Is it profitable to sell on Amazon?

Amazon: A Marketplace with Multiple Benefits

Starting to sell on Amazon has numerous advantages for online retailers. Firstly, Amazon is the global leader among pure players, attracting an enormous online audience.

In October 2023, Amazon recorded 71.3 million unique visitors, far ahead of competitors like Cdiscount and Fnac, according to the top 10 marketplaces in France. This marketplace provides access to millions of potential customers, which is a key reason why it appeals to startups and companies seeking growth.

Amazon’s brand reputation has been built over time, serving as a trust factor for online shoppers. Customers know they can rely on efficient and fast delivery, excellent customer service, and purchase protection. Furthermore, Amazon’s simplified payment system makes it easier to convert customers, creating an environment highly conducive to purchasing decisions.

The platform also allows you to grow an online business while simplifying logistics. With Amazon FBA, the marketplace’s order fulfilment

service, you no longer need to worry about:

• Storage;
• Order preparation and packaging;
• Shipping;
• After-sales service.

Sellers using Amazon Marketplace can access a range of tools to enhance their brand. Features like A+ Content, storefronts, and effective marketing tools such as Amazon Ads

are available to help sellers attract more traffic and increase product visibility.

Effectively Target Your Audience on Amazon and Adapt Your Product Offering

To succeed on Amazon, it is essential to identify the right audience and ensure your products meet the platform’s specific requirements and customer expectations.

Start by analysing your target market to understand its demographics, psychographics, and purchasing behaviours. Amazon provides powerful tools like the Audience Builder and Amazon Audiences. These solutions analyse large amounts of data to help sellers target customers most likely to be interested in their products.

Once you’ve identified your audience, it’s crucial to test your products with a small segment of this audience. Starting with a limited selection of products helps reduce risk and allows you to adjust your strategy based on the results. Don’t hesitate to dynamically adapt your product assortment, similar to brands like Zara, which continuously adjust their offerings based on trends and customer preferences. This segmented approach allows you to validate customer interest in your products, optimise your chances of success, and enhance your profitability.

The example of the Miliboo brand

perfectly illustrates the importance of adapting your offering to the specific requirements of each platform. Using Lengow, Miliboo segmented its product catalogue, enabling it to better meet the demands of each marketplace.

On Amazon, where the risk of damage during logistics and delivery is higher, Miliboo decided not to sell certain products deemed too fragile. This strategic decision helps avoid negative reviews from dissatisfied customers who receive damaged goods during transport.

Costs to Consider for Evaluating Profitability

Of course, everything sounds ideal, but another crucial aspect to consider is the costs of selling on Amazon. How are they calculated, and what can you expect in terms of profitability?

There are several fees to budget for before starting. First, professional sellers must choose a monthly subscription. This can either be an individual or professional plan. With the monthly flat-rate plan, you pay €39.99 per month, regardless of the number of items sold. Alternatively, with the individual sales plan, you pay €0.99 per item sold. The profitability of this plan depends on the number of items you expect to sell each month.

Beyond these initial fees, there are Amazon selling fees, which correspond to commissions taken by the platform on each sale. These fees vary based on the product category.

Calculate storage and shipping costs as well. You have two options:

1. You use Amazon FBA (Fulfilment by Amazon), relieving yourself of storage and shipping responsibilities, but incurring fees based on your products’ physical characteristics.
2. You choose the FBM solution (Fulfilled by Merchant), bearing full responsibility for inventory and shipping.

Additionally, you have a limited inventory space allocation in Amazon’s fulfilment centres. If you exceed your active non-media listing limit, you may incur extra fees.

For media items, you must also account for the fixed closing fees of €0.61 per item sold in this category.

Finally, consider advertising fees (such as Amazon Ads) and the costs of using a feed manager, which, while optional, is highly recommended for centralising marketplace management and optimising product listings.

Calculating a Product’s Commercial Margin to Determine Its Cost Price

As you’ve seen, many expenses must be considered to calculate an accurate commercial margin when selling on Amazon.

Here’s the method to follow for calculating your commercial margin:

1. Select a product and determine its unit purchase price.
2. List all costs associated with the product (purchase, Amazon commissions, storage, shipping, advertising, etc.).
3. Factor in taxes and other variable expenses.
4. Calculate the gross and net margins.
5. Analyse profitability and identify optimisation levers.

Strategies for Maximising Profitability on Amazon

Here are some useful tips for optimising your ROI:

• Use the “Best Sellers” tab to easily identify high-demand products with good margins. Plan promotions on these items, and highlight your most profitable products.
• Amazon Flat Files help optimise product listings. Update them in bulk to ensure inventory accuracy. Tools like the Lengow marketplace feed manager are especially helpful for managing product lists across multiple marketplaces.
• Improve your visibility and performance by creating targeted product titles and optimising product pages for SEO. This will make your products more discoverable in search engines.
• When necessary, use Amazon’s marketing tools (Ads, promotions, etc.), such as Prime Video Ads, to reach more customers.
• If you’re not using FBA, refine your shipping management and provide excellent customer service to build customer loyalty.

Profitability on Amazon Is Possible but Requires a Strategic Approach!

Selling on Amazon can be a true performance driver for your business, but it depends on various factors: the volume of products to sell, cost calculations, fee optimisation, etc. Before embarking on this project, make sure to establish a solid strategy for success. Contact Lengow to get a customised quote for our marketplace feed manager tailored to your needs. Sell on Amazon