Why Amazon Should Be One of Your Sales Channels — But Not Your Only One
Your company deserves more (margin).
There are ~331 million people in the U.S.
45% of them are Amazon Prime members.
There are ~150 million Amazon Prime subscribers in the U.S. (For comparison, the second-ranking shopping app, Walmart, had a monthly mobile app audience of only ~76 million users.)
87% of customers agree that they are more likely to buy products from Amazon than other eCommerce sites (Source: Feedvisor, 2019).
Amazon brought in $75.5 billion in sales revenue during the first quarter of 2020 (Source: Amazon, 2020).
If your company sells on Amazon, what was your sales revenue during all of 2020?
There’s no way that it was $75.5 billion.
To be fair, Amazon is an incredibly diversified company that draws revenue from a myriad of sources. There are arguably no companies in existence that are as diversified as Amazon.
There’s no doubt that selling on Amazon can be profitable.
85% of Amazon sellers are profitable. Three out of five sellers said that their profits increased in 2020 (Source: JungleScout, State of the Amazon Seller, 2021).
Amazon already has customers that can discover your product — and even subscribe for deliveries. Amazon has already built a seamless and intuitive customer experience, offering:
- Free 2-day shipping and free same-day shipping in select parts of the country
- Prime-exclusive deals and special pricing
- Free access to Prime Video and Prime Music
- Easy and intuitive business buying
- Discounts at its affiliates (e.g., Whole Foods)
- Easy and intuitive business buying
- …and more!
Companies (and even individuals) start selling on Amazon for a multitude of reasons.
Most notably, they start selling because they:
- Experience a fairly low barrier to entry
- Have access to a built-in customer base of Amazon shoppers and Prime subscribers
- Benefit from the halo effect of Amazon’s reputation
- Perceive that they don’t have to invest as much in creating their own website (or even having a website at all)
- Enjoy the ease of Fulfillment By Amazon (FBA delivery)
But, did you know that more Amazon sellers are looking to diversify their eCommerce strategies than ever before?
Here’s one of the top reasons why.
Amazon is greedy.
Retailers work hard for their profits. Amazon takes a hefty cut of any products sold on their website.
Amazon’s Referral Fee is 8–20% on every product sold, with the average being 15%. That doesn’t include the Fulfillment by Amazon (FBA) fee charged per product.
We did the math using Amazon’s own fee calculator. Between Referral Fees and FBA fees, Amazon may be stealing up to half of your profit margins.
Now, we know that there are always fulfillment and operational costs, whether companies sell via Amazon or fulfill themselves. But 15% (Referral Fee only) to 50% of your margin is still a significant portion that could be going directly to your business.
How can your company reclaim some of that margin?
Capture direct sales through your website.
That eliminates the Referral Fee and, chances are, your cost to fulfill will be less expensive than what Amazon charges. Granted, there’s a sacrifice of convenience, but the increased margins will likely make it worth it.
Driving direct sales through your website doesn’t happen overnight.
Here’s a look at the eCommerce sales funnel:
Amazon Prime members convert at a whopping 74% conversion rate (Source, BigCommerce, 2021).
But only a small fraction of Amazon’s conversions are your conversions.
74% is a ridiculously high conversion rate for any eCommerce retailer. But imagine the additional profits you could gain if you just increased the conversion rate on your website by 5% or 10%.
In the article, Why Ecommerce Retailers Shouldn’t Depend on Amazon (and 3 Steps to Break Free), I outlined three steps any eCommerce retailer should take to maximize sales through their website — and therefore, their profit margins.
I won’t go into as much detail here, but these steps include:
- Investing in the right paid search strategy to drive targeted traffic.
- Improving your customer experience — and website user experience.
- Building a brand that commands higher margins and drives loyalty.
For more, click here to read the original article.
Long story short, don’t sacrifice your margins on Amazon.
Leverage Amazon as a channel, but not your exclusive or even primary channel. Sell through other marketplaces and maximize margins by selling through your own website.
