Should you set up shop on Amazon?
Amazon can make you a small fortune, or it can cost you a small fortune.
The global shopping giant provides a full service to business—it sells stock, dispatches the items, takes out the cost and gives you the profit.
You can also use it for promotions and publicity. But you need to consider the fee schedule and weigh up the pros and cons.
Oscar Wetherell, managing director of Scope Logic Group, which is an information, communications and technology consultancy, says it’s possible to achieve success on the platform if you figure out a niche but urges caution.
“I know someone who has made millions from Amazon. It took her a very long time to get there,” Wetherell says.
“There’s no quick way to earn a buck and Amazon is just another thing that will take you time."
He says to do lots of research and get advice before using Amazon.
Be wary in who you choose to help you because he says there’s a whole industry around Amazon consulting.
The main benefit of Amazon is that you have an instant, huge customer base and distribution network.
It’s for companies that have a good profit margin because they can absorb the fees.
Also, it’s better for companies that have unique products.
It might be much easier, quicker and initially more cost-effective than setting up your own website and warehouse.
A drawback of using Amazon is that you have no brand control as Amazon gets credit for your product.
The fees can be hefty.
You can’t access your own customer base because they are Amazon customers. That means you can’t target repeat buyers for your product, and you can’t build data about what your buyers are like, how much they spend and shopping patterns.
You need to be consistently available to respond to customers because your product is affected by online customer reviews.
Amazon is a dominant force in online marketing and is fast becoming the dominant force in all product sales.
However, an alternative to Amazon, which is harder initially but may reap more benefits if you want to scale your business and build your brand, is to create your own website and use things like Google or Bing Shopping and Ads, Facebook Ads and retargeting, YouTube and Pinterest.
Overview of Amazon Australia’s fee structure
Monthly subscription fee: The basic selling fee is about $50 per month (excluding GST) and that enables you to list and sell on the Amazon website.
Referral fee: This is like a commission. Categories of goods have a per item percentage value, currently ranging from 6 per cent to 15 per cent. For example, the current referral fee for books is 15 per cent, while for mobile phone handsets it’s 7 per cent. However, Amazon calculates this on the total sales price paid by the buyer including shipping.
Closing fee: This is for things like DVDs and other media products. It’s a flat rate of $1 per media item sold.
Refund administration fee: If the seller gives a refund to a buyer, Amazon will charge a fee that is the lowest of either $5 or 20 per cent of the referral fee.
Distribution: You can either choose to ship the product yourself or join the ‘Fulfilment By Amazon’ (FBA) program. This FBA has two associated fees, the fulfilment fee and the storage fee.
Fulfilment fee: This is a flat rate depending on the product’s individual size, weight and type.
Storage fee: This is based on an average daily volume and the price is higher in the Christmas period. So, between January and September, the price is $19.40 per cubic metre and then from October to December, it’s $26.50 per cubic metre.
Long-term storage: If a product has been in storage for more than 365 days, it costs $160 per cubic metre, or $0.10 per unit—whichever is greater.
There is also a fee for Amazon to send you the items in storage, or dispose of them.
More information on Amazon's fee structure can be found on their website.