Amazon and other online marketplaces seem mutually beneficial at first glance. Ecommerce store owners get exposure, and marketplaces get more products without adding inventory.
Upon closer inspection, the mutual benefits still hold true, but the reality is slightly different. Limited branding opportunities, no customer data, and extra fees are a few drawbacks when selling on Amazon.
Should you expand your presence beyond your online store and start selling your products on Amazon?
Answer: It depends. A marketplace strategy may be a boon for some retailers and a bust for others. The type of products you sell, competition in your category, and restrictions are all things to consider.
There are, however, some pros and cons that apply to everyone. Let’s look at the pros and cons of selling on Amazon, so you can decide whether it’s worth it.
How much do Amazon sellers make?
Data from Jungle Scout shows that half (50%) of Amazon sellers make at least $1,000 per month in sales. Some super-sellers make more than $100,000 each month. Only 3% of sellers did not know their monthly sales.
An entrepreneur’s earnings with any online business depend on many variables, such as how much time they devote to their business, how they market their products on social media, average profit margins, etc.
When selling on Amazon, you also need to consider your fulfillment methods. Jungle Scout reports 89% of third-party sellers on Amazon use FBA. These sellers generate anywhere from a few hundred dollars per month to over six figures.
Is it actually profitable to sell on Amazon?
Generating revenue is great, but your profit margins are what count. Sixty-five percent of small to medium-sized Amazon sellers (SMB) have 10% profit margins or better. Thirty-two percent of SMB sellers have a 20% profit margin or higher.
Your profit margins will depend largely on the products you decide to sell and how you obtain them. If you’re a beginner seller on Amazon, do product research into the most profitable products to sell on Amazon and what wholesalers/manufacturers will work best for you.
According to Jungle Scout’s 2022 report, the five product categories with the highest profit margins are:
Furthermore, when choosing to sell a new product on Amazon, keep in mind some of the factors that can affect your profit margins.
- Startup costs: You need an individual plan, which costs 99¢ per unit sold, or a professional plan, which costs $39.99 a month.
- Referral fees: Amazon takes a percentage of each sale for using its marketplace. The percentage taken depends on your product category, but it is often between 8% and 15% of the product’s price.
- FBA fees or fulfillment fees: What Amazon charges to handle the product you’re selling, based on the dimension and weight of the product. Amazon Seller Central quotes fulfillment costs as starting at $4.75 per unit.
- Amazon Ads: This helps sellers get their products seen while customers are browsing Amazon. If you have a product with a lot of competition, advertising on Amazon can cost you a lot of money.
Using the Amazon marketplace to sell your products will make you money. However, depending on the type of ecommerce business you have (or want to start), you might find Amazon competitors, like eBay or Etsy, are more profitable for you.
The pros and cons of selling on Amazon
1. Increase sales from a high-traffic channel
The chief draw of selling on marketplaces such as Amazon is the scale of its online presence. Amazon draws nearly 2.4 billion combined desktop and mobile visits a month—that’s a lot of eyeballs! And those eyeballs can translate into higher sales volumes.
2. Acquire new customers
Nobody visits Amazon searching for your store. But they may be searching for, and discover, your products—products they may not have discovered otherwise, or that they may have purchased from a competitor.
Once you’ve got a customer in the door, even through a marketplace, you’ve got a chance to win repeat business through excellent service and fulfillment. This is especially the case if you’re selling products in a category that encourages frequent, repeat purchases, such as hobby supplies or fishing gear.
3. Many people prefer shopping via marketplaces
Marketplaces are all about strength in numbers. This is as true for online marketplaces as it is for real world examples like farmers markets, shopping malls, and food trailer parks.
The marketplace’s variety and all-in-one aspect can draw in many customers who prefer that kind of shopping experience. Online marketplaces also bring the additional layer of single-stream checkout and fulfillment support to create a seamless buyer experience.
While there are some significant upsides to selling on marketplaces, some drawbacks also need to be considered.
1. Marketplace fees
Setting up shop on a marketplace can potentially supercharge your sales, but it also exposes you to another cost center: marketplace fees.
Most marketplace fees are deducted as a percentage of each sale, and can vary from site to site and even category to category.
The numbers may not add up in highly commoditized, low-margin categories.
Before selling your products on a marketplace, you’ll want to ensure you have a good sense of your margins and a firm understanding of the marketplace’s fee structure.
2. Limited control
While the marketplace infrastructure has many advantages, it’s important to remember that it can cut both ways. Marketplaces don’t exist to help you, but to help themselves.
They want the focus to be on the products, not the sellers. And that means they might restrict the degree to which you can brand your presence, communicate with customers, dictate what items you can and cannot sell, and so on.
Additionally, there’s nothing to stop marketplace owners—in the case of Amazon, Sears, and so on—from going around third-party sellers, identifying popular products, and stocking them.
3. Keeping inventory in sync
A marketplace is a second sale point. And one that sometimes can’t be configured to talk to your shopping cart. In effect, both drawdown the same inventory but don’t sync with one another, making it challenging to understand your stock levels without lots of manual reconciliation.
What you can sell on Amazon FBA
Whether you have an Amazon FBA business, FMB, or SFP, some restrictions and requirements must be met to list your merchandise as Amazon products.
For examples that need approval, for example, include:
- Collectible coins
- Fine Art
- Music and DVD's
- E-mobility devices
Some products that don't need approval include:
- Beauty products
- Musical instruments
- Outdoors equipment
- Video games
For an in-depth explanation of the Amazon selling guidelines, check out Amazon Seller Central.
Learning how to sell on Amazon
Jumping into Amazon selling can seem daunting. Thirty-five percent of current Amazon sellers have admitted they need more training, and 24% are confused about how the Amazon selling platform works.
Here are some tips for selling on Amazon:
Figure out what you want to sell
Researching product demand is one of the first steps in deciding what you should sell. To give you a better idea of current trends and what is needed in the market, do the following:
- Check out the Amazon Best Sellers list.
- Use a keyword research tool to find product search volumes.
- Read Amazon reviews.
It’s also important to decide what business model you want to use. Here’s a list of the more common business models used when selling on Amazon.
- Retail arbitrage: when you buy something for less than it’s worth (usually that means wholesale), selling it for more, and profiting off the difference.
- White label selling: when you buy generic products (like water bottles or coffee cups), put your brand name, logo, or design on them, and sell them for a premium.
- Private label selling: when you use a third-party manufacturer to create branded products. Grocery stores do this a lot. For example, Kroger has its own private label products (Simple Truth), Walmart has Great Value, and Costco has Kirkland.
- Affiliate marketing: when you make money by promoting products to your audience (usually on social media). You don’t create anything or have any inventory, you’re simply helping to promote other businesses’ products and then get a percentage of any sales made because of your promotion efforts.
- Dropshipping: when you’re a middleman. You don’t keep inventory on hand—instead, you purchase inventory as needed from a third-party manufacturer or wholesaler to fulfill orders.
- Sell your own products: sell products that you create.
Get to know the costs of selling on Amazon
Gaining access to Amazon’s 300 million active customer accounts isn’t free. Several fees and costs are attached to selling your products using the Amazon marketplace.
Make sure to familiarize yourself with the referral, closing, FBA, and storage fees for the products you want to sell. There are also two different seller plans on Amazon. Make sure to know which one will suit your business needs best.
- Individual: Pay-as-you-go plan. Only takes money from each sale made. Best for smaller businesses that are selling fewer than 40 items per month.
- Professional: Has a subscription cost of $39.99 per month. Best for businesses that are selling more than 40 items per month.
Once you’ve chosen the right plan for you, create your Amazon seller account by following the prompts, and then wait for your account to be approved.
Learn how to use Amazon Seller Central
Amazon Seller Central is the interface you’ll be using to sell your products on Amazon. Get familiar with how it works, and take advantage of the resources included in the interface, like the Selling Partner Blog and Seller University.
Understand your fulfillment options
Amazon has three fulfillment options: FBA, FBM, and SFP. They each have their own advantages and disadvantages when it comes to selling on Amazon.
- FBA (Fulfillment by Amazon): Amazon is responsible for storing, shipping, or even handling customer service for your products. With FBA, all your inventory is stored in Amazon warehouses, and Amazon fulfillment centers process, package, and ship your orders.
- FBM (Fulfillment by Merchant): You take care of your own inventory, storage, order fulfillment, and shipping. This fulfillment option is best if you have a small amount of inventory, can provide customer service in-house, and have smooth logistics operations.
- SFP (Seller-Fulfilled Prime): SFP allows sellers to fulfill their own orders using either their own or outsourced resources. You must apply to become a Prime Seller.
Know how to write engaging Amazon listings
Understand the basics of listing a product on Amazon. The product detail page is where you show off your product. The information you include encourages shoppers to make a purchase.
At a minimum, you’ll need:
- A targeted product title
- Clear product images
- Concise bullet points
- Enticing product descriptions
Learn more: 7 Ways To Promote Your Amazon Store and Products
6 tips to help you sell your products
- Validate demand with a product research tool. Amazon Seller Software like Jungle Scout can help you understand if there’s demand for your products.
- Encourage customers to write product reviews. In a consumer trends report for 2022, 61% of consumers report being influenced by products with the best ratings and reviews.
- Run Lightning Deals. Lightning Deals are flash sales on Amazon's deal page, which is one of its most popular pages. With Lightning Deals, you can sell more units at a faster pace, which means more reviews.
- Cross-sell your products on Shopify. Shopify’s Amazon sales channel lets you list your products on the world’s biggest marketplace. With Shopify, merchants can create Amazon product listings directly, sync inventory across both sales channels, fulfill Amazon orders, and track sales from both channels.
- Win the Buy Box for your product listing. Considering Amazon is an online marketplace, you might have to compete with other third-party sellers for first place. The Buy Box, or Amazon's Featured Offer, gives new products extra visibility on search results pages.
- Get your pricing right. Depending on your pricing, Amazon may push you further down in the results if your prices are too high. Try to maintain healthy profit margins while pricing your products competitively.
What do you need to sell on the Amazon marketplace
The type of business model you choose and the types of products you want to sell will determine how much money you’ll need to start your Amazon business. But don’t be intimidated, most Amazon sellers don’t take out loans and start with fairly small budgets.
According to the 2022 Jungle Scout report, 69% of Amazon sellers start with about $5,000 or less in their pocket. If you’re working with a very limited budget, consider using a retail arbitrage business model or starting a wholesale business.
Decide how much time you want to spend on your business. Is it a full-time venture or just something you’ll dabble in part-time for supplementary income?
For example, if you don’t want your business to take up all of your time, use the FBA fulfillment method. Because FBA handles all logistical and customer service concerns, it’s very possible that you only have to spend around 10 hours a week running your business. Forty-three percent of current sellers use the FBA method on Amazon.
Also, know how long you will continue working on your business without seeing a profit. Research and map out a realistic timeframe that works for your finances. The good thing is, 63% of sellers have reported seeing profits within a year of launching their Amazon business, and 20% said it took less than three months to turn a profit.
Note: If you’re trying to start your own brand, it tends to take a little longer to see any profits. Twenty-two percent of Amazon sellers said it took three to six months, and 10% said it took one to two years.
Before you sign up for a seller plan, make sure you have all the necessary documents at hand.
- Bank account number and bank routing number from a bank that is located in a country supported by the Amazon Currency Converter. Amazon cannot transfer funds to a credit card or online payment system like PayPal.
- Business address. This is the address your business is registered under and will appear on your Seller Profile page.
- International credit card that Amazon will charge fees to. Accepted credit cards are: American Express, Diner’s Club, Discover, JCB, Mastercard, and Visa.
- Government-issued national ID.
- Tax information.
- Phone number.
You won’t always get it right. A key component to having a successful business is knowing when and how to adjust your strategies. To do that, you’ll need an analytics tool that provides the metrics that will help you reach your business goals.
Here are four to get you started:
Make sure to check the analytic metrics of your sales regularly. Many products have seasonal highs and lows, sometimes changing product pictures or descriptions can affect sales, and even world events can affect how products trend.
Create your own online store and sell on Amazon today
In 2021, Amazon reported that third-party sellers generated $103 billion in sales using the Amazon marketplace. That revenue was generated by nearly two million different seller accounts selling on Amazon.
When deciding which marketplaces to sell on, it depends on what you’re selling and the scale of your operation.
Remember that selling through your own store doesn’t mean you can’t also sell your products through a marketplace to reap the benefits of both, nor does selling in one marketplace mean you can’t also sell in another. It’s just wise to take the time to figure each one out at a time.
Many successful merchants do just that—“owning” their business and brand online, while also gaining exposure and sales from the large volume of traffic found on online marketplaces.