For many businesses, Amazon represents a gateway to a vast pool of potential customers. The platform's user-friendly interface, established brand recognition, and seemingly endless traffic hold the promise of explosive sales growth.
However, the realities of being an Amazon seller extend far beyond the clickstream. This blog post delves into the complexities and challenges that businesses must navigate to achieve success on the platform.
1. Strict approval on certain product categories
Getting approval to sell certain products on Amazon can be a hurdle, but the difficulty depends on the category and your experience as a seller. Some categories, like jewelry or food, are restricted and require applying for approval.
This often involves submitting invoices to prove you are sourcing from authorized suppliers. Established sellers with a good track record have a higher chance of getting approved compared to new sellers.
The difficulty also hinges on factors like product safety and brand permissions. Amazon prioritizes customer safety, so high-risk categories will have stricter approval processes. Similarly, for some brands, you might need separate authorization to sell their products on Amazon.
2. Fierce competition
As the biggest online retailer in the world, it wouldn’t be a shock to say that competition between sellers is incredibly fierce. The question is, how competitive is it?
Selling on Amazon can be challenging, especially for new sellers. According to a study by the e-commerce tool SellerApp, 24% of new Amazon sellers (a significant portion!) never even become profitable, highlighting the competitive nature of the platform.
This isn’t meant to discourage sellers from joining the platform. We’re only highlighting the inevitable mountain you’ll have to climb once you set your sights on selling on Amazon.
3. Crafting compelling product listings
Optimizing your product listing is one way to gain a competitive edge on Amazon. Buyers want to know the product they’re looking for is legitimate and checks all the boxes. When they see poorly written product descriptions or low-quality images of the product, they’ll be more likely to turn to the competitors for an alternative solution.
High-quality images that showcase your product from multiple angles and a detailed description that highlights its features, benefits, and unique selling points all work together to create a compelling presentation.
This informative and visually appealing storefront within the Amazon marketplace fosters trust and convinces potential buyers to choose your product over the competition. In short, optimized listings are not just about getting found; they're about converting browsers into satisfied customers.
4. Acquiring positive reviews
Cultivating a positive review base on Amazon is a fundamental element of success for any seller on the platform. These reviews function as social proof, a cornerstone principle in marketing psychology.
Positive reviews bridge the gap, offering real-world customer experiences that highlight both the product's strengths and potential limitations. This valuable user-generated content fosters trust and mitigates purchase hesitancy, ultimately driving conversions.
Furthermore, Amazon's search engine prioritizes listings with a strong positive review profile. This means a well-reviewed product ranks higher in search results, organically increasing its visibility and attracting a wider customer base.
As a new seller, it can be pretty challenging to obtain positive reviews from customers. You have to make sure that your products or services exceed their expectations so that customers are happy to give you five stars.
5. Handling product returns
One of the reasons why customers love shopping on Amazon is the hassle-free return policies. But on the seller’s side? It’s more complicated than you would imagine.
Since Amazon often handles fulfillment and returns for FBA sellers, sellers have little control over the return process. They can be held financially responsible for items returned in a damaged or unsellable condition, even if the fault lies with the buyer.
Additionally, restocking fees may not fully recoup the lost value, especially for high-value items. There are instances where customers might exploit the return policy, essentially "renting" the product and returning it after use. This eats into seller profits and can lead to excess inventory of used items.
6. Tax intricacies
Taxes are a major headache for Amazon sellers, and the complexity stems from several factors. Unlike most brick-and-mortar stores, Amazon historically placed the responsibility of collecting and filing sales taxes on individual sellers.
Sellers have to navigate a maze of state-by-state tax rates and thresholds, which can prove daunting for businesses operating across multiple locations. While Amazon now automatically collects sales tax in most states, there are still a few holdouts where sellers are on the hook.
Even when Amazon handles collection, sellers are still responsible for ensuring the correct tax rate is applied. This requires keeping product tax codes up-to-date and accurate, which can be tricky with a large and ever-changing inventory.
Complexities can also arise for sellers who store inventory across state lines. This can create a situation known as "sales tax nexus," where a seller is required to collect sales tax in a state even if they don't have a physical presence there. Determining nexus rules can be a challenge, and failing to comply can result in significant penalties down the road.
7. Restricted products
Amazon has the power to restrict your products at any time, and there are a few reasons why this might happen. Breaching Amazon's policies is a big one. These policies cover a wide range of issues, from product safety to intellectual property rights.
If your product runs afoul of any of these rules, even if it was previously approved for sale, Amazon can restrict it without warning. Your overall seller performance can also trigger restrictions.
Amazon tracks metrics like order fulfillment rates, customer feedback, and how many of your products turn out to be defective. If your performance dips below their standards, they may restrict your products to protect their customers.
Safety concerns can also lead to restrictions, even if your product technically follows Amazon's policies. This could be because of a government recall notice, negative customer reviews about safety hazards, or simply because the product belongs to a category with inherent risks.
The key takeaway is that restrictions can happen at any point in the selling process, from blocking a new listing before it goes live to removing existing products or even suspending your entire seller account. To minimize this risk, it's important to thoroughly understand Amazon's selling policies and stay informed about any updates.
Matt Remuzzi, MBA, EA, and founder of Matt Remuzzi, MBA, EA, and founder of CapForge Bookkeeping & Tax, an e-commerce focused accounting firm with over a decade of experience helping thousands of online sellers understand and grow their revenue and profits and save on taxes!
