With millions of sellers raking in sales on the platform, Amazon can seem a lucrative business to brands around the globe. Conservative estimates say more than 60% of sellers turn a profit in their first year, so why not get your piece of the pie? Unfortunately, the level of strategy and increased sophistication you must develop to be successful can be a barrier to many sellers, even long-term ones. Amazon offers FBA (Fulfillment by Amazon) as an almost one-stop shop to reach Amazon’s vast pool of customers. While the program offers a number of benefits and can make eCommerce businesses efficient, it also presents a range of challenges that some sellers are not prepared to deal with.
To make things simple, we’re summarising the top ways sellers lose money on Amazon. If you’re just jumping into the Amazon selling game, or if you’re a selling veteran, this will hopefully give you some insight into common FBA issues to be aware of in 2022.
What is FBA?
First off, what is Fulfillment by Amazon? “You sell it, we ship it,” says Amazon. Third-party sellers on Amazon can access Amazon’s logistics and customer service by signing up for FBA. This allows brands to send their products to Amazon for them to pick, pack, ship, and deal with follow-up customer services (such as returns and refunds).
Pitfalls of FBA
Many sellers do not anticipate all the intricacies involved in this fulfillment process. It’s important to familiarise yourself with all aspects of the program before scaling your business up using FBA. Here are 6 ways many sellers lose money (often unexpectedly!) on Amazon.
- Not calculating the full cost of Amazon FBA
Want to tap into Amazon’s vast fulfillment network? It’s going to cost you. Amazon charges all sellers a monthly fee, which seems quite reasonable. In the US, a Professional Seller account is $39.99 a month. In the UK, it’s £25.00. This grants you access to a number of levers in your Seller Central account, such as listing products, reporting, and metrics, creating promotions, etc. A lot of companies wonder “is FBA worth it?” That depends.
If you decide to use FBA as a fulfillment method, you will also be charged fees on top of the monthly plan. The main benefit of FBA is that your products will be eligible for free, two-day, one-day, or same-day shipping to customers when you use FBA. Many customers don’t even know the difference between products being sold over FBA and being sold by Amazon.com.
Referral fees: For every item sold, sellers pay Amazon a percentage of the total price—including item price, shipping cost, and any gift-wrapping charges—or a minimum amount, whichever is greater. Referral fees are in addition to selling plan fees.
Fulfillment fees: Fee per unit includes picking and packing your orders, shipping and handling, customer service, and product returns. Fees are based on the weights and dimensions of your product.
Because these fees are based on the size and weight of your items, these charges can vary greatly. Be sure to use Amazon’s calculator to estimate FBA fees for every product you decide to list when creating your Amazon strategy.
- Incorrect packaging or issues with packaging
Preparing products for FBA is different from other retailers and different from brick and mortar stores. Amazon has guidelines for each category, but items will need to be packaged and labelled to be sold as individual units. Because FBA items are processed through Amazon FCs, they need to be securely packed and labelled so that the warehouse can receive them, stock them, and then ship them out to customers. At a bare minimum, your items will need to be in a clear plastic sleeve or bag, cardboard box, or other single packages. This will need to be stickered with some basic items, such as a barcode, ASIN, and title. Requirements and labels can be found in Seller Central. If a business chooses not to label things, Amazon can do this for you, but it will come at a per-unit cost. For example, in the US the FBA Label Service incurs sellers a $0.55 per-item fee.
Even if a brand is doing their own labelling and prepping, they’ll need to account for labels, tape, boxes, sealed bags, printing, etc. for each product.
- Sending too much stock to Amazon and incurring more fees
Your FBA fees have virtually no limit. Some brands assume using Amazon warehouses to store their items is a convenient way to do business. For example, if a company producing in China ships directly to Amazon, they can save a lot on shipping costs versus going through another facility. However, if items do not sell quickly enough, the seller will be charged long-term storage fees. Aged inventory has been in the warehouse for more than 90 days, and inventory that’s there for longer than six months will start incurring higher storage costs. Running a successful Amazon business means managing inventory well. For most brands, starting slow and drip-feeding Amazon FBA shipments is a good way to test how much inventory you can move in what amount of time.
- Pouring money into Amazon Advertising when you’re not retail-ready
Amazon Advertising is a great way to boost products in search, re-target customers, and edge out competitors in your category. But it’s important to not run ads before your products are retail ready. Advertising can eat up a big chunk of your profit margin. Ask yourself: If customers land on my page, are they likely to buy the product? The answer will be no if there are no reviews, low stock, and listings are not optimised. To make your Amazon Ads work for your business, determine your ROaS and break-even point. If you need help with listing optimisation, contact us.
- Your FBA account is suspended
Selling on Amazon may seem straightforward, but Amazon policy and terms of service can actually be quite in-depth. Remember, Amazon operates internationally, nationally, and must comply with various states or countries’ laws and regulations. Not only that, but they have a high-quality bar that ensures a good customer experience. It’s quite common for sellers to lose selling privileges, either in the terms of listings being taken down or a suspension of the whole selling account. This can obviously cause quite a hit to an eCommerce business. Not only in terms of lost sales, but in costs, resources, and time to remedy any problems.
The best offence is a good defence. Avoid these common issues to keep your account in good standing:
- Don’t solicit reviews out of proper channels. Don’t manipulate reviews. You cannot contact customers to ask for positive reviews, offer free gifts, and give away free products for reviews. It’s difficult to get reviews on Amazon, so many businesses resort to nefarious methods and end up facing consequences.
- Don’t sell poor-quality products. Your account needs to be in good standing with items receiving reviews of 3 stars or higher to continue selling. Do your due diligence before you list and ensure you sell items that customers will rate highly. Correct any issues as you see them pop up to avoid further negative reviews.
- Don’t violate intellectual property laws where you sell. Your account will be suspended for selling counterfeit items, passing off someone else’s trademark as you own, or misusing branded items on your listings. For instance, don’t sell an iPhone cable as “Apple MFi-certified” if it’s not.
- Don’t cancel orders. Amazon relies on providing fast shipping and good customer service. If you have a high pre-fulfillment cancellation rate, your account will be flagged and possibly suspended. For example, if you make a pricing error and decide to cancel the orders affected in order to not lose money, Amazon will not take kindly to 200 cancelled orders while you sort your pricing out.
- Don’t use terms that will make Amazon think your products belong in a restricted category. Even using the term “non-toxic” can make Amazon think you are selling regulated products, such as pesticides, medicines, etc. Be careful with your listings and don’t use jargon that sounds good without being able to back up what it means.
- Don’t have more than one seller account. This is a big red flag for Amazon and will likely result in issues for both accounts.
- Listing your whole catalogue on Amazon
At our agency, many sellers come to us with large catalogues and claim that their business is not doing well. Upon investigation, this is frequently because a seller has listed hundreds of products without the organisation, marketing resources, or logistics to manage so many products. There’s no point in listing products on Amazon that aren’t retail ready, or products that your business cannot keep in stock. Especially for new sellers, it’s best to focus on no more than 10 products. Build a brand following and figure out what sells well. Maximise profit by optimising sales on popular products where you can always win the Buy Box, generate reviews, and edge out competitors. Managing too large of a catalogue can be expensive and a drain on many sellers who aren’t equipped to handle a large Amazon business.
Is Amazon FBA worth it? And how to get more help
Amazon FBA is a unique and powerful program that allows Amazon sellers to sell on a huge marketplace relatively easily. However, building a successful Amazon business requires strategy, cost calculations, and preparation. Wondering if your business needs help? Check out our range of services and get in touch with us for help.