Is Selling on Amazon Worth It for Businesses?
For today’s businesses, ecommerce is no longer a sales channel that can be ignored. And one of the most efficient ways to jump into the digital space is selling on Amazon.
Here’s why going digital in business matters:
According to data from Statistica, ecommerce nabbed a 14% share of total global retail sales in 2019, with the ecommerce share expected to grow to 22% by 2023. These pre-COVID statistics may, in fact, be outdated. Recently, Adobe suggested its data showed ecommerce sales were up 77% year-over-year, an increase that would have taken 4 to 6 years to achieve.
Bottom line: More and more of your shoppers are heading online to purchase goods and services. If you aren’t reaching these digital shoppers, your business will start falling behind competitors. So how can you do it?
Start Selling on Amazon for a Quick Entry into Ecommerce
Businesses today can launch domestic and even international online sales operations quickly, efficiently and cheaply. And here’s the good news: They don’t have to build out their own fulfillment networks or digital storefronts.
How? By launching an Amazon Seller Central account.
In terms of scalability and cost competitiveness, Amazon ranks as one of the best online sales platforms for businesses. Amazon’s marketplace has massive reach, its shoppers are loyal, and it represents a significant share of the online shopping ecosystem.
Key benefits opening an Amazon store include:
· Customer Base – Selling on Amazon allows businesses to connect with a global customer base. Today, Amazon counts more than 300 million active users and a rapidly growing base of uber-loyal Prime subscribers (including 112 million users in the U.S.).
· Market Share – Amazon commands a significant share of the ecommerce market in the U.S., as high as 44% according to recent estimates.
· Trust and Loyalty – Amazon is one of the most recognizable brands in the U.S. and many digital shoppers trust Amazon. In fact 89% of consumers said they were more likely to shop on Amazon than other ecommerce platforms. Plus, Amazon has super-loyal customers. Prime subscribers in fact shop frequently – as much as 48% weekly and 74% every few weeks.
Yet, beyond connecting with this massive customer base, launching an Amazon store and using Fulfillment by Amazon (FBA) delivers massive upsides for businesses.
9 Key Benefits of Selling on Amazon
1. Your Amazon Account Will Be an Asset If/When You Sell Your Business
A successful Amazon sales record can significantly increase the value of your business. And if you choose to sell your business or to spin off your Amazon FBA account, you can expect to earn a 1.5-3X multiplier of your annual profits. In fact, the average sales price for an Amazon FBA business in 2019 was more than $700,000, according to Digital Exits, an online business broker.
Ultimately, the value of your Amazon account is affected by these key factors:
· Account Age: The older your account, the more valuable it may be. For one, older accounts have more sales data, which can help make a strong case for the Amazon FBA business’s sales consistency.
· Niche: The niche in which you sell significantly impacts asset value; a high-margin, in-demand niche will fetch a much higher valuation than a low-margin business.
· Product Diversity: Businesses that generate sales from a diverse mix of SKUs are more valuable to investors than businesses that rely on a single product or 2-4 products to generate most of its sales.
· Branding: If you manufacture your own branded products, you can generally expect a higher valuation than if you operate a reselling or wholesale business.
2. Your Products Are Always in Stock
Amazon Seller Central simplifies inventory management for businesses. Essentially, when you open an Amazon FBA store, you ship your products to Amazon’s warehouses. And you gain access to Amazon’s inventory management and optimization tools.
Therefore, because your business has complete control over its inventory and because Amazon has such a positive fulfillment track record, your products are available to customers. In fact, they may be eligible for two-day shipping, or in some cases, same-day shipping.
Amazon, in other words, saves you from working with ineffective and unorganized distributors that can disrupt sales and turn your customers off.
3. Quickly Scale a Nationwide Logistics Network
Warehousing and fulfillment represent a significant cost for businesses. But with Amazon FBA, businesses can offload the entire logistics cycle and greatly reduce the cost of distribution.
Here’s how it works: You start an Amazon FBA account and ship your products to an Amazon fulfillment center. Then, Amazon handles the rest:
· Storing inventory
· Picking and packing orders
· Shipping orders to customers
· Handling returns and customer service
· Collecting sales tax (in most states)
In short, you can launch and scale your online business in a matter of weeks.
4. Reduced Overhead from Negotiated Shipping Rates
Of course, Amazon FBA sellers do pay for logistics and fulfillment management. Businesses pay Amazon:
· Account fees
· Set shipping rates
· A referral fee per sale
· Inventory storage costs
But in general, Amazon’s negotiated rates are more cost effective than building and managing your own distribution network. Amazon’s shipping rates, for example, start at $1.97 per item, with inventory storage costs starting at $0.75 a cubic foot. A Professional account costs $39.99 per month, as well.
This can greatly reduce overhead, because you won’t have to pay employees to pick and pack your orders. Plus, because Amazon’s costs are fixed, you can better estimate your profits per product.
5. Expand Internationally Quickly and Efficiently
International expansion can drive sales growth, but it’s typically an exorbitant expense for small businesses. With Amazon Global Selling, though, small U.S.-based businesses can quickly scale internationally, to some of the world’s most desirable overseas markets.
Through the Global Selling program, Amazon’s third-party sellers can quickly expand to markets like Japan, Australia, India and Singapore. Plus, the program allows for seamless expansion across North America. Some benefits of expanding internationally on Amazon include:
· Sales and customer base growth
· Being able to reach customers during peak seasons around the globe
· Achieving compliance without hefty legal costs
6. Access to Highly Useful Market Data
Amazon Seller Central puts a significant amount of helpful consumer data at your fingertips. Businesses can use this data for product development, pricing optimization, to better understand its customers, content optimization and sales reporting. Some of the data includes:
· conversion rates
· product views
· product rank/trends
· PPC campaign reports
This data is a powerful tool for developing new products, and it can help you to improve your profitability.
7. Helpful Brand Policing Tools
A common concern brands have with selling on Amazon is that they will lose control of their brand, e.g. counterfeit products, unauthorized sellers, and pricing violations. But the truth is, when brands ignore Amazon and don’t actively police their products and sellers, that’s when they lose control of messaging, pricing and branding.
Fortunately, Amazon’s Brand Registry program provides a range of tools to help businesses protect their messaging and pricing. Registering your brand can help you:
· Control your brand’s product listings on Amazon
· Search for and report suspected brand violations
· Setting MAP prices and reporting MAP violations
· Automated brand monitoring
8. Helps Fuel Brick & Mortar Growth
Building your brand on Amazon can actually increase sales at your brick-and-mortar business or on other online channels.
In fact, one survey found that Amazon advertising may significantly impact sales on non-Amazon online and offline channels. Conversely, opening or increasing the marketing of your brick-and-mortar business can generate a 6% to 8% lift in online sales on Amazon. Not to mention, because Amazon FBA businesses do not manage fulfillment, they can save time and focus on growing their brick-and-mortar businesses.
9. Leaves Room for Other Selling Platforms
Even if you start an Amazon account, you can continue to sell your products on other non-Amazon channels. In fact, Amazon greatly simplifies inventory management for many different channels.
For example, with Multi-Channel Fulfillment from Amazon, businesses can sell their products on some of the world’s most popular ecommerce platforms, including Shopify, WooCommerce, eBay, Walmart.com, and Alibaba (for exports and B2B). Once orders are placed, Amazon manages the logistics and shipping, and businesses pay a negotiated shipping fee.
This greatly simplifies inventory management for businesses. Brands can manage their inventory from a central location, without having to worry about fulfillment for a half dozen marketplaces.
Consider Amazon Seller Central to Launch Your Ecommerce Business
For many small businesses, the idea of selling their products online seems like a costly and unfeasible endeavor. And it would be, if every business had to build their own logistics network, online store, and advertising strategy.
With Amazon though, businesses gain access to a wide range of tools and services that help them quickly build and scale their businesses online: Logistics support, advertising tools, content management tools, analytics.
In other words, Amazon FBA is built for sellers, and it can be a powerful platform to grow your business online.
Is your brand ready for Amazon? Mile High Online can help. We offer full-service Amazon Brand Management, helping businesses launch, scale and grow on Amazon. Request a quote today to learn more about how we can help.