Amazon PPC Mistakes – Starting Business on Amazon: Top-5 Risks You Need to Avoid
Every business venture is risky. Selling on Amazon marketplace is no exception to that. It might sound scary, but you can really lose without proper research, planning, and strategizing.
However, knowing the risks is also getting opportunities for your business. When you are aware of the risks you will face in starting your e-commerce store, you also give yourself the opportunity of preparing and entering the marketplace with armors on and ammunition ready. Knowing the risks allow you to set up safety nets, prepare backup plans, and consider the best options to make your business stay afloat.
Amazon business selling risks can be beatable, and it starts with knowing what they are. Below is significant information that will help you prepare your business and scale it successfully.
Amazon’s Competitive Advantage over Other Online Marketplaces
Amazon marketplace is dubbed the “everything store” for a reason, and a justifiable one at that. It has a diverse collection of products of any kind, shape, and size.
You can find any product that exists under the sun on its website. Moreover, these products are sold at low prices. It also has multiple markets in multiple industries and offers a wide range of e-commerce services and solutions.
From its founding in 1997, Amazon strives to be a customer-centric company, focusing its efforts, innovations, and solutions on enhanced customer experiences.
It operates by the value of customer obsession. Added to this, Amazon is also a leading innovator of processes and systems based on high technologies like artificial intelligence (AI), augmented reality (AR), cloud computing, and data processing. It is safe to say that it is the future of e-commerce.
It’s a leading US retail marketplace and one of the largest and most reputable e-commerce marketplaces around the world. It has 1.5 million active sellers connecting to 200 million active Prime members on its website around the world, normal users excluded.
Moreover, in 2020, Amazon garnered a combined mobile and desktop visits of 2.44 billion. As of the second half of 2021, Amazon’s US market alone receives 2.45 billion unique monthly visits. All these records and reports are proof that Amazon is growing steadily over the years and showing promising growth for the next years to come.
Top 5 Risks You Need to Avoid in Starting Business on Amazon
- Leading customers outside the Amazon marketplace to your own e-commerce website.
A Feedvisor survey in 2018 about the state of Amazon revealed that 80% of Amazon merchants also sell outside the platform. It means that they also conduct business operations on other online marketplaces like eBay, Etsy, Walmart, Shopify, and many more.
Although the number of merchants who maintain their own e-commerce store on other websites while also selling on Amazon decreased from 39% in 2017 to 35% in 2018, it does not hide the fact that many sellers still prefer to take control of their own store operations while also using Amazon, as Amazon marketplace can be limiting on some vital areas of business.
Moreover, the multi-channel approach is a key marketing and business strategy in e-commerce to increase a business’ customer reach, web conversions, and consumer trust. That’s why, despite Amazon providing a platform with a wide customer base, many startups are still choosing to build their brands on multiple platforms.
Added to this, the surge in online shopping results in the growing number of marketplaces put up online.
Because of this, startups who sell on Amazon may get tempted to lead their many buyers outside the platform towards their other websites.
You might think it would double your sales and increase your revenue, but it is a breach of Amazon’s policy.
Violating Amazon policies could get your account deactivated, or worst, banned from selling on the site forever, which is regrettable considering the reach that the platform has.
- Stagnant or unsold inventory and other product misunderstandings.
Product is a vital element in business, be it e-commerce or not. Lack of understanding about your products, and the audience you’re selling them to, is a form of self-, or rather, business sabotage.
Many Amazon startups fail because entrepreneurs forget to consider the basic rules of selling: knowing your product and knowing your target audience. Products can be a risk factor for an e-commerce business in Amazon to crumble because market trends can easily change.
One moment, your product is the most sought-after on the site, and the next, no one wants to use it anymore. Furthermore, many products are not seen and not gaining traction because only top-performing products are getting featured and promoted.
What’s more, if you’re a B2B seller or wholesaler with an inventory, you may overestimate the capacity of your market to buy your product because of the many visitors and buyers Amazon has. It will result in stagnant inventory, which is not good because it can easily cost you storage fees if you do not have your own warehouse.
Also, the longer the product is in your hands, the harder it is to sell as new products are being listed by million of other sellers every day. Needless to say, unsold inventory is a waste of your capital. You can still offer it to other sellers, but of course, at a discounted or low price. It may not even return the cost of the products you purchased.
- Amazon’s continuous expansion of its own competitive brands.
Amazon marketplace is not just a platform that connects millions of sellers to millions of buyers around the globe. Amazon is also THE market. It has its own inventory, therefore selling its own products alongside third-party sellers on the platform. Amazon already launched 400 exclusive and private label brands to date. What’s more, these brands are known in their umbrella terms Amazon Exclusive or Amazon Private Label.
These brands have a diverse collection of products under it that compete with the products sold by independent, third-party sellers on the site. They are both a risk and a threat to your business as Amazon mainly concentrates its efforts on promoting and marketing its own brands.
Thus, you need to study the market first and choose your products well before launching them. With millions of sellers on the site as well as Amazon selling its own selection of products, some product niches might already be too saturated.
- Amazon Costs that Can Easily Pile Up
Amazon marketplace offers an easy and low-cost startup. In fact, everything from managing your products to shipping them to customers can be handled by Amazon’s system and services.
Since the platform supports ease of use and ease of access to tools and systems that can help with your business processes, you might not notice that your fees are piling until it’s time to pay for all of them.
If you’re not careful in choosing the tools, systems, or processes you utilize for your business, you’ll most likely acquire a deficit. Moreover, you need to develop strategic and cost-effective plans that will earn your business revenue.
Most importantly, you have to be open about the idea that your business may not work out. Therefore, you have to have backup plans. Do not go all-in because every venture is a risk, and you may lose. Instead, manage your finances wisely by securing emergency funds and investing in other promising industries.
Make sure you do not only have financial projections for starting the business but also for when things start to go south. Being well-planned and prepared will reduce your risk of bankruptcy.
- Account Suspension or Banning Anytime
One of the downsides of selling on Amazon marketplace, which is also a risk in starting your business on the platform, is that you could get temporarily suspended, deactivated, or permanently banned due to things of your own doing or not.
First off, if you happen to accidentally or intentionally make duplicate seller accounts, both of them will be deactivated. It is a violation of Amazon policy, hence prohibited. If you badly need another seller account for justifiable reasons, you can request to Amazon marketplace through options on the platform to allow you to make another seller account.
Secondly, bad reviews and negative feedback on your store could get you banned from selling on the site. Amazon reviews negative feedbacks related to the quality and specifications of products, then proceeds to decide if your store should be suspended or banned.
Lastly, if your account gets reported by buyers to Amazon marketplace, you’re seeing suspension or banning your account. Of course, reports are always subject to reviews, but Amazon is extremely consumer-centric, so you may also lose profit from returns and exchanges granted by Amazon to customers.
No matter how your store is performing, your operations may suddenly get stopped. You can’t do anything about it except contact support, provide necessary documents and information, and hope that you can retrieve your business.
Advantages of Selling on Amazon
- Amazon marketplace provides easy international expansion.
- Amazon has a wide customer base that can boost visibility, conversion, and sales.
- It has a diverse range of low-cost products that you can sell through several business models you can choose from.
- It provides in-app marketing, management, and shipping solutions
- There are no upfront fees when starting your Amazon e-commerce business
- It provides solid backend support for your business.
Here are also must-know information for Amazon starters like you. Continue reading at this blog: Amazon Approved Country List For Sellers: You Must Know It If You Are Serious About Making An Amazon Business.
Is it safe to sell on Amazon?
Yes. Amazon is generally a safe marketplace for sellers. Although it doesn’t have a specific seller protection program like AliExpress or Alibaba, and although its protection policy is leaning more towards buyers, its specific programs and services have their own sets of policies that will help protect sellers from fraudsters, scammers, and abusive buyers.
What countries are eligible to sell on Amazon?
Amazon global selling gives sellers access to 18 global marketplaces in more than 200 countries and territories. Amazon has a list of its seller-supported countries that you can find on this link.
What kinds of business can I do on Amazon?
By and large, Amazon’s business models both for itself and for sellers are B2B and B2C. Under this two umbrella models, you can be an e-retailer, wholesaler or manufacturer, or dropshipper. You can also sell using the online arbitrage model, or be on the Print-on-Demand business. You can also be an affiliate under Amazon’s affiliate program.
Entering a business, in general, is risky. You either hit the jackpot, hit a wall, or get hit by bad luck and go bankrupt. Likewise, selling on Amazon also has its own risks and advantages. That’s why in order to succeed, you need to set SMART (specific, measurable, attainable, realistic, time-bound) business goals and make actionable and strategic plans to reach your goal.
You have to look both at the bigger and smaller picture. Most importantly, you have to know who you want to sell to in order to identify their needs. It will help you figure out what products to sell to answer their needs.