Amazon is capturing close to 50% of online commerce transactions in the US, and it’s only going up. Although it has taken longer than I predicted, big brands and agencies are finally understanding that there are many options of how to sell on the Amazon website, and the unique differences between the two platforms. I will follow up with more specific drill downs on specific options in later newsletters, but for this one, I am going to simply address the different ways you can sell on Amazon.
Before I go into them, one important thing to note is that we have seen no evidence that you can sell a higher volume under either scenario. Amazon does not increase exposure products they sell direct over products being sold through their 3rd party platform. There are some marketing offerings that you only get if you sell to Amazon, but these promotions are quite costly and typically utilized by larger brands with big marketing budgets.
Option 1 – Selling to Amazon: You can sell your product to Amazon as you would to Walmart, Target, etc. Essentially, you sell on a wholesale basis and Amazon will mark it up to their desired selling price. Some high-level points on selling to Amazon:
-The name for this is either Vendor, 1p or Direct. You will hear these three terms thrown around.
-One of the biggest issues is that you have little control of the listing itself, as well as no control on the price at all. Amazon will lower and raise the price to what they feel is the best value to their customer in relation to all other websites selling it. They literally spider the web and other major retailers to ensure they are basically the lowest. Don’t like the price they are selling at? Tough luck says Amazon. Amazon will then direct you to other sites like Target and Walmart and tell you to tell them to raise their price before they raise Amazon back up. This is one of the bigger pain points with brands as it disrupts their retailer relationships.
-You will not only be selling at wholesale pricing, but you will also be paying fees to Amazon for return allowances, slow movers, marketing co-op funds, etc. This often means a 10% decrease in your margin-
-You have no control over the customer experience. Meaning, you will not be able to respond to customers when they have an issue with your product. You can respond to customers when you sell yourself on the Amazon platform.
-One of the big benefits with selling to Amazon that you get paid very quickly, offering options to get funds in as little as a few days upon completion of the Purchase Order.
-If you want to accelerate your sales you will need to spend money with Amazon for marketing. The only issue here is the analytics insights you receive from this advertising is lacking at best. There is not a lot of transparency and the sales attribution is tough. It really is a blind marketing purchase.
Option 2 – Selling through Amazon: You can also take advantage of using the Amazon platform to sell “through”. You operate your own seller account as you would on EBay or Etsy by signing up for a “Seller Central” account. You list your own products, manage your own inventory, send in your inventory (if you want to take advantage of Prime), etc. Here are a couple high-level differences in selling through Amazon with their 3rd party seller platform:
-You have absolute control of your listing price. This is a primary highlight and a core reason why brands often opt for this channel.
-You have near 100% control of your listing content, which helps your product rank organically on their search results pages. You can also control the quality of content to help increase conversions when a user does see the listing.
-You have two opportunities to reach out to the customer that buys your product. You can use this opportunity to request a review or to deal with issues before it becomes a negative review.
-To play a part in their “Prime shipping” option, you would need to send pallets of product to Amazon for them store and ship on your behalf. This typically comes with a 20% fee off the top of your revenue. Some products you can get away with what is called “Merchant Fulfilled” where you send the products to the customer yourself. The downside to the merchant fulfilled option is that you will capture significantly fewer orders as most Amazon customers want the Prime Shipping option.
-Amazon gets a sales commission on top of the Prime Fulfillment fee mentioned above. This is 8% for electronics and 15% for basically everything else. If you combine the commission with the Prime option, you will lose 35% off the top, plus your marketing.
-Marketing – You have almost every option that Vendor Sellers have when it comes to marketing and you have much deeper visibility into how it is working. You can see marketing-to-sales attribution, although it’s not quite as transparent as Google Analytics or your own website data. Typically, your marketing dollars will yield greater than a 10-1 sales-marketing cost or more. This is better than what you would get on Google, but remember you are also paying them a 15% commission on the sale too, which needs to be baked into the formula.
-The biggest downside is you will generally not receive all your money for sales for 45-60 days from when you send the product into their fulfillment center. The cash load is a lot heavier on 3p than selling to Amazon via their vendor program.
We recommend trying to utilize both options, which I will get into on a later post.