Amazon is an industry-defining internet retail behemoth that experts have compared to the 19th-century railroad, in that it has ushered in a radical revolution in lifestyle choices and business practices alike.
Amazon has also been described as the “modern public square.” Centuries ago, consumers would mix and mingle in the town square as vendors presented their goods.
Today, Amazon lets countless sellers from all over the globe show off their products to a seemingly infinite number of users, all mingling in the public space of the internet.
Any retailer who wants to thrive (or even survive) in today’s globalized, highly networked business world is going to seriously consider offering their goods on Amazon Marketplace at some point.
Let’s take a quick look at how and why it has become so essential for today’s merchants.
Amazon Marketplace: A brief history and four fast facts
While Amazon started as an online retailer, in 1999, the site launched Amazon Auctions, an online auctions service, and zShops, a fixed-price marketplace business.
These would eventually become Amazon Marketplace, which Bezos and company launched at the end of 2000 as an open platform through which third-party vendors and sellers can directly connect to buyers.
Over the last 20 years, Amazon Marketplace has spectacularly redefined “retail.” The Marketplace has effectively closed the gap between major brands and small businesses, which can now directly compete with the big dogs for the first time in history.
These smaller enterprises no longer need to worry about having the time and resources required to set up a physical store or retail site and invest in marketing and advertising.
Instead, they can benefit from the enormous amount of traffic that already flows through the Amazon ecosystem and the marketing and logistics services the Marketplace platform offers. Interested buyers from all over the world, who would likely never have otherwise heard of these “mom-n’-pop” shops, can discover (and purchase) from small companies.
Four fast facts on the world’s largest marketplaceFact one: In addition to facilitating purchases, the Marketplace platform also functions as a search engine. According to RetailDive, 54% of US consumers now turn to Amazon (not Google!) as their first point of reference to search for and research products.
Furthermore, savvy shoppers can type “Amazon: [search query]” right into their browser’s address bar and immediately search the database.Fact two: Amazon Marketplace now commandeers at least 52.4% of all online retail spending in the United States. Fact three: Amazon’s slice of the eCommerce pie is over twice the market share of Amazon’s next nine competitors combined. Fact four: Even merchants who sell their products through other websites find that up to 90% of their sales originate on Amazon.
Want to Get on The Amazon Marketplace? Here’s Where to Start
While joining Amazon Marketplace is relatively straightforward, it does require a little research and business savvy to take full advantage of what the platform has to offer.
Here’s the most important decision facing any retailer or maker looking to harness Amazon’s economic power: what kind of seller do you want to be?
So far, we’ve been using words like “vendor” and “seller” pretty interchangeably, but now it’s time to get into the nitty-gritty of what those terms mean.
On Amazon Marketplace, a vendor is a distinct entity from a seller, and it’s crucial to know the difference between the two when you’re signing up.
Deciding if you’re selling to or on Amazon (more on that below) will have a significant impact on your business, from inventory management to shipping logistics to ROI.
We’ve put together a brief primer on what each option entails—keep reading to learn more about the pros and cons of signing up as an Amazon vendor versus an Amazon seller to make a better-informed decision for your retail business.
One Marketplace, Two Different Ways to Sell
While Amazon has played with a couple of different models over the years, today, retailers have the option of joining the Marketplace as an Amazon vendor or an Amazon seller.
What is an Amazon vendor?
An Amazon vendor sells their goods directly to Amazon, meaning there’s no point of contact between vendor and consumer.
Amazon itself is buying the products and maintains ownership of them, then facilitates and fulfills all orders.
On the Amazon site, the vendor’s products are not listed as sold by their business but instead labeled as “sold by Amazon.”
Vendors are charged one monthly flat-fee to participate in the program and are not subject to any other fees. Becoming a vendor is currently an invite-only option.
What is an Amazon seller?
As opposed to becoming an Amazon vendor, no invitation is needed to become a seller on Amazon Marketplace; anyone can sign up, even if they don’t have a registered business entity.
Also, unlike vendors, Amazon sellers offer their products directly to buyers—their goods are listed on the site as “sold by [business name].”
This is the critical distinction: vendors sell their goods to Amazon, while sellers sell their goods on Amazon.
This also means that sellers have a lot more decisions to make in terms of how they’re going to manage their inventory and fulfill orders. More on that in a second.
Amazon Vendor vs. Amazon Seller, at a glance
Here’s a point-by-point rundown of how these two types of Amazon Marketplace retailers compare.
Fees:Vendors pay a flat monthly subscription fee, currently set at $39.99, for total sales. Sellers, on the other hand, can choose different selling plans at various price points and then are subject to fees on top of that. According to Amazon, an individual plan (for those selling less than 40 units a month) currently costs 99 cents per unit sold, plus fees. A professional plan (for those selling over 40 units a month) costs $39.99 a month, plus fees.
Here’s a list of the fees sellers are subject to:
- Referral fees, which Amazon says are usually between 8% and 15%
- Fulfillment fees, the amount of which depends on whether you ship your products yourself or use Amazon’s fulfillment service (FBA)
- Long-term storage fees (this only applies to applicable sellers)
- Optional service fees, including costs for add-ons like advertising or premium account features
MSRP:Vendors do not control the selling price of their goods on the Marketplace—Amazon does. Sellers set their prices on the site.
Logistics:Vendors essentially have no logistics to worry about. They just have to follow Amazon’s procedures for getting their goods to an Amazon facility—Amazon takes care of the rest. Sellers have more control over logistics. They can choose to fulfill orders themselves, meaning they remain in control of storage, inventory management, and shipping (and are also liable for all those costs).
Sellers also have the option, as noted above, of letting Amazon handle those tasks for them by paying extra for the FBA service.
Customer service:Vendors do not provide any customer service. In fact, they have no contact with consumers at all. Amazon handles all queries and returns. Sellers, on the other hand, are responsible for handling returns and directly responding to any questions or concerns that potential buyers may have.
Marketing:Vendors relinquish marketing control to Amazon, which utilizes its in-house marketing and A+ content services. Sellers can pay extra for the Enhanced Brand Content program to get an additional boost in visibility.
Analytics:Vendors do not have access to any sales analytics. Sellers have access to Amazon’s treasure trove of fine-grained analytics.
Amazon Vendor vs. Seller: Which is Right for Me?
While you can’t decide to immediately sign up as a vendor without an invitation from Amazon, it’s good to compare both models and weigh up their respective ROIs just in case that invitation does come. Here’s a quick rundown of the benefits and drawbacks of each option.
Amazon Vendors: The Advantages
It’s a whole lot less work
Vendors can get their products sold without dealing with pricing, marketing, storage, or fulfillment, making this a good option for businesses with small teams or individuals who don’t have that kind of capacity.
It may be more affordable
Vendors aren’t subject to the same fees sellers are, resulting in a lower overhead.
More accurate inventory and sales forecasting
Because Amazon makes regular bulk purchases from vendors, it’s far simpler to project how much inventory you’ll need next quarter and how many sales you’ll make.
Also, Amazon offers vendors access to inventory forecasting tools unavailable to sellers. There’s stability in predictability!
Because Amazon is selling your goods, they can also be packaged with Amazon-only perks, like the subscribe-and-save program.
These perks make for a smoother buying experience and may translate into increased demand for the vendor’s product.
Amazon Vendors: The Downsides
Unpredictable profit margins
Vendors don’t get to set an MSRP—Amazon is totally in control of pricing. Vendors have reported losing money due to this structure: Amazon can set the price of their products too low for them to see a profit margin.
Further, Amazon can choose to change pricing at any time, making it harder to predict margins.
The cost of keeping up
Amazon has a high bar of fulfillment expectations, and its entire business model depends on the goods it offers always being available and ready to ship at a moment’s notice.
For smaller enterprises or retailers that offer products difficult to manufacture, Amazon’s fast-paced demand can be challenging to keep up with.
A fickle customer
There is also no guarantee that Amazon will keep buying from any given vendor, and competition on the Marketplace is fierce.
Amazon also may shy away from purchasing new, untested products since there’s not yet any demonstrable demand for them, meaning there’s less incentive for vendors to keep innovating.
Amazon sellers: The Advantages
Access to Amazon Seller Central interface
While vendors have access to specific inventory control and projection tools that are unavailable to sellers, sellers do still have a variety of monitoring and reporting tools at their disposal via the Seller Central dashboard, including extensive and real-time analytics.
Thanks to the mind-boggling millions of monthly visitors that flow through Amazon, successful sellers can achieve extraordinary gains in name recognition.
People searching Amazon are also very likely to have “transactional intent” in their searches. While it’s true that many people use Amazon for product research, just the mere fact that they’re on the marketplace is a strong signal that they’re looking to spend money.
Because sellers are in charge of their customer service, they can build direct human connections with their buyers as they field queries through Amazon’s messaging platform and fulfill orders and returns.
Sellers can set their prices and adjust them at their discretion.
Access to Fulfillment by Amazon
Sellers who are unable or unwilling to take on the burden of inventory logistics can avail themselves of the Fulfillment by Amazon (FBA) service.
There is also a range of third-party tools that can assist sellers in making the most out of FBA.
SkuVault, for instance, offers Amazon FBA Inventory Management software that helps sellers track inventory in real-time, prevent errors in quality control at Amazon warehouses, and easily and quickly generate purchase orders and FBA shipments.
All of these benefits equate to sellers get their products to buyers even more quickly and with greater visibility.
Amazon sellers: The Downsides
Vendors have all logistics taken care of for them by Amazon, while sellers who choose not to pay for FBA have to worry about storage, inventory management, and shipping.
If sellers don’t have those logistics on lockdown, they can face out-of-stocks or delayed shipments.
That, in turn, can translate into a lower Amazon Seller Performance Rating, which can kill an Amazon Marketplace store.
Those sellers choosing not to go the FBA route may want to look into products like SkuVault’s Warehouse Management software and eCommerce inventory management features, which help optimize efficiency in this arena, keeping those performance ratings up.
Fees, fees, fees!
Sellers face many fees that vendors don’t have to deal with. Even though sellers can set their prices, these fees can still seriously impact their profit margins.
You may want to check out Amazon’s sales margin calculator to see if all those fees will be worth it in the long run.
Lack of Amazon branding
Vendors profit hugely from their products tagged as “sold by Amazon.” The Amazon name comes with built-in consumer confidence, so new sellers, in particular, can face a steep uphill battle in competing with that name recognition.
Choosing whether to participate in the Amazon vendor or Amazon seller program will have a significant impact on your business operations and your bottom line.
But whichever option you decide is right for you, think about looking into the advanced third-party inventory management and tracking tools, such as those offered by SkuVault, to add value to your Amazon Marketplace experience.
We understand trying to process everything involved with selling on Amazon is like drinking from a firehouse. One of the most valuable investments you can make in your eCommerce business is a robust Inventory Management System (IMS) at the center of your fulfillment strategy.
We’d love to show you a live demo of how SkuVault can help you take control of your inventory management and grow your business. Reach out to our team for a live demo today.