The process of achieving success in e-commerce sales is becoming increasingly intricate and expensive.

• A majority of Amazon's e-commerce sales originate from small and medium-sized enterprises.
• The retail giant is accused by the FTC of using its market dominance to manipulate prices, suppress competition, and impose high fees on independent sellers for fulfillment and advertising.
• According to e-commerce experts, operating on Amazon and other online retail platforms can be costly, and third-party businesses must carefully consider their selling strategy to achieve healthy profit margins.

Despite being a symbol of large corporations, over 60% of Amazon's sales last year originated from small- and medium-sized businesses. Small businesses utilize Amazon for its extensive reach and selection, while Amazon depends on independent sellers to populate its website with products.

The relationship between Amazon and its sellers can be tense, as sellers have expressed concerns about rising costs to sell on the site. Meanwhile, the Federal Trade Commission has filed an antitrust lawsuit against Amazon, accusing the e-commerce giant of abusing its market power to increase prices, limit competition, and provide poorer service to customers. The lawsuit also alleges that Amazon forces sellers to pay high fees for fulfillment and advertising, leaving them with little choice but to depend on the e-commerce giant to remain competitive.

Scott Lieberman, an e-commerce consultant and founder of TouchdownMoney.com, stated that companies are initially "super friendly" towards small businesses to attract traffic. However, as time goes on, the rules change, making it increasingly expensive for businesses to operate on the platform.

Many small businesses use Amazon as a crucial element of their e-commerce strategy. Although some sellers interviewed by CNBC believe that the FTC case against Amazon is past due, they do not necessarily agree with all of the allegations. They are uncertain about how much will change in their relationship with Amazon.

Scott Needham, who sells on Amazon and provides tools to other sellers, believes that the power Amazon holds over sellers is significant and deserves investigation. However, he is uncertain if this would alter the situation.

The success of e-commerce platforms has motivated independent sellers to reach consumers on more platforms, resulting in a 30% increase in consumer shopping on big marketplaces such as Amazon and Walmart in 2023 compared to 2022, according to a recent survey by 1Worldsync. Additionally, sales from third-party online marketplaces are projected to be the fastest-growing retail channel over the next five years, accounting for 60% of all global e-commerce sales growth, as predicted by Edge by Ascential, a market research and consulting firm.

The shift to third-party sellers, such as online bazaars, is transforming the retail landscape, increasing the workload for small businesses. When dealing with first-party sellers, small businesses may interact with a buyer, ship in bulk, and receive payment based on the product's sales performance. However, businesses have limited control over how the product is positioned or marketed. To succeed on third-party marketplaces, companies must be more proactive with pricing, placement, advertising, and other strategies. Simply being present on the marketplace is not enough.

Experts advise small business owners that succeeding on Amazon and in e-commerce comes with substantial expenses and intricacy, and they must be aware of certain keys.

You compete against yourself on pricing

Amazon's "anti-discounting approach" involves monitoring online prices and penalizing sellers who offer their products at a lower price elsewhere by removing their listing from the "click to buy" box. The FTC claims that Amazon's "anti-discounting tactics" hinder competitors' growth. E-commerce experts suggest that pricing is complex and that the pressure to maintain the lowest prices on Amazon makes it difficult for small businesses to maintain relationships with other e-commerce platforms.

Phil Masiello, founder and CEO of CrunchGrowth Revenue Acceleration Agency, stated that the platform is forcing users to be the cheapest, despite having different economics on every platform.

The costs of selling on Amazon can add up to almost half the listing price, with 15% for listing, 10% to 15% for fulfillment services, and 15% for advertising. However, competing platforms also have their own cost structure challenges, and sellers have limited control over how their products are priced on other platforms. Direct-to-consumer companies must pay for inventory storage, packaging, and shipping, as well as advertising costs, which all impact wholesale and retail pricing.

Randy Mercer, chief product officer at 1WorldSync, stated that small businesses that sell on multiple platforms are increasingly competing with themselves. He explained that this is due to the pricing pressure from Amazon and other third-party marketplaces. Mercer noted that more small manufacturers are using analytic platforms to track the sale of their products and their prices.

An Amazon representative stated that the company's strategy is to support the long-term success of its third-party selling partners, which in turn enhances the selection for customers. He explained that third-party sellers have the freedom to set their own prices, and Amazon provides optional tools to help them offer competitive prices. The majority of millions of featured offers are priced competitively or better than at other retailers. If Amazon discovers that a competitor is selling the same product for less, it will remove the "Add to Cart" button, but the product will still be available for purchase.

Costs are significant, but big profit margins are possible

As Amazon has expanded, the fees charged to sellers have also increased. The FTC lawsuit alleges that Amazon exerts pressure on sellers to maintain low prices while also requiring them to pay for fulfillment and advertising expenses. Consultants suggest that while the costs may be high, the cost structure is similar to that of traditional brick-and-mortar retail. Although the fees may be substantial, the reach is also significant. For those who create and sell proprietary or branded products, the potential to reach a large audience is substantial. According to Joe Camberato, CEO and founder of National Business Capital, a fintech marketplace, the amount of money required to reach a large audience or drive traffic to one's own website would be significant.

Many businesses have been taken aback by the effort required to succeed on third-party marketplaces such as Amazon. Brands and startups, even established brands, often lack an understanding of the economics of their products. According to Masiello, many clients seek to negotiate listing and fulfillment fees, but the only way to reduce prices is through better supply chain management. To be successful on Amazon, companies must keep product costs at 30% or less, including FBA costs, advertising, and overhead. Aiming for a profit margin of 10% is crucial for most successful sellers on the platform.

Amazon claims that sellers who opt for Amazon's additional services receive more value than they can find elsewhere. For instance, sellers who choose Amazon Ads can effectively target customers who are ready to buy, according to an Amazon spokesperson. Additionally, Fulfilment by Amazon is 70% less expensive than two-day shipping methods offered by other major third-party logistics providers.

The time for amateurs on Amazon is over

Amazon, once a platform for amateur product sellers to make money, has evolved into one of the largest internet advertising platforms, following Google and Meta, which owns Facebook and Instagram. Now, getting a product listing on Amazon requires expertise, similar to search engine optimization on Google.

To succeed in product listings, Camberato advised adopting the Amazon algorithm and possibly paying to sponsor products to reach the top of the first page. He emphasized that competing with Amazon and Google is futile and that understanding their algorithms and managing a budget around them is crucial.