Business owners are cashing in on the online platform's selling power.
Amazon sold more than 100 million products on Prime Day this July—making its fourth annual deals day the biggest shopping event ever in Amazon history. But before independent business owners assume the retail giant’s win comes at an entrepreneur’s expense, consider this: “Many people do not realize that more than half of everything sold on Amazon comes from a small- and medium-sized business,” said Brian Huseman, Vice President of Public Policy for Amazon, at a roundtable hosted by the U.S. House Committee on Small Business.
In fact small- and medium-size businesses collectively made more than $1 billion in sales on Prime Day, according to Amazon. For instance, family-owned kitchenwares company One Savvy Life, based in Redondo Beach, California, celebrated sales 10 times higher than average that day. And Boston-based gourmet tea shop Tea Forté had its highest sales day ever—with customers purchasing one of its products every two seconds through the site.
While some businesses have seen success with selling on Amazon, many small businesses face serious challenges as companies like Amazon grow and expand. When The Doll Hospital and Toy Soldier Shop in Royal Oak, Michigan closed in 2018 after 70 years in business, the owners of the children’s toy store cited the pressures of online retail, according to Crain’s Detroit Business.
Selling and shipping online doesn’t make sense for all types of entrepreneurs, says Holly Wade, Dir. of Research and Policy Analysis for NFIB. Even those that could easily ship their goods through the mail may prioritize other projects.
“But for those businesses where it makes sense to use the platform, Amazon does provide opportunities for small businesses to reach a wider customer base,” Wade says.
Here’s what to keep in mind if you’re considering selling your products on Amazon.
Know the Numbers
You probably know your overhead and labor costs like the back of your hand. Selling on Amazon means getting familiar with a new set of numbers—and making sure the resulting margin makes sense for your business. If you hope to sell 40 or more products a month, you’ll sign up as a professional seller—which will set you back $39.99 each month, plus various shipping and referral fees. For instance, jewelry has one of the highest fee categories. List a necklace for $200, and $40 from every sale (20 percent of the sale price) goes to Amazon.
RELATED: 4 Lessons Your Small Business Can Learn From Amazon
Be Aware of Tax Implications
It’s important to research the potential sales tax implications in your state. Some small businesses that sell their products on Amazon are grappling with the multi-jurisdiction sales tax quandary that has occurred since the SCOTUS ruling on South Dakota v. Wayfair in June 2018. The Court ruled in favor of South Dakota, allowing the state to impose sales taxes based on economic nexus rather than having a physical presence in the state. Economic nexus is based on sales revenue, transaction volume, or a combination of the two.
“Many states have passed laws that allow them to now collect sales tax from sellers in other states,” says Mark Grant, NFIB’s state director in Illinois. “This has put the sellers in jeopardy of non-compliance with many states because of the rapid change and varying laws.”
Get Free Help
It’s tempting to think of Amazon as the adversary, but the company profits when sellers succeed. So it sets up a huge library of online tools and videos that break down everything from selling internationally to Fulfillment by Amazon to setting up a brand registry. You can even tap a virtual selling coach. Search for “Amazon’s Selling University” online. Of course, the more you get up to speed on how the site works before the you start selling, the better.
Play Up the Special—and Small
Try to compete on price alone, and you might not have much success. Instead, highlight unique products or ones with a special story to share—whether that’s vintage tea sets, handcrafted cufflinks, or customized luggage. Tea Forté had its runaway success last Prime Day by promoting its tea-over-ice pitcher set and sampler box—not exactly something customers could find at the corner coffee shop.
