For small businesses looking to increase visibility and product sales, partnering with Amazon.com and joining its FBA (Fulfillment by Amazon) program continues to be an enticing avenue for growth. Amazon’s model offers outside businesses a product selling experience that is similar to traditional e-commerce, except Amazon is taking on certain responsibilities for the seller: order fulfillment itself, as well as storage, shipping, returns and even customer service. This significantly cuts overhead costs, such as maintaining a warehouse, buying packaging supplies and paying delivery couriers.
By taking these often costly and burdensome responsibilities off their shoulders, the vendor can redirect their focus to other core business processes, such as developing their product, marketing and reaching new customers. That said, it’s not uncommon for businesses to exercise some caution or doubt before entering into Amazon’s massive network as a third-party vendor. Let’s take a look at some factors that small businesses will want to consider prior to joining Amazon’s platform, as well as those that will matter following this decision.
The Market Opportunity
Launched in 2006, Amazon’s FBA program was, and still is, groundbreaking in the online retail market. Boasting $213 billion in revenue, Amazon is the top online retailer in the world, and as of 2020 reports a 5-year growth rate of 22%. In comparison, Walmart’s global revenue is more than twice as high ($517 billion), but their growth rate has been reported at only 1% over the last 5 years, and the company lacks the widespread and world-dominant cloud computing infrastructure of Amazon – which is what allowed it to be an online retail pioneer in the first place. Another e-commerce giant, Alibaba, which dominates the Chinese market, reports a significantly lower overall revenue ($49 billion), but their 5-year growth rate (44%) is more than double Amazon’s.
Additionally Amazon’s third-party sellers, including those in the FBA program, reportedly account for over half of Amazon’s total revenue. In this way, Amazon relies heavily on outside vendors, most of whom are SMBs, for their overall profit. Conversely, vendors receive access to the resources of one of the world’s most powerful corporations – an extensive distribution network, well-regarded customer service, and a massive customer base – without actually being one.
Getting Set Up
So how does the process work for small businesses interested in joining Amazon’s network? In general, the initial onboarding process consists of a few basic steps:
- Create an Amazon seller account. Note that the sign-up involves a monthly fee.
- Select a niche for your product(s). Do research before committing to a product niche. As a general pattern, good niche products offer the following: 1) high demand, 2) low competition, 3) minimal brand recognition, and 4) the right sales techniques (see step 5.)
- Choose a supplier and start sending product. Look for a reliable supplier and start a relationship with them, where you establish conditions for working together. For instance, you can discuss how to handle lead times around your shipments.
- Create a product listing. The right product messaging and keywords goes a long way.
- Let Amazon jump in on fulfillment. Once your customer receives product, Amazon’s customer support team handles all returns, customer inquiries, and general customer follow-up to ensure proper satisfaction.
How to Optimize Visibility and Sales
As discussed previously, choosing to work with a large company like Amazon gives small businesses the chance to focus more on product development and other possible growth opportunities that may be underemphasized or overlooked when time-consuming fulfillment is also covered in-house. While Amazon aids in this critical piece of day-to-day operations, it is still up to the third-party vendor to produce or resell the original product that is getting purchased on Amazon’s platform. This is why being conscientious and strategic in product selection/development is essential to achieving retail success. Beyond choosing the right product to go to market with, it is also important to consider other factors that may make or break a customer’s interest:
- Product price point – less than $50 is often an ideal guideline for consumer goods.
- Product weight – the lighter the better typically.
- Product durability – fragile poses a risk in the shipping process. Avoid if possible.
- Avoid having brand names in the product category/niche.
- Cross-check whether possible competitors have a best seller rank (BSR) of 5,000 or lower in their main category.
- Fewer reviews (less than 50) is typically a good sign for breaking into a given market.
Like product development, advertising and marketing is another important business facet that has to be done largely by the vendor, not Amazon. The online marketplace already experiences extremely high traffic, so leveraging this wide network to encourage more sales is a no-brainer. Pay-per click advertising, also known as “Sponsored Products,” is often a huge booster for Amazon sales. With this method, the advertiser only pays when the specific ad gets clicked on by someone, who is usually viewing the product because they are considering for purchase anyway. Selecting the right key words and being cognizant of content choices can also be the ticket to appealing to your target audience and driving traffic.
Many of the decisions here can be made through a proper education, formal or informal, of marketing trends and techniques being used in e-commerce today.
Where to Exercise Caution
Many small businesses, retail analysts and serial entrepreneurs would argue that Amazon is a highly sought ought marketplace, with the potential for high reward in sales (over 15,000 SMBs reported more than $1 million in Amazon-based sales in 2019.) Success of this magnitude, however, comes to only a handful of companies on Amazon’s platform.
Before diving into Amazon’s marketplace, it is critical for prospective retailers to look closely at their operations and determine whether their current system of workflow is effective, or if it needs to be modified. Some potential obstacles or concerns for SMBs after joining Amazon’s FBA program include:
- Staying organized, efficient and successful in their management of inventory across multiple websites. While the Amazon’s FBA program handles order fulfillment of orders on their own site, they are not responsible for the remaining inventory and orders – on a company’s website, at their brick-and-mortar store, or on another retailer site.
- Adhering to Amazon’s customer services rules and high standards on fulfillment and returns. They are regarded by many as strict, which can be a mixed blessing because this strictness is also a contributing reason for their overall success.
- Losing revenue to Amazon fees and profit sharing. In addition to a monthly fee for all FBA vendors, Amazon takes a percentage of the product sales.
- Noticing limits to remarketing as an Amazon vendor. The emails of customers who purchased product aren’t accessible to the vendor following the sale.
- Realizing that low sales, high returns and other barriers to revenue could be derived from the product itself. There comes a point where even partnering with world’s largest online retailer can’t bail a vendor out of trouble.
That being said, Amazon does offer many tools and services to help third-party sellers with their overall operations. It was reported that in 2019 alone, Amazon launched over 225 tools and services to assist vendors, as part of a more than $15 billion global investment the company made into their 3rd-party seller business segment.
The decision to become an Amazon seller should not be taken lightly, but for many companies now on the platform, it represented a strong opportunity to grow their e-commerce business, or even to launch it in the first place