Is Selling on Amazon Viable? (Part 1)

There are many Amazon-only businesses out there and some are probably quite profitable. When I say Amazon-only, I am referring to a business that essentially uses Amazon.com as their own website and probably uses Amazon for customer service and fulfillment too. If you did not know that you can do that, rest assured that you can. Amazon has various fees (actually a lot of fees) but you can indeed list your products on their site, ship them your own product and let them do all the work for you.

The biggest advantage by far to using Amazon in that way is customer acquisition. Amazon has a lot of customers for you. It is possible that you can generate orders almost like magic from people searching their site for whatever you want to sell. Now, of course you pay for those customers because Amazon takes a percentage of every sale and it is not a small percentage. In general, you can bank on around 15% but it depends on the product category.

You might think that paying Amazon 15% of your orders is a lot but consider that if you are generating orders any other way, you will likely be paying ¬†for them, too. In fact, it is typical for my businesses to pay between 10-20% to acquire a new customer. In other words, if I am buying advertising online, I might spend $15 to generate a $75 order. (I will get into that more later.) Amazon’s 15% fee is just a replacement for advertising cost and you could argue that it is quite reasonable.

Here is the initial bottom line: if you have a decent margin in your products (30% or higher), Amazon is possibly a great way to sell and I would not overlook them. After you pay the fees which might total 20%, you can still net 10% and possibly a lot more if you had a higher margin. Assuming you use Amazon for customer service/fulfillment, you can ship them your products and let them go to work. If they can sell $1,000/day for you, you pocket $100/day with little effort.

Sound good? It is and it isn’t. There are some enormous potential problems to that business model that I will go over with you in the next post. For me, the bad far outweighs the good. I sell a few things there just to augment my other sales but as a rule, I stay away. Stay tuned and I will tell you why.

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