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Pros and Cons of Putting Your Small Business on Amazon

Ecommerce is booming. Total revenue will reach nearly $4.6 billion in 2021 and grow at an annual rate of 4.6% over the next five years – reaching $5.6 billion by 2025. It’s easy to see why owners of small and medium businesses are asking themselves how they can get a piece of the eCommerce pie. One popular option—the Amazon small business marketplace. 

In the first quarter of 2021, 55 percent of the units sold on Amazon were from third-party sellers. For a company with sales of more than $300 billion, that’s more than pocket change. But what are the pros and cons? And is it worth the trouble? 

What is Amazon marketplace?

The Amazon marketplace is an eCommerce platform that allows independent vendors and sellers to sell their goods on Amazon. The platform allows Amazon to forego the typical retail model, where it sources materials, then produces and stores each of its products until shipment. Instead, third-party vendors put products on Amazon and take care of the details, while Amazon gets a cut of the profits. 

What are the pros of selling on Amazon as a small business?

There’s no question that Amazon is popular with small businesses: In 2018, nearly three-quarters of Amazon sellers had between one and five employees. And Amazon for small business does have plenty of benefits, like the following. 

You can reach a larger audience

One of the biggest benefits of selling products on Amazon is that it can connect you with a wider audience: There are more than 200 million Amazon Prime members worldwide, and that’s not counting site visitors who don’t subscribe to Prime. That’s a huge audience for Amazon small businesses

Amazon can take a lot of the work off your plate 

Getting set up with Amazon marketplace is relatively easy: Just sign up and add products to the catalog. If you want Amazon to do more work for you, you can sign up for Amazon FBA, or Fulfilled by Amazon, which allows you to use Amazon’s warehousing, packaging, shipping, and customer service. 

Amazon has tools to help you sell 

In addition to Sponsored Ads – which actually make Amazon the third-largest digital advertiser behind only Google and Facebook – Amazon small businesses have access to MerchantWords, a proprietary keyword research tool. It uses actual Amazon data to help you optimize your product names, descriptions, and ads. 

Amazon provides technical support 

Amazon Seller Central is the platform’s support team for Amazon small businesses. It’s available 24 hours a day, although most sellers will be required to submit a request and wait for a callback. Still, most sellers receive a prompt response and are happy with the support they receive 

Closeup of two Amazon labeled AA batteries.

Photo by Syed Ahmad on Unsplash

What are the cons of selling on Amazon as a small business?

Amazon Marketplace sounds pretty great, right? For many small and medium businesses, it is. But it also has a few drawbacks you should be aware of. 

It can be expensive

With charges for selling, referral fees, and Amazon sales tax, the cost of selling on the marketplace can quickly add up. Sellers without a monthly plan will pay 99 cents per item sold, while those with a Professional Plan pay $39.99 per month. If you opt for extra features, like Fulfilled by Amazon, expect to pay more fees. 

It can be time consuming 

Getting set up with Amazon Marketplace is easy – understanding how to be successful there can be more time-consuming. Diving into the tools Amazon provides and optimizing your product take time. Plus you’ll need to figure out Amazon bookkeeping and accounting, inventory management, and more. 

The competition is fierce 

There were 1.1 million active Amazon marketplace sellers in the United States alone in 2019. Amazon Marketplace is also incredibly popular with Chinese merchants, some of whom sell products at super-low, factory-direct prices. You’ll even compete with Amazon’s own private label brands. And fake reviews abound on the platform, with competitors using bots to write thousands of five-star reviews at once. 

It’s Amazon’s world, you’re just selling in it 

Some Amazon small businesses feel they don’t have much power over the selling process. There are reports of Amazon punishing businesses for selling at lower prices on other marketplaces, or pressuring them to sign up for extra services. 

Should I use Amazon for my small business?

There’s no one-size-fits-all answer to whether you should sell products on Amazon. Certain categories, like personal care, beauty, and home goods, seem to have greater success on the platform. Businesses with high margins, who can afford to give Amazon its cut, can also do well. However, success with Amazon for small business depends more on your ability to figure out what works for you than on the type of business.

Xendoo can help dive into your books and help you make a sound decision on whether to sell on Amazon Marketplace. If you’re already a seller, we can ensure your books are in order – allowing you more time to focus on selling.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

Cash Flow Management for eCommerce: 4 Tips for Smooth Sailing

Editor’s Note: This post was originally published in February 2017 and has been revamped and updated for accuracy and comprehensiveness. 

Cash flow is a measure of your business’s liquidity and ability to pay its debts from sales revenue. Cash flow management can be one of the most challenging aspects of being an online business owner. Your business can be profitable but still have a negative cash flow because profit calculation takes into account assets like inventory that you can’t use to pay bills. 

E-commerce businesses have an edge in cash flow management by virtue of the immediacy of the transaction, but that doesn’t mean online retailers are immune to cash flow problems. The customer has to pay you before you ship the item, so that means you don’t have to deal with an accounts receivables ledger full of aging accounts. But you still have operating expenses that can deplete your bank account, and you might end up having a lot of cash tied up in inventory before being sold. Fortunately, there are some things you can do to smooth out the turbulence and keep your cash flow – and your business – on an even keel. Read on to see our cash flow management tips to keep your eCommerce business sailing smoothly. 

Minimize Inventory

If your inventory is sitting on the shelf for more than 30 days, you have too much. You can’t afford to have that much cash tied up doing nothing. Use stock-keeping units (SKUs) to track the sell-through rate for each item in your inventory. The sell-through rate is the ratio of inventory sold during the month to new inventory added. If you see that an item’s sell-through rate is too low, you need to dig deeper and find out why. Are you producing too much of it? Is demand for it falling? Maybe some of the cash tied up in that product can be shifted to a more popular item that’s selling better, or it might even need to be discontinued. Don’t be lured in by bulk discount offers from suppliers unless you know for sure the item will move quickly. The right inventory management software can help you make sense of what is going, out, coming in, and just sitting there. 

Shot of two boxes on a table about to be shipped to customers

Get Creative with Sales

At the risk of stating the obvious, one of the best ways to keep a positively manage cash flow is to get more sales from your eCommerce business. The big question, though, is how to do that. What’s the best way to drive traffic to your site and increase the conversion rate of your visitors, and maybe even do a little upselling in the process? Here are a few ideas you can try for driving website sales.

  • Offer free shipping on larger orders to encourage bigger quantities
  • Create a loyalty program for repeat customers
  • Offer Buy One, Get One (BOGO) on items with a high margin
  • Bundle high-margin products with best-selling products
  • Cross-sell by offering related add-ons at check-out
  • Offer a recurring purchase option for consumable products
  • Offer incentives to “abandoned cart” visitors
  • Use a human or automated chatbot to engage with visitors
  • Implement a Search Engine Optimization (SEO) strategy to improve your site’s rank in search results.

If each of these strategies can increase your site’s average order by just 1 or 2%, that can quickly add up to 10% or more extra revenue coming into your bank account to help ease the cash flow. If you do go the free shipping route, make sure to read our tips on how to reduce shipping costs

Manage Your Payables

The other side of cash flow management is what’s going out to your accounts payable. You need to maximize the amount of time the cash stays in your bank account instead of going to your suppliers. When you set up contracts with suppliers, try to negotiate the terms. Standard terms will typically be 30 days, but some suppliers may be willing to go as far out as 60 or 90 days if you ask. Whatever the terms are, you should generally wait until the end of the term to make the payment so you can hang onto the cash as long as possible. Watch out for late fees, though. However, if your supplier offers discounts for early payment, they may be worth taking advantage of.

Consider an Inventory Loan

If you’ve done your best but still find yourself in a cash crunch and need to restock inventory, an inventory loan may be an easier option than a traditional bank loan. Lenders will look at more than just your credit history and will take into account your sales history and the stability of your business. Inventory loans can be either lump-sum loans or lines of credit with the bank that you can use over time. You won’t be able to finance the entire cost of your inventory, but you can expect to be able to cover around 50% of the cost through a loan.

Managing your cash flow wisely can be the difference between success and failure for your eCommerce business, even if you’re showing a profit on the books. Xendoo’s suite of products and bookkeeping services for small businesses can help you know exactly where your money is going so that you can manage it more effectively. Contact Xendoo today to start your free trial and see how we can help your small business grow.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Inventory Control for eCommerce: Getting the Balance Right

As an eCommerce retailer, you may not have a brick-and-mortar store, or even your own warehouse and fulfillment facility. But that doesn’t mean inventory control has to be more difficult. With the right mix of tools and strategies, you can manage your merchandise supplies and turnover efficiently and cost-effectively.

Decide how much stock to keep on hand.

Your goal is to strike a balance between too little and too much. In most cases, a one-month supply will be enough to meet any unexpected increases in customer demand, without tying up unnecessary working capital or warehouse space.

To calculate your one-month supply, analyze sales and fulfillment information from previous years. If you’re a new startup, research the performance of your product category as a whole.

Allow for variables in your stock-on-hand plan.

Depending on your business, you may need to adjust inventory levels for:

  • Seasonal fluctuations, such as the Q4 holiday shopping season
  • Shipping time from the manufacturer to your warehouse, import delays, etc.
  • Store promotions such as an annual sale

Apply the same variables to fulfillment planning.

During periods of higher sales volumes, you will also need more packaging materials as well as additional employees to do the order processing, packing, and shipping.

Keep a close eye on your inventory — digitally.

Real-time inventory software can save a ton of time and effort. By using bar code identification, it automatically updates your stock levels whenever an item is sold, alerts you, and website visitors when an item is out of stock and tracks delivery to customers.

Keep a close eye on your inventory — manually.

It may seem old-fashioned, but a physical stock count is the only sure way to know what’s in your warehouse. Do it weekly, monthly, quarterly, or annually, whatever makes sense for your business.

Have a plan for out-of-stock incidents.

Your software should notify you in time to replenish stock before it runs out. But in case there are snafus at the manufacturer or in transit, be prepared to respond and keep customers happy:

  • Remove the product page from your website, or add an “out of stock” message letting customers know when it will be available again
  • Take backorders
  • Pay extra attention to stock levels of fast-moving products and reorder them farther in advance

Choose the right business management system.

A system that’s specifically designed for eCommerce is an invaluable asset. For example, it can show order processing and shipping costs in relation to revenues. Even better, it can link inventory management to other operating systems within your business, such as accounting and payroll, greatly reducing administration time and duplication of effort.

Organize your warehouse for a fast response.

Keep your best-selling items on the shelves that are easiest to reach. Slower moving merchandise can go in less accessible areas.

Consider off-site warehousing options.

The advantages of storing some or all of your inventory in other locations include reduced shipping time to your customers and saving on overhead. Check out:

  • Adding regional warehouse locations
  • Renting warehouse space from a national retail chain or postal service
  • Using Amazon FBA (Fulfillment by Amazon) — you advertise your product on Amazon and they handle merchandise storage, order processing, shipping, and customer service

Stay on top of record keeping.

For both current decision-making and long-term planning, “knowing your numbers” is essential. So checking them at the same time every day or week is a great habit to get into. (It only takes a couple of seconds with the right software, just press a button to see inventory status, turnover, and associated costs.) You’ll always have a clear picture of your inventory … and your business.

For successful inventory management, every eCommerce business must find the right balance between too much or too little stock, online and hands-on tools, and on-site or off-site locations. Most important of all, accurate records will reveal what’s working and what isn’t, so that the future will be even more rewarding than the past.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

5 Ways to Reduce eCommerce Shipping Costs

“Free shipping” — it’s what customers today expect to see when they shop online. So how can an eCommerce seller absorb those shipping costs without wreaking havoc on its profits? You could just raise your prices, but customers won’t like that either. Fortunately, you can change things about the way you ship to minimize the financial impact.

Decide how much you can absorb

You just may not be in a position to pay 100% of the shipping on every single order. But you could still favorably impress customers by offering it on orders over a certain dollar amount. Figure out what that amount is, taking into account average order value, surcharges for weight or size, and so on.

Downsize your packaging

Lose the habit of using the same size box for many different sizes of the product. Smaller boxes cost less to buy. Plus, many carriers calculate their shipping prices based on a combination of size and weight called “dimensional weight,” so a smaller box will cost less to ship even if it weighs the same as a bigger one. To make box selection easy, there is software that will do it for you based on each SKU’s measurements and weight.

Also, are you automatically using bubble wrap for every item, whether it needs it or not? Invest the time to analyze each SKU’s real protection needs, especially those that are already boxed by the manufacturer. Conversely, giving some products more protection can prevent damage in transit and reduce the number of returns.

Choose hybrid shipping options

In hybrid shipping, your carrier (such as FedEx) gets the package from you to its destination city, then hands it over to the U.S. Post Office for local delivery. This enables significant cost savings while keeping the customer happy with your speed and service.

Compare carriers

Look beyond UPS and FedEx. There are many other shipping services out there who can provide better prices and equal if not better service.

Automate shipping processes

Let shipping software save you time, manpower, and money in every step of the fulfillment process, from verifying address accuracy to printing labels to tracking deliveries.

These days, no eCommerce seller can afford to leave its shipping process on autopilot. Look for new solutions and strategies to minimize costs, and keep your net profits right where you want them.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Selling on Amazon: To FBA or Not to FBA?

Unless you’re living under a rock on the moon, you’re well aware that Amazon is the eCommerce success story of the century — not only for Amazon itself but for thousands of independent sellers who take advantage of its marketing reach and customer confidence. Amazon’s FBA (Fulfillment By Amazon) program goes a step further: it gives smaller eCommerce businesses the clout and convenience of its warehousing, shipping, and customer service facilities.

So if you use FBA, you do less than half the work of the transaction: listing your product on Amazon and getting your merchandise shipped to an Amazon fulfillment center. They take care of the rest: merchandise storage, order processing, picking, packing, shipping, and shipment tracking.

A fundamental decision any third-party seller on Amazon must make is whether to use FBA or its fulfillment facility. Here are some things to consider:

Comparative costs.

Which will be more profitable: paying for your warehousing, packaging materials, and staff to do the picking, packing, and delivery to the shipper; or paying the FBA fee to have Amazon do all that for you?

Amazon makes it easy for you to compare the numbers with this Fulfillment by Amazon Revenue Calculator. Fill in the item price and your costs, then click “Calculate” to see the FBA costs for the same item, and which is your best option in terms of net profit and net margin.

Time investment.

The more you sell, the more time fulfillment takes out of your day. The time that should be spent on management and development, not putting items inboxes. This is often a major roadblock to scaling your business.

Sales tax obligations.

When some or all of your inventory is stored in and shipped from Amazon warehouses, you may be required to collect and remit sales tax in the states where those warehouses are located.

Amazon Prime eligibility.

Only third-party sellers who use FBA are Prime eligible, and many say that this is their number one reason for doing so. When customers see “Fulfilled by Amazon” on the product page, they have confidence that:

  • Their purchase will be delivered in just 2 days
  • They are getting a better deal because shipping is free
  • They will receive excellent shipment tracking and customer service

Even Amazon shoppers who are not Prime members often choose to buy from a seller who is Prime eligible rather than one who isn’t. This gives FBA sellers a huge advantage over those who do their fulfillment.

Each business must weigh the pros and cons of Amazon FBA concerning its needs and goals. But we think that in 99 cases out of 100, the advantages far outweigh the costs. It’s certainly worth a try.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.