If you run an online retail store—or even if you plan to open one in the future—chances are you’ve considered Amazon Marketplace as a platform to get your products into the hands of your customers. Whether you’re hand-crafting items in your garage or mass-producing them in a faraway country, Amazon Marketplace is one of the most popular options out there for small and large businesses alike.
Amazon Marketplace offers a broad range of tools and services specifically designed for what it calls “third-party sellers.” As a small business owner, that means you. Although businesses of all sizes take advantage of Amazon Marketplace’s services, the following perks are especially useful for small businesses.
- Amazon offers a lot of advantages for businesses adapting to the modern digital workspace. Today, more than three million small and mid-sized businesses (SMBs) sell through this tech mega-giant. They reach an incredibly large audience. There are currently more than 200 million Amazon Prime members around the world. And that’s not counting shoppers who use Amazon without subscribing to Prime. For any small business, this type of reach is invaluable. According to Statista, Amazon racked up $469.82 billion U.S. dollars in 2021, with retail product sales pulling in the most revenue ($222 billion). Its third-party sellers earned a whopping $103 billion of that.
- Getting set up on Amazon Marketplace is simple. If you want Amazon to streamline the process for your business, you can also sign up for Fulfilled by Amazon (FBA), which will warehouse, package, and ship your products on demand. FBA also provides customer service for any after-sales issues. That can take a huge burden off small businesses’ shoulders. They can focus on selling rather than dealing with logistics and time-consuming customer complaints.
Downsides to Using Amazon
Despite all the perks, every silver lining has a cloud. The main issue small businesses run into on the platform is a lot of competition, including from Amazon itself. Conforming to strict rules also poses a challenge for some sellers. Earning enough positive reviews to raise your brand’s ranking to the top can be tricky without a solid marketing plan as well.
Competition is high
Each year, more than a million new sellers join Amazon. In the first quarter of 2021 alone, more than 283,000 individuals and businesses signed up to sell on the marketplace. Many products sold are lost in a sea of similar offerings. It’s difficult to compete without dramatically reducing the price of your goods. This leads to a race to the bottom that many small businesses are unable to win.
Their tools, their rules
If you decide to sell on Amazon, you need to do things their way. There are a host of rules and restrictions you must abide by if you want to sell on the platform. If you break them, your account will be suspended, and your business will stall. For this reason, some small businesses operate on at least one other platform than Amazon as an insurance policy of sorts.
Difficulty soliciting feedback
Some of the most prominent factors determining how your business ranks in search results are customer reviews. According to a 2021 survey by Amazon, 75% of its consumers check reviews before making a purchase. In 2016, when many alleged fake reviews were being posted, Amazon changed its policy of allowing small businesses to reach out and request or remind customers to post reviews with follow-up emails. Since most consumers don’t post reviews unless they are unhappy, this makes getting the reviews you need much more difficult. This means rankings (and sales) will be slow until you manage to earn enough good reviews to make a difference.
Payment policies can cause cash-flow issues
If your online store’s business plan looks profitable on paper but you keep running out of cash, you aren’t alone. This is a very common problem for small businesses since Amazon typically pays sellers every 14 days. Due to this policy, you may not have enough funds to replenish your inventory.
Many suppliers or manufacturers ask for 25% of the final payment upfront—or 30% if you’re sourcing from China—before they’ll ship supplies or even start production. So even if your sales are through the roof, you might not have enough money to source products (or materials) to fulfill them.
Even if money isn’t an issue, it can take weeks to months for your products to reach Amazon’s warehouse. This means you’ll face a long wait before you get paid for what you’ve invested in the costs of your goods. The lesson: if you’re a small business wanting to sell on Amazon Marketplace, don’t count on sales to provide enough cash to keep you operational. You’ll need a substantial financial buffer right out of the gate.
Amazon “chews up” small businesses
There is also research indicating Amazon competes aggressively with the small businesses that are on its platform. If Amazon simply provided a venue that allowed small businesses to connect with customers, all the benefits mentioned above would be unparalleled. But Amazon also markets its own private-label products that compete directly with small businesses. When a small business is successfully selling a new product or excelling in a new category, some studies suggest Amazon simply copies them and undercuts their sales.
Extra costs are tacked on
Amazon Marketplace’s selling fees are substantially higher than those of many other platforms. A “professional seller” subscription costs $39.99. Once a product is sold, you are charged between 6% (reasonable) and 45% (exorbitant) of the final sales price. There are also “closing fees” on certain products and processing fees every time Amazon issues a refund of a product returned from a dissatisfied customer.
Alternatives to Amazon Marketplace for small businesses
This blog is not meant to discourage small businesses from using Amazon. Instead, think of it as a reminder that alternatives to the retail giant exist when you’re trying to market your products to customers.
Etsy is known for selling handmade crafts and items that are special and out of the ordinary. It’s free to join, but Etsy charges a 6.5% commission on each sale, which includes the price of shipping. Although there are some mass-produced items displayed on the site, Etsy is known for promoting small businesses.
eBay was the go-to online marketplace before Amazon became globally dominant. eBay is still the second most popular ecommerce platform in the world, outshined only by Amazon. Although it started out as an online auction house, it now resembles Amazon’s model. You can sell anything with a fixed price using its “Buy it Now” feature and even host your own eBay store. It costs under $10 to register as a business. Commissions range from 3% to 15% depending on the price and category of the product sold.
This popular eCommerce platform offers free customizable website designs to help launch your store quickly and easily. Like Amazon, it also hosts a smorgasbord of services ranging from marketing and payments to secure transactions and shipping. Fees begin at $29 monthly.
One of the most exciting features of Shopify is Shopify Markets, which gives you to the tools to go global. This exciting branch of Shopify offers translation and currency exchanges, along with other automated services that enable you to more easily expand your business worldwide.
Watch out, Amazon. Walmart is targeting your small business customers. Unlike most other online platforms, Walmart Marketplace is free to join, and enables you to reach more than 120 million unique Walmart.com visitors each month. Although Walmart is one of the world’s largest retailers, its marketplace started a little late in the eCommerce platform race. However, this isn’t stopping it from reporting rapid growth. In its 2021 fiscal year, Walmart’s U.S. eCommerce sales grew by 79%. By July, its platform had more than 100,000 sellers.
As a seller, you may find Walmart Marketplace more attractive than Amazon because you can list your products for free. And when you sell something, you pay a smaller percentage of the sales price (starting at just 6%).
In summary: Your small business has many options
You have more choices than ever when it comes to growing your small business online. Although Amazon’s global dominance makes it a top destination for online sellers, small businesses might fare better on platforms like Etsy, eBay, Shopify, and Walmart. There are also many specialty online platforms that serve specific populations such as the African American community, women, or LGBTQ+ consumers. And if you’re torn between several options, there’s no need to fret because you don’t have to choose just one.
In a rich and ever-changing eCommerce landscape, you’ll need to take extra steps if you want your business to stand out from the crowd. You can start by analyzing your target customers, re-evaluating the uniqueness (and price competitiveness) of your products, and deciding for yourself what’s best for your particular small business.