Major Problems With Selling on Amazon and Advice for New Sellers
For many years eBay was the only online selling platform, and since its inception in 1996, millions of sellers around the world have bought and sold items with ease and confidence. Amazon entered the selling scene in the early 2000s, and originally people could only use the platform to sell books, CDs, and DVDs.
Over the years, Amazon has greatly expanded, selling millions of different products and opening numerous fulfillment centers (inventory warehouses) around the world. As efficient and attractive as Amazon seems, it still has its problems. Here is a snapshot of the challenges, along with a few opportunities of selling products on Amazon:
Has some barriers to entry
Payouts limited to every two weeks (in most cases)
Highly competitive selling environment
Difficult to get abundance of positive feedback
Risk of inventory being deemed unsellable or restricted at any point in time
Complicated procedures and increasing fees
May require use of several third-party software tools to be competitive with other sellers
Can create unique (private or white-label) products and instantly get them exposed to millions of potential buyers
Amazon-specific paid advertising (Sponsored products) available within the Amazon platform
Dedicated account executive for large sellers
Explicit rules can make many situations easier for sellers to navigate and provide some seller protections
Available tutorials and coaching from Amazon staff
Amazon offers loans based only on sales volume (no credit score check)
Improved offerings from Amazon include free re-pricing tools, inventory monitoring and management, more targeted advertising among others
Barriers to Entry
It has become more and more difficult to just jump on Amazon and start selling. As the platform continues to take on new sellers who don't always follow the rules, Amazon has had to become more strict in allowing who can sell, what can be sold, and how.
Sellers must receive approval to sell clothing, shoes, handbags, automotive items, and many more types of inventory. The list of categories requiring approval keeps growing. And it isn't that easy to be approved. On the plus side, sellers on Amazon do have automatic approval to sell in a few categories as soon as they open their selling account.
Amazon Sellers Only Get Their Money Every Two Weeks
When you sell an item on Amazon, payment is made by direct deposit to your checking account every 14 days, unless you're one of the lucky few who still has a legacy account that allows you to request payments as often as every 24 hours.
Amazon does not accept PayPal from buyers. That can be a problem if you are using the revenue from your sales on other platforms to purchase more inventory to sell. There are ways to work around the two-week payment system, but you must apply and be approved by Amazon.
Competition is Brutal
Many Amazon sellers don't sell their own one-of-a-kind items. They simply resell items they've purchased from wholesalers or suppliers in bulk, just like a retail gift or other shop. The issue is, if you can buy it in bulk, then many other people can too, which creates a large degree of competition for the same items.
This has led to many sellers creating unique products with the help of companies that will put a seller's brand-name on an existing product and make small customizations to the product such as minor color, fabric or formulation changes. These are known as private-label or white-label products, and they're a halfway point between reselling existing products and creating your own from scratch.
Amazon has also experimented with different tools to help sellers beat the competition in various ways, by adding the ability to automatically reprice your products, clear out aged inventory, and optimize your listings with keywords.
Sellers who grow their bottom-line profits year-over-year faster than their top-line sales tend to fare better. With many sellers using re-pricing software to automatically change their prices to stay competitive, as soon as one seller out-prices another, it sets off all other sellers' re-pricers, and a downward pricing spiral begins. The only winner is the Amazon buyer who gets items at a very low cost.
It Takes Time to Build a Positive Feedback Profile
If you think eBay customers are bad about leaving feedback, Amazon customers are worse. Only about one out of every 30 buyers leave feedback on Amazon, so you have to sell a lot of products to build up your feedback, compared to about one out of every three eBay customers that leave feedback. Fortunately, feedback doesn't carry quite as much weight on Amazon as it does on eBay.
Your Products Can Become Restricted and Unsellable at Any Time
Amazon works closely with large manufacturers and established brands. If a brand decides they don't want third-party sellers listing their products on Amazon, they can have Amazon deem their products restricted at any time.
This means that no one but the brand owner can sell the product on Amazon's platform. While this seems like an all-around negative, if you're a seller that has your own brand, Amazon has developed a brand registry and other protections to help you as a brand owner to sell more successfully on the platform without having to compete with people who obtain your products through liquidators or unethical means, or who attempt to counterfeit your products.
For example, a seller could be selling Dunkin' Donuts coffee on Amazon, that they had purchased on sale at grocery stores and Target. Say that they sent about 40 bags of coffee into an Amazon warehouse for future customer orders.
These storage facilities are known as Fulfillment by Amazon (FBA) warehouses. One day, with no advance warning, the seller receives an email that Amazon has partnered with Dunkin' Donuts. From now on, third-party sellers can no longer sell this brand, meaning they would have to pay Amazon to get the 40 units of coffee out of the warehouse and sent back to them.
Amazon is Complicated and Expensive
This is especially true if you sell on the FBA program, although Amazon has videos and written content that offers in-depth guidance on how to work with the FBA program and other Amazon programs. If you choose to use Amazon FBA to sell in Germany or other European countries, Amazon may contact you and provide one of its account specialists to help you get set up and address any issues you may run into.
With Amazon, fulfillment is when you send your items to an Amazon warehouse, and they are stored there until a customer buys them. Once the item sells, Amazon packs and ships the item to the customer.
Learning the prep system for sending items into Amazon's warehouses is detailed and isn't easy, and a lot can go wrong with damaged items, lost items, and other warehouse issues. Sellers don't always get compensated for customer returns and may not receive full compensation for items lost or damaged in the warehouse.
Amazon fees are about one-third of the sale price of the item, which doesn't include the monthly fee of $39.99, and the ever-increasing warehouse storage fees. Despite the pitfalls, though, many people prefer Amazon to the competition. For starters, they are familiar with Amazon, so it feels like home.
Amazon periodically offers to lower the fee they charge on each sale, in return for you dropping your product sales price. These limited-time offers don't always leave room for any profit, but can help you sell through slow-moving inventory.
Amazon also offers loans through its own lending group, to sellers who have good metrics. The loan amount is based on your sales history, and sellers cannot request loans; they can only take advantage of a loan if Amazon decides to offer one.
However, in addition to the issues above, there are additional issues that even large or long-term Amazon sellers haven't figured out. The good news is, the following information can help with that.
Advice for Amazon Sellers
Especially if you're new to Amazon, here are three tips that will make selling easier and more lucrative.
Tax Setup: As soon as you open your seller account, set up your state tax collection options on Amazon.
Many people think that Amazon automatically takes care of charging sales tax on sales made via the Amazon marketplace, regardless of which state the item was sold into. Currently, Amazon only handles sales tax transactions as a "Marketplace facilitator" on behalf of sellers in Alabama, Connecticut, Iowa, Minnesota, New Jersey, Oklahoma, Pennsylvania, and Washington.
While Amazon is happy to collect state sales tax for you for a small fee unless you're in one of the eight states for which Amazon acts as a Marketplace facilitator to collect and remit sales taxes for you, it’s up to every seller to indicate from which state it wants Amazon to collect a tax, and to manage the remittance of the taxes to the appropriate tax jurisdictions across the country.
Many tax remittance services are available for online sellers. Four popular options are Taxjar.com, Avalara.com, Taxify.com, and Vertexsmb.com. Just remember that the seller ultimately has the responsibility of paying its sales taxes to each state.
A seller may choose not to collect state sales tax, and instead, choose to absorb that as a cost of doing business and build it into each product's profit margin. However, the responsibility of remitting the sales tax to states is not optional.
Profitability: Too many sellers focus on top-line sales numbers rather than bottom-line profits. Typically, sellers will say, “I want to sell $1 million a year on Amazon” or “If only I could get to be a $10 million-per-year seller on Amazon,” while ignoring the expenses that will eat up almost all of that revenue.
There is little long-term benefit to being a big seller on Amazon, although Amazon has started to realize this and provides a dedicated Amazon account executive for larger sellers, to help them wade through the red tape and optimize their business.
For many sellers, it's much smarter to focus on bottom-line growth, account for all costs upfront, and work based on the knowledge of the true profit level of your Amazon business. Sellers who work to lower costs and can grow their bottom-line profits year-over-year faster than their top-line sales tend to fare better.
This typically requires an SKU-level understanding of product profitability that also incorporates overhead and also adding some indirect costs into each SKU’s profit calculation.
It's not as simple as averaging everything out and looking only at your overall sales numbers and margins. You need to think about every SKU you sell on Amazon as having its own P&L, its own market forces, and its own level and types of competitions.
Third-party software providers have addressed this issue to some degree, such as Inventorylab.com, which automates tracking costs by SKU and allows sellers to add in overhead, shipping, and other related product costs to generate net profits by product as well as an overall profit and loss statement.
Listing Optimization: You can use some sources of data available through Amazon's Seller Central dashboard to improve the listing quality of your catalog. For many sellers, the process of building and optimizing product listings is a one-time deal, as they understandably turn their focus to other operational matters.
The first thing you want to do is use Amazon's Sponsored Product Ad campaign reports. A significant opportunity lies in using the reports from the Sponsored Product ad campaigns because, in these reports, you can see the exact keywords that were connected to Amazon customers buying your products.
By examining these reports periodically (specifically for automatic targeting campaigns), you’ll find some keywords leading to sales that you never anticipated being effective.
Lifting those terms directly into the generic keywords added into the backend of your product listings will improve their SEO discoverability, or chances that they'll show up in Amazon's search results when a customer searches for them. It's worth repeating this process every three months or so to make sure customers’ behavior specific to certain words hasn’t changed.
If you're an Amazon fan, be sure to pay attention to the potential issues that come along with selling on the platform. eBay and other online selling platforms aren't for everyone, and neither is Amazon. It is all a matter of determining which is a better fit for your particular business.