The Pros and Cons of Selling on Amazon for Small Business
As a public company, Amazon reports its total sales every quarter. For Q2 2022, total sales reported were $121 billion. But did you know that all this revenue isn't just for Amazon? Nearly 2 million third-party sellers on the platform share the revenue with it. Amazon is like a giant shopping mall; anyone can rent a space to sell items. With over 3.4 billion average monthly site visitors worldwide in 2022 according to Semrush Traffic Analytics, it is also one of the busiest malls in the world. Anyone can sell anything on the platform, provided they know how to do it.
Over the past few years, the company has provided many tools to help business owners thrive in ecommerce. But is it really worth participating in the Amazon small business program? Let’s explore why Amazon supports small or medium businesses, how you can benefit from it, and the challenges you may face.
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Why Does Amazon Help Small Businesses?
Amazon encourages small or medium businesses to join its marketplace for two reasons:
- Customer requirements
- Advertising revenue
66% of US consumers stated that they shop at Amazon because they can find everything they need on the website. But procuring and selling “everything” is impossible for a single retailer. Hence Amazon encourages third-party business owners to join the platform. For example, you can design and manufacture innovative products and sell them on Amazon. Or, you can import and purchase products from wholesalers and retail them at a higher price. But, of course, that results in several similar products vying for customer attention. Hence, the company charges an advertising fee to show specific products on top of customer search results.
But do third-party products sell? Yes! 44% of Amazon’s sales from 2021 went to third-party sellers. That’s nearly $200 billion. Customers get several product choices, Amazon receives an advertising fee, and sellers earn profits. It’s a win-win situation for everyone. Little wonder that Amazon has hired tens of thousands of employees to fuel its third-party acceleration.
How Does Amazon for Small Business Work?
As a small business owner, you can easily set up your online store on the world’s largest marketplace. First, you create an Amazon account and upload your product photos and details to the site. Once your product listings are ready, you start promoting products for specific keywords. For example, if your product is a shoe, you can target keywords like “men’s shoes,” “gifts for fathers,” and thousands of other related search terms. When customers search for your target terms, Amazon shows your products on top. Once the customer places an order, you get a notification. You can then ship the product yourself or set everything up so that Amazon fulfills the order for you. For example, you can pre-package items in bulk and send them in advance to the company’s warehouse. Amazon will store your products and ship them to individual customers every time an order comes in. It will even handle customer service for you.
I have just described the process in brief. However, there are several more details that business owners need to be aware of to maximize profits. You can read more about it in How to start selling on Amazon: A complete beginner's guide.
Amazon Small Business Features Third-Party Sellers Can Use
Amazon US has 176 million Prime customers who are members of the shopping site. Nearly 60% spend $100 or more monthly on the platform. No matter what product you choose to sell, a buyer is waiting for you. As a result, most small businesses quickly sell 50-60 products per month, if not more. Besides, Amazon also offers several features you can use to grow your business further.
One of the easiest ways for brands to expand their presence on Amazon is to release and launch new variations of products. Product opportunity explorer is a built-in Amazon tool that provides insights into categories, popular products, and gaps in the market. However, the tool is relatively new and and might lack some useful features, but there are many alternatives that are intuitive even for newbies, such as Product research for Amazon. You’ll find many explanatory tips inside the software, receive unbiased data and in-depth analytics. As a small business owner, you can discover and tap hidden niches to expand your business on Amazon.
Your customers can leave reviews on a product they purchase. More reviews mean more customers. More than 40% of customers always read reviews before making a purchase. Besides, all reviews on the platform are public and act as the voice of the customer. You get valuable insight into your audience's likes and dislikes and what features act as valuable selling points. You can also use them for free product research to find new product ideas that people are looking for. You can select a category, pick a product you are interested in and filter for negative reviews. The negative reviews give ideas on improving the product, rebranding it, and selling it in your business.
Successful companies prioritize brand building and customer trust. You should also treat your Amazon venture seriously and professionally. For example, launch new products with trademarks and licenses instead of copying others. The retailer also supports genuine business owners with Amazon Brand Registry. Brand Registry helps you better manage your brand’s product listings so that customers see accurate information. It also uses automation to remove suspected infringing or inaccurate content proactively. Using a simple, guided process, you can also find and report suspected violations. If you don't have a brand registry, external software tools like Listing Alerts for Amazon monitor your listings 24X7 and send notifications in case of changes in your keyword positions, buy boxes, prices, and listing suppression.
Amazon Brand Stores
Amazon Brand Stores is, in my opinion, the most important feature for third-party sellers on the Brand Registry. While initially, it was seen as a feature that added little value, I wanted to expand upon why I believe it is Amazon’s next focus.
Amazon’s platform relies upon product pages and listings to drive sales, or it did solely in the past. Amazon Brand Stores allows small businesses to showcase their products free of any competitor or Amazon ads. It also allows sellers to control their brand and messaging.
Businesses with Amazon Brand Stores have seen an impressive 38% increase in ranking organic keywords on Google since July 2022 alone.
Of those, there are some very impressive top 10 ranks:
What does this mean for a small business selling on Amazon? It means that you can treat your Brand Store as an independent ecommerce industry website. You can set it up to rank on Google and get traffic from external channels outside Amazon. For example, you can create an Instagram business account with posts that link to your Brand Store. Some tips to improve your store:
- Fill out the meta information and alt tags on your store images. Meta title and meta description tell search engines which title you want to be displayed on the search engine’s results. Alt tags are descriptors for search engines that you can add under image settings when you upload the images to help search engines to better crawl and rank your website.
- Create navigation that is useful to the user and makes it easier to find the product they want to purchase.
- Utilize content, images, video, and new features when and where you can.
- Use Traffic Insights for Amazon to uncover external channels tapped by your competitors and build your brand on them too.
- Pay close attention to your analytics, specifically traffic and conversion rates.
- Use your storefront as a buffer between external traffic and your listing, especially if you want to pursue off-Amazon strategies but don’t want to jeopardize your listing’s conversion rate.
- Always maintain uniform branding throughout your store and listings.
- Create informative and useful content for posts to gain more followers so you can use the customer engagement tool.
Small and medium businesses on the Brand registry also access A+ and A++ content. These listing enhancers deepen the potential customer’s understanding of the product. From tables to videos, sellers can increase their conversion rates by having the opportunity to explain more features. However, newbies don't have to wait for Brand Registry to improve their listings. External tools like Listing Quality Check for Amazon automatically scan your listings and give you recommendations to improve them for immediate results.
SMB Customer Engagement
Posts feature is Amazon’s attempt to bring social media elements to the platform. It is a browse and discovery experience focused on brand shopping. Customers can see what’s new from brands and discover new products by browsing Post feeds of image content. Each post links back to product detail pages and includes category tags so shoppers can continue exploring products in related categories.
Once you are on the brand registry, you can use posts to connect and engage with your customers better. Amazon automatically adds customers to lists or segments, so they see your posts in their feeds. For example, sellers that have sent 10+ emails to over 1,000 followers can send posts to the following segments.
If you are not on the brand registry, you can still create accounts on social media and engage with customers outside Amazon. For example, you can create a Facebook page or group to build a community around your products. Tools like Audience Intelligence help you personalize your campaigns and create customer segments.
Brand Analytics is another powerful feature for businesses on the brand registry. It contains valuable insights to empower third-party sellers to make strategic decisions about their product portfolio and advertising through five comprehensive reports.
- Amazon Search Terms Report gives insights into trending keywords on Amazon and the brands winning in rank.
- Item Comparison report shows competing products related to yours that customers viewed most frequently on the same day.
- Alternative Purchase report shows which products customers purchased most frequently on the same day they viewed but did not purchase your products.
- Market Basket report shows you which products your customers most frequently purchase along with your products.
- Repeat Purchase Behavior Report shows the number of unique and repeat customers who placed orders in any given month.
If you use Keyword Wizard for Amazon, you can improve your organic rankings and run efficient ad campaigns without Analytics. Keyword Wizard gives you high-volume, low-competition keywords for your listing's "Search Term" field. It's critical for new businesses to succeed.
The Pros of Selling on Amazon for Small Businesses
Now you may be wondering, is Amazon good for small businesses starting out? Here are the pros of joining the Amazon small business program.
Amazon has over 200 million Prime Members worldwide and is available in over 20 countries around the globe. By selling on Amazon as a third-party seller, your small business will get access to an unimaginable userbase of massive size. A steady stream of listing visitors equates to more sales every day.
Amazon has several features that support international expansion so that you can quickly fulfill orders coming from outside the US. Many countries around the globe don't have easy access to US products. Selling American products on international marketplaces like Amazon France or Amazon Australia is a business model in itself. You can centrally manage your business and trade across the globe from one seller account.
Low Marketing Costs
Advertising on Amazon is typically more effective and efficient for the ecommerce industry. Because your budget is being used in the Amazon ecosystem, it gives you more significant insights into analytics and how your keywords are performing.
Amazon gives you access to 24X7 Seller Support to troubleshoot any issues you face as a third-party seller. They are good at transferring you to teams that can resolve advertising, listing, copyrights, or shipping issues. Amazon also sends alerts on new Beta programs or features you might be in line to try. Often these programs help sellers automate ecommerce management tasks so you can have a life outside running your business.
Inventory Shipping and Storage
For small businesses in the ecommerce industry, logistics and warehouse storage pose challenges. If you manage your own shipping, you must deal with shipping companies like USPS and DHL, manage customer returns yourself, and face rap when shipping gets delayed. On the other hand, Amazon has given access to fully optimized logistics systems with services like same-day shipping and inventory storage for over a year. Shipping to Amazon warehouses also allows sellers to boast the Prime Badge, which further increases conversion rates and ranks.
Amazon might seem daunting and difficult for new sellers. However, the retailer is constantly offering webinars and resources to help small and medium businesses become successful on the platform. From Seller University to forums, there are vast resources on Amazon for small businesses.
The Cons of Selling on Amazon for Small Ecommerce Businesses
How many small businesses sell on Amazon and fail? Only 6%! An overwhelming 94% of companies report year-on-year growth and success. There is no real downside to selling on Amazon. You just have to approach it with the right mindset. Start small, educate yourself, and run your business part-time alongside your day job. I outline some challenges you need to be aware of and work around.
Competition on Amazon is fierce and, for many sellers, may seem daunting. Many categories have well-established products within the top ranks. However, it’s not impossible to break through the ranking positions and make a move for the top position. This will require careful planning in both SEO and PPC. Why do you want to be in the top position on Amazon? Here’s a breakdown of CTRs by position on Amazon I have collected from the top categories:
As you can see, over 50% of the clicks fall within the top 5 positions. This should be every seller’s goal, and getting it is not impossible. You can use tools like PPC Optimizer for Amazon to get more returns on your Amazon PPC spends.
Amazon fees are an investment all small businesses on Amazon have to make. Just think of them as the cost of running your business and calculate profit margins and product prices accordingly. Fees are a small price for all the logistics, support, and customer services you get out of the box. Setting everything else up yourself and starting on your own would take years. Amazon allows you to start earning from the first month itself.
Amazon welcomes third-party sellers and creates many opportunities for them to succeed. Anyone can make an Amazon seller account and list their items to sell. You can further utilize the platform’s logistics, shipping, and storage services to start an ecommerce business without any stress. The platform also offers several features for product research, brand building, brand protection, and advertising to grow your business further. In addition, you can use third-party tools to automate tasks and accelerate growth. Amazon’s influence on the digital ecommerce landscape is only set to increase. A small business can succeed in already well-established product categories by sticking to the basics of SEO, PPC, and strategy. Amazon is a platform all small businesses should embrace, despite the competition and fees.
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People Also Ask
What Are The Benefits of Being an Amazon Seller?
The biggest benefit of becoming an Amazon Seller is the easy access to hundreds of millions of customers who visit the platform every day for shopping. With the right products and marketing strategies, you can start selling products from day one. More than 90% sellers on Amazon enjoy year-on-year business growth and increased profits.
Why Small Third-Party Sellers Needs Amazon?
Small third-party sellers need Amazon because establishing an ecommerce business from scratch is very challenging. If you start out alone, you need to invest heavily in storage, logistics, website creation, social media development, marketing and customer service. Still there is no guarantee of ever making a sale. On the other hand, Amazon gives you all the ecommerce infrastructure for a small fee. Besides, your products are directly in front of millions of customers from the first day.
How Much Commission Does Amazon Charge for Small Business Sellers?
Amazon fees are tiered based on your product category, storage, and logistics requirements. All sellers typically pay a flat monthly fee of USD$39.99 for a professional account. Amazon also charges a 8-15% fee per item sold. There are further additional fees if they pack and ship your item. Once you understand fees, you can set your sale price accordingly. Depending on the product, many sellers enjoy 30-50% profit margins.
Ready to start selling on Amazon but unsure about the first step? Why not start with dropshipping? Learn how many small businesses are successfully dropshipping on Amazon to make a decent secondary income.