If you’ve been watching Amazon stock go to the moon while your personal finances are evaporating, you may be interested in pursuing an ecommerce business for yourself.
In this part of our ecommerce series, we’ll look at the differences between Amazon FBA and traditional standalone ecommerce businesses like those facilitated with Shopify or BigCommerce platforms.
Coercion as a Marketing Strategy
Your friendly neighborhood dollar store arbitrarily cordoned off “non-essential” items like socks, children’s toys, and you can buy tea bags but a new kettle is a no-no.
So, you –and a large portion of the country– have all logged into their Amazon Prime account to make online purchases while struggling small businesses are shuttered forever. Or burned down by a feckless mob.
Local governments are literally forcing people to shop online, and Amazon is the clear winner. The ecommerce industry is booming these days because online shopping has shifted from convenience to necessity.
And in any gold rush, those selling the shovels are coming out on top. With numbers like Amazon’s, you could be scraping some cream off the top for yourself.
Starting an Ecommerce Business
If you’re thinking of starting a new ecommerce business, you’re likely wondering whether to sell on Amazon or start your own ecommerce website.
Amazon is considered the ecommerce giant, and rightly so. With a huge customer base, international reach, operational and logistics support –most will agree that sellers on the platform have it easy.
But surprisingly, a recent study revealed that only 20% of business owners consider Amazon as their first choice for a marketplace while 46% preferred using independent websites to market their product.
So, what is it that holds back this 46%, despite the huge business potential that Amazon has to offer? Could this hesitancy from small and medium-sized businesses create a business opportunity for you personally?
To answer this question we will first need to understand the key differences between both platform form factors.
Amazon FBA vs Self-Managed Ecommerce
At 2019 pre-pandemic levels, net sales on Amazon amounted to 280.5 billion USD, making the ecommerce giant the leading e-retailer in the United States.
The numbers are definitely promising, but let’s take an in-depth look at both options and understand their pros and cons as well.
The Benefits of Selling on Amazon
Getting Started Is a Piece of Cake
Becoming an Amazon seller is relatively simple, and you have the flexibility of selling a single product, or thousands of them.
Before you begin you’ll need to decide on which Amazon seller’s plan you’ll enroll with, which depends on how much you are selling.
Selling fees vary depending on the plan you select and the type of product you plan to sell.
Amazon’s “Individual Plan” works best for sellers who sell less than 40 products a month, or those who are still deciding on their product category.
The Professional plan is tailored for sellers who sell more than 40 pieces a month and require access to reports and APIs to optimize their sales.
Once you have decided on the plan, you need to create an account on Seller Central which is the portal to your business on the platform.
After you have created your seller central account and listed your products, you can start selling on the platform.
Determining how to acquire items for reselling on the platform could be difficult. Thankfully, Amazon offers a range of methods to acquire and sell items which include drop shipping, private labeling, etc. Once you’ve decided on the method, you can list your products and start selling.
What is drop shipping? Simply put; you drop product at a fulfillment warehouse, and they ship it to your customer and manage all the logistics on your behalf. All you have to do is get your products there, and pay for storage while they’re selling.
In the case of Amazon, you have the option of making them your fulfillment partner so you never have to handle products yourself. This option is reflected in the seller’s plan you choose, and it’s corresponding fee structure.
Amazon is a globally recognized platform and as an Amazon seller you have the opportunity to expand your reach into other markets without any additional costs. This allows sellers to expand beyond geographical boundaries.
A small local business can now go beyond local target audiences and cater instead to a much larger audience across the country as well as in different parts of the world.
Massive Customer Base
According to statistics, more than 195 million people visit the platform every month. In the US itself, more than 95 million people have an Amazon Prime membership. During the pandemic, that number increased by many orders of magnitude.
As an Amazon seller, you get to tap into this huge customer base. After all, the platform comprises millions of users and you are sure to accrue the benefits arising from wide exposure. Furthermore, Amazon features a cataloging system that ensures your product is seen by your target customer, provided you market it right.
Being an Amazon FBA seller is very easy as you don’t have to complete any orders yourself. Amazon handles all shipping, product returns, and customer service. But you have to pay Amazon fees for that pleasure. The free chrome extension FBA calculator for Amazon can help you calculate your fees to estimate costs and profits and choose the right product during the research process.
Low Customer Acquisition Costs
A major advantage of an e-commerce marketplace like Amazon is that customers visit looking for a particular product as opposed to a particular brand. If your product matches that of the top competitor in the category and you offer value pricing as well, or have more attractive photos, or better reviews –you have more than a fair shot at attracting new customers. The extensive metrics available on the platform and the various kinds of advertising campaigns make it easier for sellers to acquire more customers.
Whereas if you ran your own ecommerce shop, you’d have to pony up a lot of money for online marketing. That justifies the fees Amazon charges sellers –the cost of a customer sale is relatively the same (or lower).
The Cons of Selling on Amazon
Signing up on this marketplace implies that you must abide by Amazon’s terms and conditions for sale. Since Amazon always prioritizes the products rather than the sellers, businesses can find it difficult to create a brand presence or garner brand or customer loyalty.
Amazon will own the relationship to your customer. It’s a trade off.
If you’ve ever had a Facebook Page shut down or banned in the past, or have been censored, this might leave a bad taste in your mouth.
When you decide to become a seller on this marketplace, expect nothing short of stiff competition. You’ll undoubtedly find countless other sellers with the same product, so you must identify how you’ll distinguish yourself from the competition. This is where third-party Amazon selling tools are a must, but more on that later.
Do not expect a level playing field and since there are too many sellers competing to sell the same kind of products, you can also expect malpractices from other sellers like manipulating search results, gaming the system, etc. While Amazon does come down heavily on such sellers, malpractices are rampant.
Cost of Selling
Although there’s a high likelihood that you’ll notice increased revenue while using this platform, you must be willing to pay the cost. Whether you use FBM or FBA, and irrespective of the type of plan you use, you can expect to pay a certain amount of fees to use the platform.
Fees are relative –a captive consumer base is likely to exponentially increase sales. This is ideal if you aren’t hawking your own unique brand or line of products.
The Benefits of Self-Managed Ecommerce
You Own the Racecourse
You’re not a passenger, and you’re not “leasing” a single spot in the business park your business is built on –you have no neighbors to undercut you.
When it comes to your website, it’s all about your product(s) and brand, you’ve eliminated the competition that can take the customer’s attention away from you. This improves your chances of customer retention and helps you develop brand loyalty. Especially if you throw email autoresponders into the mix.
You also aren’t being governed by a monolithic company like Amazon, where they throw down the ban hammer (Dr. Seuss or Parler, anyone?) or make/copy/imitate their own “house brand” of competing products at razor thin margins that are almost impossible to compete with because the house almost always wins.
You Hold the Keys
From the content in your product description to the images, the display, and even the products you sell or the price you quote, you call the shots. Running your website means you have control over every aspect and you do not have to worry about your account getting suspended for not meeting any criteria.
Referrals and Brand Recognition
It is said that word of mouth is the best publicity for any business. With your website, you are likely to get an increased amount of referrals since you are in a better position to cement your brand presence on your site.
The Cons of Self-Managed Ecommerce
Getting Started Can be Tedious and Time-Consuming
If you are inclined towards setting up your ecommerce site, keep in mind that it will require considerable effort on your part before you can start selling because you’re virtually unknown. Shopify and BigCommerce will smooth over technical hurdles, but you’ll be starting from scratch in terms of getting the word out about your shop. If you go this route, much of our blogging advice will apply to your new ecommerce business.
You’ll have to learn how to navigate your preferred selling platform –whether it’s Shopify, BigCommerce, WordPress with WooCommerce, or a different service before you get to building your website. If you decide to use WordPress, you can choose from a range of plugins to enhance the appearance of your website, but choosing effectively between them takes time and research.
You’ll also need to set up a 3rd party service for payment processing. Most self-managed ecommerce solutions integrate with Stripe, but PayPal is an option, too.
Amazon is a global name. It is synonymous with trust and as an Amazon seller, you reap the reputation benefits that come from selling on the platform. As a relatively new ecommerce site, there’s a chance that consumers might question your credibility and decide to shop elsewhere from sites they deem more trustworthy and reliable. Conversely, marketplaces offer a great way of counteracting this issue because they’ve already forged trusted relationships with local as well as international audiences.
A marketplace like Amazon helps improve product visibility while enhancing your reach. By selling through your website, you’ll be missing out on a huge market, both locally and internationally. A marketplace like Amazon gives you access to a huge customer base that your website will be unable to garner.
Getting Traffic & Sales
When it comes to an ecommerce store, hardcore marketing efforts will be required to generate sales and attract traffic. Alongside your website, you also need to work on increasing awareness about your product through methods like affiliate marketing, reaching out to influencers, giveaways, etc.
With Amazon FBA you have various selling options including online arbitrage. But when it comes to your own ecommerce site, you will be responsible for fulfilling the orders yourself or you will need to partner with a fulfillment service provider.
The decision to choose between starting an ecommerce business or going with Amazon FBA depends on various aspects such as your goals and unique business needs. However, using Amazon FBA together with your own website will allow you to scale your online business.
It makes better business sense to invest time as well as effort in growing not only your Amazon FBA business but your website parallelly to maximize customer acquisition, drive sales and remain competitive in the online marketplace.
Start with Amazon FBA and use it as a vehicle to accrue positive reviews and social proof you can then carry over to your own ecommerce website later. That way you can learn what sells, what doesn’t, and how to get your product pricing just right.
If you’ve got a few bucks and you’re less risk-averse, you could start both at the same time and then offer exclusive discounts to your Amazon customers that they can only redeem on your own ecommerce website, off Amazon.
What do you think?