“Should I sell products on Amazon?”
It is a question every merchant must ask themselves these days. After all, Amazon is the largest marketplace the world has ever known. The answer is complicated, and often involves some risk.
Below you will find some helpful tips about whether or not you should sell on Amazon.
What types of products sell the best on Amazon?
Items sold on Amazon are sorted into a large number of categories and sub-categories. When you drill down to the lower levels to find very specific groups of products, there are a number of product types that do well, and for different reasons.
Open marketplace items can be sold by any vendor and are extremely competitive.
Many vendors fight over who gets to sell big-name and high-volume products. The higher the competition, the lower the profit margin is going to be for the vendor who wins the Buy Box and makes the sales.
Extremely high volume products may even be picked up by Amazon itself, which can mean the rest of the vendors are essentially pushed out of the marketplace altogether. Even if a vendor has a cheaper price, Amazon will be the vendor listed in the Buy Box, and most users will end up buying from Amazon directly.
Private label items, as well as unique, proprietary, or patented items, fill one of the most interesting eCommerce spaces.
Private label items are typically copies or small variations of big selling items, but with a unique brand and label on the package. The consumer has to have some motivation for going outside the norm and foregoing the well-established brands; but the risk often yields worthwhile rewards.
At the very least, a private labeled product is an attempt by a vendor to source larger quantities of raw products from a distributor or manufacturer, and then slap their own label on them. This gives the vendor increased power and profit margin, since they can now run their own product listing against the established brands.
Piggybacking on a well established brand, product, or category is an excellent space for a vendor to be in. For example, if a vendor has their own brand of wood polish that works just as well as the big name brands, that vendor can now compete against an established industry with a lower price and a higher profit margin.
The Amazon Brand Registry is a powerful way to control brands that a vendor owns.
As simple as it sounds, a vendor can establish themselves as the owner of a brand. Once approved, any other vendor who attempts to sell that brand on Amazon must request explicit permission from the owner to do so.
Allowing other vendors to compete on a registered brand certainly risks losing direct sales and driving product prices down. However, competitors must obviously source that brand’s supply from the owner, bringing money through the door either way. Additional vendors will also lend credibility to those product listings, further convincing prospective customers to try them out.
MSRP/MAP items must be sold at the exact same price, no matter who the vendor is.
MSRP/MAP items are often sold only by a very specific list of vendors that have direct permission from the manufacturer. Since there is no competition on price, the winning vendor in these situations is often the one with the best ratings, best customer feedback, and least amount of errors with shipping. If you have a well-established store, with excellent rating, MSRP & MAP products can be an excellent space to generate incremental revenue.
What is the cost of doing business on Amazon?
Amazon’s fee structure is pretty straightforward. But figuring out how to run a profitable Amazon store requires planning and forecasting.
The main Amazon fees are as follows:
- $39.99 / month for an Amazon Store that can sell an unlimited number of items
- 15% of every sale (ex: a humidifier sells for $100.00, Amazon takes $15, seller gets $85)
- 15% of shipping revenue (ex: shipping cost is $10.00, Amazon takes $1.50, seller gets $8.50)
- If using FBA, warehouse space will incur additional charges
Amazon is in the game of selling as many units as possible and taking 15% of all revenue generated from every unit sold. Amazon’s algorithms for ranking products and vendors is based almost entirely on the number of units sold, since high-volume sales often yields the highest revenue for Amazon.
There are a number of third-party tools to help figure out the balance of units sold and price points to hit to have a profitable store.
How do you want to handle shipping?
The two shipping options are Fulfillment by Amazon (FBA) or handling shipping in house.
FBA is Amazon’s full-service fulfillment option. A seller can ship large quantities of products to Amazon warehouses near their customer’s, and Amazon takes care of the rest.
Some benefits of FBA include:
- Safe storage of large quantities of products
- Quick and accurate shipping by Amazon
- Amazon Prime customers get free shipping on FBA items
- Amazon’s 24/7 customer service on FBA orders
- Amazon handles returns
Some downsides of FBA include:
- Seller’s must pay rent for warehouse space.
- Rent becomes more expensive the longer the product is stored there
- Strict policies on packaging and labels
- Repercussions for violating policies can be detrimental to an Amazon store
- Storage during Holiday season is more expensive
In the end, FBA is the play if you are quickly selling large quantities of a product. Otherwise, it may save you money to handle shipping in house for lower quantity items.