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How Amazon's Recent Changes Could Affect Your Business Business owners would be wise to develop a backup plan in order to adapt to any future changes Amazon makes.

By Thomas Smale Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Eric Broder Van Dyke | Shutterstock

In online business, building on someone else's platform always comes with some risks.

This topic is often discussed in entrepreneurial circles, but it's not something too many business owners give a lot of thought to until they're directly affected. Granted, these changes aren't always to your detriment. But if you don't have a backup plan, or if your business isn't agile enough to adapt to changes when they affect you in a negative way, you will put your business at risk.

This is an important conversation to have, especially based on some of the recent changes to Amazon, which affect all third-party sellers. If you're running an FBA -- "fulfillment by Amazon'' -- business, here are some things you should know.

Incentivized reviews & the Amazon Vine program.

On Oct. 3, 2016, Amazon shared some news regarding customer reviews. In just the last year or so, they've been making some improvements to their algorithm to give more weight to the most helpful reviews. As result, many users not abiding by their terms have been suspended, banned, or even sued.

This is partly because they're starting to crack down on incentivized reviews. Compensation for reviews has always been prohibited by Amazon, with the exception of free or discounted products that could be exchanged for a review. But in Amazon's own words, "we updated the community guidelines to prohibit incentivized reviews unless they are facilitated through the Amazon Vine program."

The Vine program isn't new, and was launched several years ago. With Vine, Amazon identifies and asks trusted reviewers to share their experience with new or pre-sale products. Since Amazon does not influence the reviewer in any way, they are able to get honest and impartial reviews of products, and reviewers are not obligated to engage if they choose not to.

Related: Guide to Starting a Fulfillment by Amazon Business

Amazon adds, "changes will apply to product categories other than books".

If you're already conducting business in an honest, transparent way, this should not have a significant impact on you. But if you have been gaming the system with incentivized customer reviews, now would be the time to stop, before your account gets shut down.

Retail arbitrage & forced prepaid returns.

Amazon has started coming down pretty hard on third-party sellers. Until recently, retail arbitrage has been a popular strategy to generate some immediate cash flow. If you're not familiar with it, the idea is to find brand name products for cheap and turn around and sell them for more using a platform like Amazon.

In order to prevent the sale of counterfeit or unauthorized goods, Amazon has put stricter controls in place. Now, if you want to sell a particular brand's product, you have to get approval by showing that the goods were purchased from an authorized channel and you may even need to pay up to $1,000 to get approved.

But that's not all.

Effective Nov. 1, third-party Amazon sellers will have to accept returns and prepaid labels at their own expense. Up until now, sellers have been able to set their own return policies, and this protected them from having to pay for returns indiscriminately.

There is something to be said for dishonest business owners. But there is also something to be said for customers that return products willy-nilly, without any prompting. If you have a high number of returns in your business, these additional costs could prove hefty, especially if you are a drop-shipper with little to no margin. Plus, you will only have 48 hours to process all returns.

Related: The Pros and Cons of Buying a 'Fulfillment by Amazon' Business

Although you can lodge a dispute with returned products, that could lead to unwanted negative reviews. Now the onus is entirely on you, the seller.

Is it time to move on from FBA?

Despite the recent changes, there are still plenty of good reasons to utilize Amazon to sell your products. But to what extent will be contingent on your business.

Here are several reasons why selling on Amazon could still be to your benefit:

  • Amazon is the largest online marketplace, which means high visibility for your products.
  • Amazon Associates. By becoming an affiliate with Amazon, you can tap into another revenue source.
  • Amazon Prime. Two-day shipping is still a very appealing proposition for many customers and you can participate in the program as a seller.
  • Fulfillment. Amazon will still be handling the picking, packing, and shipping of your products on your behalf, which can be a very resource- and time-intensive process for ecommerce business owners.
  • Happy customers. The latest updates seem to be most concerned with customer satisfaction, and the more satisfied customers are and the better experience they have, the more likely they are to buy more products from you and other sellers.

But this isn't to suggest that you won't have to make some adjustments to your offerings. For example, you may need to build in a bigger margin into the sale of your products. This isn't a step to be taken lightly, however, since raising your prices could mean losing out on sales that your competition will inevitably pick up.

Additionally, if you don't have your own website and brand built out just yet, you need to put a higher priority on it. Not only can this help you earn more sales, it can also help to protect you against -- and plan for -- future changes to Amazon that many not be entirely welcome.

That said, many FBA business owners are choosing to create their own stores on a platform like Magento and then using popular Magento extensions like MageMail to maximize their revenue, thus creating multiple revenue streams and less platform reliance.

This is somewhat harrowing news for Amazon sellers and FBA business owners. But there's also a good lesson to be learned from it all, which is that you need a backup plan. Some FBA business owners may be mostly unaffected by the above, and be able to continue business as normal. But there are definitely others that will be affected in a major way.

Related Book: amazon FBA: Step-By-Step Instruction To Start A Fulfillment By Amazon Business by Robert C. Hawthorn

If there's one thing we know about life and business, it's that changes will keep coming, and it's about what you do with those changes that defines you. If you aren't ready to adapt, you will be forced to. If you have a strong backup plan, you won't be deterred or discouraged. But it's when we put all of our eggs into someone else's basket that uncertainty is unavoidable.

Thomas Smale

Entrepreneur Leadership Network® Contributor

Co-founder of FE International

Thomas Smale co-founded FE International in 2010, growing the business with zero funds from scratch to a seven-figure-a-year business. Specializing in advising and brokering the sale of established websites and online businesses, FE International has completed over 300 transactions. Smale has been interviewed on podcasts, blogs and also spoken at a number of industry events on online businesses, exit strategy and selling businesses.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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