Building a business is challenging, especially in a global economy where competition is fierce and grows stronger every day. Finding new and innovative ways in which to build a business is critical if you want to stand out from your competitors and to make a substantial profit. Many people build a website for their business in the traditional sense however others highly recommend using Amazon to build a sales platform and in this blog post, I discuss the advantages of disadvantages of using the Amazon platform to start your business.
Building a business on Amazon
Access to customers
Building your own website takes money and a certain level of expertise. Sure, CMS (content management systems like WordPress), themes, and plugins (especially ones like Elementor that provide drag and drop functionality) make building a business online easier since they eliminate coding, building a website is daunting if you’ve never done something like that before. To ease the burden, I wrote an ebook that walks you through the website building process with easy-to-follow instructions and plenty of screenshots showing you just what to do.
And, that’s the easy part. Beyond building a website, you need traffic from folks likely to purchase your products, and that’s really challenging in a world where nearly 550,000 new websites are created every DAY. Even though about 85% of the 332 million domains in existence today are inactive, that still leaves significant competition in nearly every market niche [from the same source].
Using Amazon’s platform provides access to the widest shopping marketing in the world. For instance, Amazon leads with over 150 million users accessing the app in 2019 with 89% of customers saying Amazon is their first choice for online shopping. Thus, Amazon has a massive customer reach and individuals often use the website every day to buy a wide range of products. This is extremely beneficial as your own website may take years to build up a credible clientele. However, building a business on Amazon lets you instantly reap the rewards of the millions of people that visit Amazon every day. Amazon’s reach provides a vehicle to sell your products from day one.
Amazon advertising
This also leads to my next point, Amazon’s advertising spending hit 11 billion, making it the single largest advertiser in the world. So, instead of spending money building a business with advertising and other online tactics, Amazon offers a solid conduit for new customers. Therefore, Amazon’s ad spending is another benefit to using the platform; there’s no need for you to spend extensive time and money promoting and advertising your own platform. This means you can spend money on other areas, such as employing a 24-hour call answering service for your customers and focus on product development.
Cost-effectiveness
In addition to this, using Amazon is extremely cost-effective, which is very important, especially in this day and age of razor-thin margins. In the current economic climate, price competitiveness means you must control costs. If you build a website yourself, chances are it will cost money for hosting, domain registration, a payment processing service, and other technical aspects of running an e-commerce business. These are ongoing costs that repeat every year. In addition, you’ll spend money every year on advertising and SEO (search engine optimization to help prospective buyers find your website online). You’ll also have one-time expenses for website design, themes, and normal start-up costs.
However, with Amazon, you don’t pay anything to get started. Instead, Amazon charges a percentage of each sale to cover everything from advertising and sales platform to delivery to customers.
Customers trust Amazon
As mentioned earlier, 89% of customers go to Amazon first for online shopping. That’s because they trust Amazon because the platform features a secure checkout. Hence, there is a very small risk that anything will go wrong, and thus you reap the rewards of added security and safety. This is very important as hacking and fraud are unfortunately quite a common occurrence. Amazon customers know their personal data is protected and their items ship quickly with almost no concern over receiving purchased goods, even if stolen from your doorstep. Further, Amazon’s return policies generously offer to refund items that don’t meet the customer’s expectations.
This trust transfers to businesses using the Amazon platform. Thus, selling through Amazon gives you business instant credibility and security.
Using the Amazon platform is easy
Setting up a “store” on Amazon couldn’t be easier and Amazon offers tools to get you started. There’s even training and support available to help new businesses get started on the Amazon platform.
The process of uploading your products and selling is really simple and easy, which is important because time-consuming tasks take so much effort and energy to sell one small item, and it often makes prospective businesses question if it is even worth it to sell through other platforms.
All you need to begin selling on Amazon is to upload your inventory onto the Amazon website. Amazon sends orders to you for fulfillment and transfers payment on a regular schedule and it is as simple as that. To make things even easier, you can even send your inventory to Amazon and they store it and ship product once someone makes a purchase. This is great because it means you do not have to worry about shipping something and the trouble is taken off of your hands.
Building a business on your own website requires much more effort to set up products, manage the purchase process, and fulfill orders.
Negatives of selling on Amazon
Profits
Sure, Amazon offers many advantages for those using its platform, but those advantages come at a cost. First, Amazon charges a percentage of each sale (usually between 8 and 15%) plus $.99 per item (for the individual account. Selling plans for businesses start at $39.99/ month). Thus, unlike building a business on your own website, where you keep 100% of the profits, your return on Amazon sales is lower.
Profits further decline if you choose Amazon as your warehouse and shipping partner, where you incur charges for storage and shipping costs.
Competition
Current data suggest a minimum of 2.5 million sellers utilize the Amazon platform. That’s a lot of competition. And, even though SMEs (small and mid-sized enterprises) sell an estimated 4000 products per minute, that’s very little per business. Especially when you consider some sellers on Amazon dominate their product niche, virtually squeezing out newcomers, that’s especially true in the electronics niche.
Conclusion
Building a business on Amazon offers some great opportunities to get your business started, although those opportunities come at a cost. Ultimately, you’ll probably want to move your business onto your own website. The best option might be selling from both platforms to allow a positive cash flow from Amazon while building your online reputation and value chain on your own website. Once you get to a point where possible, transition away from Amazon altogether.
This article was written for Business 2 Community by Angela Hausman, PhD.
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