Amazon for Small Businesses: Friend or Foe?

amazon for small businesses

Imagine The Matrix. There’s the world within the Matrix and the world outside it. Now, just recall the imagery and experience of watching the film for the first time. That stark difference between the two realities is not unlike the disparity between selling your products on Amazon and avoiding the ecommerce giant.

That’s why we took it upon ourselves to survey about 500 small to mid-sized business owners and managers within the United States. We used the Google Consumer Surveys Publisher Network to conduct our study. We only picked companies that sell products through Amazon as a vendor, seller, or both.

What Does the Ecommerce Landscape Look Like Today?

Believe it or not, Amazon is bigger than most brick-and-mortar retailers combined! Its $355.9B value at the end of 2016 easily trumps $297.8B from brick-and-mortar, while taking up 43% of the U.S. ecommerce market share. And it doesn’t look like it’s slowing down. Prime Day 2017 alone saw an increase in sales by 60% YOY to an estimated $1 billion.

So, who has the advantage in this Amazonian world? It depends. For convenience, inventory, and reputation, Amazon seems to be in the lead. However, retailers can easily dominate on price, quality, and customer experience. For example, businesses can offer more information on their product pages compared to Amazon. Also, retailers have the biggest opportunity for success when it comes to giving out unique experiences to customers.

Did You Know?

  • 60% of SMBs say acquiring new customers is their biggest challenge.
  • 27% plan to invest the most in paid search within the next five years.
  • 52% of SMBs noted the potential for increased sales volume as the biggest benefit of selling on Amazon.
  • 45% of SMBs noted lower margins as the biggest downside of selling on Amazon.
  • 40% of those running Amazon paid ads said they are ineffective. (Lack of know-how was the top reason.)
  • Most SMBs are seeing a 50-50 split in ecommerce sales from their website and marketplaces.

Benefits and Drawbacks of Selling on Amazon

We found that there’s a 52% increased volume potential. The little-known drawback to selling on Amazon is the lower profit margin due to seller fees, which could be up to 45%, though businesses bank on the volume potential to make up for this.

However, high sales volume isn’t an Amazon guarantee. You still need to offer competitively priced products, manage your inventory, and take advantage of Prime while keeping up with delivery expectations. In other words, make sure you can deliver on that two-day promise!

Our Recommendations and Insights

First and foremost, retailers must invest in their own website. This means crafting a unique user experience, optimizing the customer journey to purchase, and gathering customer analytics for a better marketing strategy.

Increasingly, consumers want products and services that are tailored to them personally, and communications that target them directly. Fortunately, marketers have access to tons of data that can help them cater to these customers effectively.

Second, you have to invest in your brand by improving image and perception. Most small to mid-sized businesses are currently seeing sales from Amazon. For the 8% that aren’t, 40% plan on getting cozy over the next five years.

However, retailers should be cautious when weighing the options for a sustainable ecommerce business model and not fall prey to short gains. You have to think about your long-term goals and remember that selling from your own site means you own your brand, customer, and data. In a marketplace, you’re at risk for being commoditized and hidden in plain sight. Having a strong brand presence will give you the leg up you need!

Start Winning on Amazon

Still not sure if Amazon is right for you? We have a variety of resources to help you establish your brand and long-term profitability on the world’s biggest online marketplace. Check out our Amazon solutions for retailers to learn how our team will turn Amazon into a valuable source of insights – and sales – for your business.

For additional information, we also recommend reviewing our Amazon consumer insights for unique tidbits, as well as our guide to driving organic growth through Amazon.

Updated December 2019.

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