Joining the world’s largest marketplace is no small decision. And as usual, the devil is in the details. How to sell on Amazon – the pros and cons and ifs and buts and dos and don’ts – that’s what we’ll figure out in this blog post.
In in our previous blog post, Amazon is coming to Sweden – now what? we examined how Amazon’s launch will impact the Swedish digital marketing landscape. But in all honesty – there’s not much you can do about Amazon launching or not. It’s like the weather – you can complain about it, but what good does that do?
In this blog post, we’ll dig deeper, become more practical, and examine the ways that you can get onto the Amazon platform and into the Amazon ecosystem.
3 different ways to sell on Amazon
1. First-party vendor
The first way that you can sell on Amazon is to sell to Amazon. Let’s say you are a brand owner or a manufacturer of products – then Amazon becomes just another distributor for your products. In Amazon terminology, this is called “first party”. In order to find out more about this and manage your relationship with Amazon, you go to what is called the Vendor Central on Amazon.
In this screenshot, you can see what it looks like when a product is sold by Amazon as a first party:
In this case, you negotiate the cost of goods sold with Amazon, and then Amazon completely controls the pricing, merchandising, discounting, product display and information on the Amazon web site.
So, you don’t have to do much except make sure that you fulfil the orders that Amazon places with you. That’s the good news. On the downside, Amazon has 100% control over how they want to sell and promote your product in relation to competing products and competing sellers on the Amazon website. Not as good.
Let’s look at the other alternatives that you have.
2. Third-party seller
You can also choose to sell your products yourself on the Amazon marketplace. That means you’ll become just one of many sellers of the same product. Now you can set your prices yourself. You can create product descriptions, gather testimonials and run promotions and campaigns.
As you understand, this is a lot more work, which means you would probably need to hire one or several Amazon channel managers to stay on top of the game. Your internal cost will be higher. On the upside, you have more control over the sales channel. You can manage margins, volumes and discounts in a much more hands-on way.
2a. Fulfilled by merchant
When you become a seller on Amazon, you can also decide whether you want to deliver the products directly from your warehouse or a logistics partner or if you want Amazon to handle this part too.
If you decide to ship from your own warehouse, this is what Amazon calls “fulfilled by merchant. This is what it looks like when a product is fulfilled by the merchant:
The advantage of this method is that you are still in control of a larger part of the logistics chain. Since there is an additional cost if Amazon handles the logistics, you will also have a lower cost if you fulfil the order yourself.
BUT – your own logistics are not free nor are they without smaller problems and hiccups (I suppose?!). So, before you choose this option you need to make sure that your own logistics costs and any cost for third-party logistics partners are lower than what Amazon would charge you, plus it needs to beat Amazon when it comes to quality. You might be a logistics pro, but beating Amazon in this game is not the easiest thing to do.
”You might be a logistics pro, but beating Amazon in this game is not the easiest thing to do.”
Which brings us to the other seller option.
2b. FBA – Fulfilled by Amazon
If you choose this option you are still the seller on the Amazon marketplace, but you outsource the delivery of the product to Amazon. So, you have only one place to ship your products to: The Amazon fulfilment center. And then they take it from there.
Of course, there is a fee for this – another way for Amazon to make money. But for many sellers that don’t have a huge logistics system in place this is a really convenient way to get started on Amazon and then scale really quickly.
To the right here, you can see an example of what it looks like when a product is sold by a third-party seller and fulfilment is done by Amazon.
(As a side-note here you can also see that Amazon have implemented, or is it least testing, flat design call-to-action buttons in the app!)
If you’re considering the fulfilled by Amazon option, you should also be aware that Amazon is rolling out something they call the Pan European FBA. This means that you only need to ship to one Amazon fulfilment centre, in Germany for example, and then Amazon takes care of the distribution to the other Amazon markets. This makes it even easier for you, however, expect to be paying more money for using this service.
As you can see, being part of the Amazon ecosystem can be a really effective way to reach new markets with your products.
”Being part of the Amazon ecosystem can be a really efficient way to reach new markets with your products.”
Going global (or at least European) with Amazon
When Amazon launched in Australia in December 2017, they had 4.000 merchants at the start. Only six months later, they had 18.000 merchants. This is mind-blowing. We ask ourselves: How could they have so many merchants at the start and how could they grow so quickly? In order to answer this question, you need to understand that not all of those merchants are Australian – actually far from it.
When Amazon launches in a new market there are thousands of eager merchants just waiting to add one more place where they can increase their sales. It’s not exactly “just clicking a button” to add a country – a bit more work goes into it. BUT, compared to other ways of expanding into new geographical markets, being part of the Amazon ecosystem makes it very, very easy to go into new markets. Expect this to happen in Sweden too.
”When Amazon launches in a new market there are thousands of eager merchants just waiting to add one more place where they can increase their sales.”
This might seem like a threatening proposition: thousands of international merchants just waiting to flood the Swedish e-commerce market with their products. Sounds a bit scary, I agree, but you need to look at it the other way:
Once that you have mastered selling on Amazon, perhaps by starting in the Swedish market, you will become ready to click that “add new market button” and start your international expansion in the global Amazon ecosystem. Why not? Swedish e-commerce companies are advanced and competitive. Why shouldn’t they be able to get a big piece of the Amazon pie?
Having your own store on Amazon
There is one final detail that you need to know when you select how you should be visible on Amazon. If you are a brand owner, you can have your own store on Amazon. You can do it both as a vendor and as a seller, but you need to be the owner of the brand. So, the first step in setting your store up is to enrol in the Amazon Brand Registry Program.
Having a brand store on Amazon doesn’t change anything in the commercial relationship with Amazon. Fees and margins stay the same. The only difference is that you have a presence on Amazon which allows you to tailor and create a more engaging experience around your brand. In most cases, you will find that this has a positive effect on your sales and ranking on Amazon. The trick here is, of course, that Amazon is employing you to create content on their website so that Amazon becomes a better place for commerce – and you’re not getting paid for it. So once again, Amazon comes out as the winner.
”Once again, Amazon comes out as the winner.”
The Swedish brand Babybjörn has its own brand store on Amazon. The Swedish brand Didrikssons does not have a brand store (yet). You can see the difference in how that is displayed on the Amazon product page and what then happens if you click the links at the top:
As you can see, Babybjörn is clearly a branded experience, whereas Didrikssons looks more like a category or search results page.
Here is a good blog post that goes through what you need to know to set up your own brand store on Amazon in more detail.
Many lanes on the Amazon highway
My final point in showing all the alternatives available to you is that you need to understand that all of them will happen at the same time. It’s not like you choose to only go the first party way and then that’s the only way it will happen on Amazon. If you are a brand owner, other sellers will purchase your products and sell them on Amazon.
For example, I searched for a Hilleberg tent (Swedish brand), and found a Malaysian seller called WM Gear that would sell it to me here in Australia. And this happens regardless of whether Hilleberg has spent, or not spent, time on thinking about what their presence on Amazon should be.
What are the costs and margins when selling on Amazon?
If you go down the first-party vendor route and sell directly to Amazon, then your margin is a negotiation with Amazon just like any other distributor. And as usual, you can get higher margins if you have a strong brand and unique products. What is unusual is Amazon’s market power, so don’t expect to walk away from that negotiation with very fat margins.
If you choose to become a third-party seller then your margins will depend on the category you are in, and if you choose the FBA option or not. The easiest way to understand how this will work out for you is to go to Amazon’s own web page and use the cost calculator.
I created an example where I want to sell an item in the clothing category. My cost of goods sold is $100 and I want a 50% margin on that. As you can see below, after the referral fee and the FBA, Amazon walks away with more money than I do, even though my initial gross margin seemed pretty ok.
Image: Amazon seller central
*Please note that this page is for the US market and fees for the Swedish market will probably be somewhat different.
So – are you ready to get “on Amazon”?
With the knowledge of this blog post, you are now ready to get started on Amazon. You “only” need to choose one of the methods, start an account, start uploading product descriptions and so on. If you feel like starting right now: here is the link to Amazon seller central.
But just because you are then officially on Amazon, it doesn’t mean you’re going to be selling on Amazon. It is a huge marketplace with thousands and thousands of sellers and millions of products. So just because you have products on Amazon, it doesn’t mean that buyers are seeing them and adding them to their carts.
”Just because you are officially “on Amazon”, it doesn’t mean you’re going to be selling on Amazon.”
This brings us to the next blog post in this series: How to make sure you are seen on Amazon, what it takes to appear in Amazon’s search results, how you get the Amazon Prime badge and what you need to do to win the infamous “Buy Box”. Stay tuned.