W hat's the Secret to becoming a Successful Amazon Seller?
As Amazon continues to expand its presence on the online marketplace, more sellers continue to flock to the marketplace to list their items, and with the increase in competition, many sellers will find greater difficulty in attaining Buy Box exposure, maintaining viable pricing, and sustaining the metrics necessary to continue to grow their business through Amazon. So what’s the recipe for success on the marketplace? There are actually several workable methods, and we will look into each of them below to discuss their merits and drawbacks, as well as tell you which one we believe is the standout.
The first and most well-documented method is the utilization of Fulfillment By Amazon services to list and sell products direct from Amazon’s warehouses. This method has become an increasingly popular option ever since its introduction because it essentially involves allowing Amazon to manage the warehousing, sales, and shipping of your inventory for a fee. In addition to managing orders, Amazon also manages customer support, defending your store on your behalf in the event of A-Z claims or negative feedback. With the value and protection offered by Amazon’s support, many store owners, especially those who manage their own warehouses, have found success in pushing their inventory to Amazon for FBA management. Unfortunately, this method cannot be implemented without some significant challenges and potential risks. First, sustaining considerable order volume requires considerable capital to purchase inventory and warehouse it with Amazon; while a good sales team can negotiate for competitive pricing at large volume, inventory stored in Amazon warehouses faces the same risks of inventory stored in your own warehouse. The longer an item remains unsold, the more money it costs you to keep the item warehoused, and this problem is multiplied with the costs and fees charged by Amazon as the item ages in their inventory. In addition, there is no guarantee preventing other sellers from attempting to undercut your pricing, and Amazon themselves can be quick to compete on a hot item. The similarities to self-warehousing both in terms of the store model and the financial model make Fulfillment By Amazon immediately appealing to a wide host of sellers, but because store scalability is tied directly to the purchase of physical inventory, the ever-increasing cash flow necessary to sustain growth creates a point at which further expansion is no longer feasible.
The next method we will cover has seen a surge in popularity over the last few years; that is the establishment of a private label to compete as a both seller and manufacturer. With the broadening availability of white label products across a wide range of categories, many stores have found success in purchasing these white label products directly from production sources, labeling them with their own brand, and creating new listings on the Amazon marketplace to offer their merchandise. This grants the seller exclusive access to these respective listings as the sole seller of the brand. With a concentrated effort to advertise the brand, a seller utilizing private label selling can effectively drives sales for these products and thereby advance their brand at the same time. The fault in private label selling is the same thing that makes it viable in the first place – with financing being the only limiting factor in purchasing white label inventory, more and more stores are able to buy into the private label model, thus watering down the value of private label brands as more are introduced to the marketplace. Even though a seller can effectively maintain their brand listings so that they are the only sellers for a given listing, the continued addition of the same product offered by a different private label brand will continue to reduce brand exposure and forces a race to the bottom, where the seller with the highest order rate is the one who dares to sell at the lowest price.
The final model we would like to cover in this entry is the dropship model. Dropshipping has been a frequently discussed model for years and involves a store listing inventory that is located in a distributor’s warehouse; when the store sells an item, it then orders the item from the distributor, who ships the item directly to the customer. This poses an immediate advantage over FBA and warehousing as funding is needed only on a per-order basis, not on a per-item basis. Without the need to physically house inventory, your store can operate on a pull model instead of a push model [link to numbers game entry], where customers purchase what they want from your store, as opposed to the need to invest in an advertising team to sell select products to customers. Moreover, since the store can take advantage of all inventory offered by a distributor, you are able to list thousands of items that would otherwise be unfeasible for purchase and storage at your warehouse due to low quantities of inventory, transportation costs, or lack of demand. With proper implementation, a store can use a comparable FBA budget and grow sustainably at much higher rates by using that budget to integrate multiple dropship distributors nationwide; offering millions of products across a wide range of categories instead of relying on a select range of products and categories. This breadth also protects the store from overcrowded listings – while dozens and dozens of sellers (and Amazon themselves) compete over the same listings for top brand names, dropshipping enables you to take advantage of the myriad off-brands that constitute tens of millions of listings on Amazon. With reduced competition in this wide-open subsection of the marketplace, winning the Buy Box is much easier and results in greater revenues than would be gained from fighting a losing battle for a top brand’s Buy Box. Similar to the Private Label model, however, the Dropship model’s biggest strength is also its greatest weakness. With all the advantages gained by listing virtual inventory comes the risk that any form of latency between store and distributor can be potentially catastrophic. Extreme diligence and care must be given to each data point conveyed from distributor to store backend to storefront – without this, the dropship method collapses under its own weight as a store tries to expand using it. Because of the many difficulties that surround development of a comprehensive dropship solution, many marketplace specialists have dismissed the concept altogether, instead pushing the immediate viability of Fulfillment By Amazon. However, if a store can effectively manage all the crucial data points to maintain accurate listings and promptly and completely fulfill orders, then the sky is truly the limit.
Each of the models that have been described require a different approach to the marketplace, and all have their own obstacles to overcome. Some are initially easier than others, and while they may result in short-term profitability, FBA and Private Labeling are physically limited by the amount of money that can be invested while still remaining viable and profitable. By establishing a complete understanding of marketplace management as it pertains to dropshipping, a savvy seller is able to overcome these limitations and continue to grow their store without the limitations imposed by massive cash flow requirements or continually increasing levels of competition. Luckily, we’ve built the system you need to help you grow on Amazon; let us show you how it works and how you can begin leveraging our end-to-end order management platform.