Warning, Trading on Amazon Marketplace Could Seriously Damage Your Wallet
Having read that there are over three million traders are using Amazon Marketplace worldwide, I have spent the last few months trying to understand how I can actually make money using the world’s largest department store.
Let’s look at the pros and cons:
There are more daily searches for products on Amazon than there are on Google, so listing your wares on its Marketplace means you will get them in front of people. However, there are probably hundreds of other traders already listing the same product, so how do you stand out and win the ‘buy box’? Price is the answer, you have to be the cheapest.
Amazon pays its traders every two weeks, whether you like it or not, but it takes 3 – 4 days for the cash to hit your bank. Now I don’t understand this, in a time of Faster Payments by the banks, and when PayPal remittances take literally a couple of hours these days.
Amazon offers an amazing customer service experience, and insists that all of their Marketplace suppliers do the same. Fair enough.
At my company, our customers tell us that we give a very high level of service so we ought to be fine on Amazon. But the demands of Amazon customers can be almost impossible to satisfy I’ve been told by fellow retailers.
You are rated with a star system and this is where it can go wrong. For example, you get an average three star rating from a customer, but with the comment, “Delivered next day, items in good condition and worked”. The two don’t match, but you can’t get that rating changed. And the repercussions are that if you have the same price as someone else for an item then the supplier with the better star rating will take the ‘buy box’.
Fulfillment by Amazon (FBA)
Amazon is very keen for you to use its own fulfilment system, i.e. its warehouse and shipping service. This is good value and a big plus for many small retailers.
Customer and brand loyalty
This is the biggest no no for me as a retailer. Your customer remains an Amazon customer, not a StinkyInk customer, and you are absolutely not allowed to promote your business to that consumer. Amazon customers will only buy from the cheapest supplier on the day, so don’t expect any loyalty at all.
Be very careful when you work out what this is all costing you. Amazon publishes its Marketplace fees and these vary across a range of different product categories, but bear in mind the rates are for the VAT inclusive sale price, so you’ll be paying commission on the tax too.
This is a fiercely competitive environment, and the biggest shark in the sea is of course Amazon itself. Therefore, if Amazon has the ‘buy box’ then the only way you can get a look in is if it has run out of stock!
If you are serious about trading on Amazon Marketplace and expect to still be in business in two years’ time, look very carefully at the costs and your profits; ensure that you have a very robust cash flow that will not be dependent on being paid quickly; and don’t expect to build a customer base for the future.
Amazon is doing a fantastic job of getting good deals for the consumer, but at what cost to the small retailer? And the fact that it doesn’t pay corporation tax here just rubs salt into that wound.
John Sollars is the founder and Managing Director of Stinkyink.com