Amazon can be a powerful growth engine for businesses, but only if you go in with your eyes wide open. For many companies, launching on Amazon seems like a no-brainer. The platform reaches millions of daily shoppers, offers built-in trust, and gives even small brands national exposure. But selling on Amazon isn’t as simple as listing your product and watching sales roll in. It comes with rules, fees, competition, and logistical hurdles that can impact your margins and your brand.
The appeal of Amazon’s massive customer base is undeniable – over 300 million active users worldwide who are already primed to buy. The platform handles payment processing, provides customer service for many transactions, and offers marketing tools that can help your products get discovered. However, this convenience comes with trade-offs that many businesses don’t fully understand until they’re already committed to the platform.
In order to be successful when adding Amazon as a sales channel to your business, there are several things you’ll need to know ahead of time.
- Understanding Amazon’s Complex Fee Structure
Amazon’s fee structure is more complicated than it initially appears, and these costs can quickly eat into your profit margins if you’re not prepared. Beyond the basic referral fee (typically 8-15 percent depending on your product category), you’ll encounter fulfillment fees, storage fees, advertising costs, and various other charges that can add up significantly.
If you choose Fulfillment by Amazon (FBA), you’ll pay storage fees that vary based on the time of year and how long your inventory sits in Amazon’s warehouses. During peak season (October through December), storage fees increase substantially. Long-term storage fees kick in for inventory that sits for more than 365 days, and these can be particularly costly.
Then there’s advertising, which has become almost essential for visibility on Amazon. This adds in another layer of costs. Amazon’s advertising platform operates on a pay-per-click model, and costs have risen steadily as more sellers compete for visibility. You might spend 10-30 percent of your revenue on advertising just to maintain competitive visibility for your products.
Don’t forget about return processing fees, removal fees if you need to get inventory out of Amazon’s warehouses, and potential chargebacks for various policy violations. You’ll need to create detailed financial models that account for all these costs before committing significant inventory or resources to the platform.
- Fulfillment and Logistics Considerations
Amazon offers two primary fulfillment options: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM). FBA provides access to Prime shipping and better search visibility but comes with higher costs and less control over inventory. FBM gives you more control but requires you to handle all shipping and customer service, which can be resource-intensive.
FBA inventory management becomes complex as you scale. You need to forecast demand accurately to avoid stockouts (which hurt your search rankings) while minimizing storage fees for slow-moving inventory. Amazon’s inventory management tools provide some guidance, but many sellers find they need additional software or services to optimize their inventory levels.
Having a third-party company handle Amazon fulfillment is a great option to remove some of the heavy lifting and make sure it gets done right. These specialized providers understand Amazon’s requirements, can help optimize your fulfillment strategy, and often achieve better performance metrics than companies trying to handle everything in-house. They can manage inventory forecasting, handle prep requirements, and navigate the complexities of Amazon’s fulfillment network while you focus on product development and marketing.
- Navigating Amazon’s Strict (and Changing) Policies
Amazon operates with strict policies that are regularly updated, and violations can result in suspended listings, frozen funds, or even permanent account suspension. The platform prioritizes customer experience above all else, which means seller-friendly policies are rare, and appeals processes can go on forever.
Product listing policies are especially complex, with specific requirements for images, descriptions, and keywords that vary by category. What works for one product category might violate policies in another. Amazon also has strict rules about product authenticity, safety certifications, and prohibited items that can change with little notice.
The platform’s performance metrics system monitors everything from shipping times to customer feedback, and falling below certain thresholds can result in penalties or account restrictions. These metrics become especially challenging during peak seasons when customer expectations are highest and logistics networks are strained.
- Managing Intense Competition and Price Pressure
Competition on Amazon is fierce, and it’s only getting more intense as more businesses recognize the platform’s potential. Amazon’s search algorithm (A9) determines which products appear in search results, and ranking factors include sales velocity, customer reviews, price competitiveness, and advertising spend. This creates a challenging environment where you need strong sales performance to achieve visibility, but you need visibility to achieve sales.
Price competition is particularly brutal on Amazon. The platform’s transparent pricing makes it easy for customers to comparison shop, and many use Amazon as a reference point for pricing even when shopping elsewhere. The Buy Box (the prominent “Add to Cart” button) often goes to the lowest-priced seller, creating downward pressure on pricing across the platform.
Product differentiation becomes crucial in this environment. The best thing you can do is focus on unique value propositions, superior product quality, or bundling strategies that make direct price comparison more difficult.
Adding it All Up
Before committing to Amazon, honestly assess whether your products and business model are a good fit for the platform. Products with high margins, unique features, or strong brand recognition tend to perform better than commodity items in crowded categories. If you don’t fit these qualifiers, there may be better sales channels for your products. Be thorough with your upfront research and it’ll benefit your business in the long run.
