How Amazon's Domination Could Benefit Your Business
Learn about the benefits and key processes associated with becoming an Amazon Seller to ensure you make the right choice for your business.
Revenue from brick-and-mortar sales channels are decreasing, ecommerce is on the rise, and there is one company that owns roughly 40% of the ecommerce market: Amazon.
Even before Covid-19, Amazon saw its revenue and growth increase year after year. During 2020, though, the company saw a 60% increase between April and July alone. At this point in time, we don't know what a post-pandemic marketplace will look like for most businesses. But business owners should consider the best path forward to bring in consistent revenue and keep their real and virtual doors open.
Amazon’s success is important because it allows small businesses worldwide to capitalize on its growth and expands the scope of ecommerce across many industries.
Could your business benefit from utilizing Amazon's platform?
The five benefits of joining Amazon Marketplace
1. Amazon Marketplace has an estimated 115 million users and households to tap into.
2. You can use their digital advertising services to boost product sales within the platform itself.
3. It gives your product immediate credibility and recognition with your market and audience.
4. It increases your product exposure with list optimization, live-demos, expert endorsements and, most importantly, product reviews.
5. You can take advantage of their secure transaction handling, capitalizing on their steady cash flow payments and limiting the need for credit and collection.
Consider the addition of Fulfillment by Amazon (FBA)
Fulfillment by Amazon (FBA) is just that: You ship your products to Amazon warehouses, where the company will pack and ship your orders, as well as manage any returns.
Moving inventory storage, logistics and customer service costs offsite can increase capacity and capital that can be reinvested in your business, allowing for more dollars to be spent on marketing, advertising, equipment or technology to support product development and enhance distribution across all channels.
Moreover, sales order management or customer service resources can be reallocated to ecommerce business analysts, who model data on trends to support growth within this channel and add additional partners.
Think of it as repurposing funds, not adding funds that didn’t exist before.
The caveat is that to reap the benefits of this program, you must have a solid supply chain model in place. You have to acquire your goods and raw materials, put them through an efficient production or inventory management process, and send the finished products to Amazon distribution centers in a timely manner. Doing so allows you to offer one of the largest attractions to customers: Amazon Prime two-day shipping or free shipping on eligible orders.
You also need the systems in place to manage ecommerce reporting. Any sales generated outside of your system need to be reported within your system. This often overlooked portion of the decision-making process can be cumbersome to set up after the fact, especially if you are able to drive a high volume of sales via Amazon.
Further financial considerations
After assessing the many benefits of taking advantage of Amazon's predefined and well-populated marketplace, you have to explore the cost structure of moving to ecommerce.
There are fees associated with being an Amazon Seller or FBA user; completing a proper cost-benefit analysis for each product sold on the platform is integral to the decision-making process. The last thing you want is to invest time, money and resources into ecommerce and not vet it out financially, only to find that you aren’t gaining profits.
It is possible that you may decide Amazon isn’t a right fit for you. Before you commit to the platform, research other options as well. Shopify, Etsy and many others have solutions that could meet your current and future business needs.
The extent that ecommerce participation will impact your accounting and tax filing processes depends on the size of your business: A smaller shop can easily run sales reports and get necessary information quickly, a medium-sized business can likely do the same, and larger enterprises can fully integrate, connecting their Amazon webshop to their ERP systems using a middleware to avoid data loss.
Regardless of the size of your business, know what your obligations are and leave no gaps in your financial reporting.
A not so simple answer
Ecommerce represents a great opportunity for many businesses of all sizes to diversify their sales models and reduce the risk of being dependent on one market to drive your success. If 2020 taught us anything, it’s to expect the unexpected.
But before you invest heavily in ecommerce, do your due diligence and prepare a full 360-degree review of what your ecommerce business model would be, ensuring that you map all touch points end-to-end and see what benefits Amazon, or any other platform, can provide your business.
Amazon has invested a great deal of money and resources to build their brand and change the landscape of business today; that in itself takes out a great deal of legwork for many businesses considering whether to take the plunge and join the ecommerce marketplace. There are no signs of ecommerce slowing down or being a trend, either. If anything, the research reveals that now is the time to make the jump and use a well-established partner to get your feet wet.
Entrepreneur Leadership Network Contributor