the problem of not getting Amazon customers on an email list. You can’t really market to these customers after you’ve made they sale — they are still technically Amazon’s customers.

    I learned this the hard way in my current business, over the course of a couple years Amazon just slowly and surely eats away at your sales %. Now amazon makes up 80% of our sales and our customer lifetime value is significantly lower.

    If I were to do it again I would raise Amazon prices at least 20%, seed a review saying “It’s cheaper on their site…” and hope customers seek out my shopify store.

    That’s just spit balling though of course. Unfortunately Amazon is becoming a necessary evil in a lot of ways.