Is Selling Products on Amazon Worth It?

Making money through Amazon is possible, but requires extensive research.

You're a small business owner looking to expand your customer base. You wonder whether it's worth it to jump into the fray and begin selling your products on Amazon, the mammoth online retailer. Here, we'll examine some of the pros and cons of becoming an Amazon merchant and, hopefully, help you decide your best next step.

Complicating the issue

Before diving in, it's important to note that selling on Amazon leads to huge success for some small businesses, but is a bust for others. Many factors, including the type of products your business offers and the competition in that category, come into play.

Because few things in life come with a guarantee, it's vital to do your homework before signing on to become an Amazon merchant. Do you have the time to devote to Amazon marketing and sales? Can you fulfill the orders you receive?

Finally, once you figure out how much it's going to cost you to sell on Amazon, make it a point to compare that price to how much your business would spend to sell on one of Amazon's competitors, like eBay or Etsy.

The cost of doing business

Amazon boasts more than 310 million customers worldwide. In February 2022 alone, Amazon received 2.2 billion visits. That's a huge number of potential customers. And it's for that reason that Amazon can charge merchants somewhat hefty fees to be part of the site. Here are some of the expenses you may incur.

Start-up fee

If you choose an individual plan for your business, you'll pay $0.99 per unit sold. If you opt for a professional plan, it will cost your business $39.99 a month.

Referral fee

Each time you make a sale through Amazon, you'll pay a percentage to Amazon. The precise fee depends on your product category, but typically runs between 8% and 15% of the sales price.

Fulfillment fee

If you'd prefer to allow Amazon to pick, pack, and ship your products, you'll need to pay a Fulfillment by Amazon (FBA) fee. It's not cheap, but it does take the burden of fulfilling orders off your shoulders. It also puts Amazon in charge of processing any returns.

FBA fees are based on the dimension and weight of the product sold. For example, it can cost more than $3 for Amazon to ship an item weighing six ounces or less.

Amazon advertising

Over 1.9 million businesses worldwide sell through Amazon. That fact alone helps explain why marketing is so important. Paying to advertise on Amazon does not come cheap, but it does give your products a better chance to be seen.

Pros of selling on Amazon

• Can bring in new customers.
• May translate into higher sales volume.
• Offers the ability to expand your business globally.
• You can snag customers who may prefer shopping online. That's good for you if they search for your store outside of Amazon.

Cons of selling on Amazon

• Amazon fees eat into your profits. If you're selling in a low-margin category, it can be tough to justify the fees.
• Lack of control. Amazon is first and foremost in business for itself. For example, it may restrict the degree to which you can communicate with customers to prevent you from directing those customers to your store. It may tell you what you can sell, overriding your business plan.

Naturally, the decision to sell on Amazon or find another site that better meets your needs is up to you. However, some businesses are better suited to sell on Amazon than others. Take a look at the following list to see how many apply to your small business:

• You're able to acquire your products at a low enough price to compete in a highly competitive market.
• You have a plan for retaining new customers.
• You sell niche items, thereby facing less competition.
• You have the time to dedicate to selling products in more than one place.
• You can adhere to Amazon's stringent rules, like responding to customer messages within a specific timeframe.

There's no doubt that selling on Amazon works for millions of small businesses. The trick is to make the move only after you've thoroughly researched the competition and weighed the price of becoming an Amazon merchant against your potential profit.