Whether you’re new to selling on FBA or consider yourself a veteran, there always seems to be things that pop up to surprise even the savviest seller.
Amazon can be a complex world and honestly, sometimes you just don’t know what you don’t know!
Sometimes there are potential pitfalls that aren’t obvious to the average person when you get started. Unfortunately, there are many sellers who have learned a difficult lesson when something came up to bite them.
As with anything to do with running your Amazon business, we suggest that a savvy seller should keep a close watch for any announcements or changes and maintain awareness in general. Read the stories in the forums, know what’s going on with other sellers and always be learning.
In the spirit of this advice, here are some common pitfalls that sellers fall into.
#1. Competing with Amazon
Amazon provides a wide-reaching platform that allows its sellers to leverage their already large audience, but what do sellers provide Amazon in return? Data.
Remember, Amazon is much more than a sales platform. Among their many business ventures, they sell products themselves. There are plenty of stories out there of sellers who were enjoying a good flow of sales for their product, only to experience a sudden drop-off. What do they find when they look into it? Amazon has started selling the same product themselves and are undercutting the FBA seller on price. FBA sellers are providing them with a lot of useful product data to feed their own decision-making!
They’ve been known to do this to become the dominant seller of the products they choose. Amazon has considerable resources at its disposal and can even sell things at cost or as loss-leaders in order to push other sellers out.
Before you make any decisions about selling a new product, we’d always check whether Amazon themselves are already selling it – if they are, it’s really not worth trying to compete. Otherwise, always be monitoring and keeping up with any developments.
Like any investment, it tends to be wise to adopt a policy of not having “all of your eggs in one basket.” Do you have a back-up plan if Amazon starts selling your bestseller tomorrow?
#2. Commingling of products
First of all, there are plenty of sellers who don’t realize what commingling is and how it happens, so let’s explore that. Commingling is where your inventory gets mixed with that of other sellers. This means that when an order comes in (whether through your listing or another seller’s), Amazon grabs the nearest product out of the commingled inventory with no mind paid to which seller sent that particular product in.
Some sellers choose to do this, especially if their particular inventory will work well for this scheme. Commingling means that you don’t have to apply stickers to products before sending them to Amazon. You can potentially save a bunch on shipping because you can have your products sent directly to Amazon from the supplier. It can also be a great timesaver, particularly if you’ve got a huge shipment to put stickers on!
This leads us to the dangers of commingling, which some unfortunate sellers have found out to their detriment. Commingling introduces the possibility of counterfeit products getting added to the mix. If a customer orders from you and receives a counterfeit or poor quality product, who gets the resulting poor review and return complaint? That’s right, you – not the seller who supplied the poor quality product because Amazon wouldn’t know who that was.
We’d advise caution when making the decision over commingling and do so based on the product you have – would it be easy to knock-off and difficult to distinguish between genuine and counterfeit? Some sellers have had no problems, but report that this is probably because their product is shrink-wrapped and would be difficult or expensive to counterfeit (such as board games and puzzles).
#3. Repackaged returns
What happens to inventory when a customer has returned it? If you’re an FBA seller, you rely on Amazon making the correct assessment about whether the inventory is considered sellable or not. If you leave the default settings on your account, it will be enabled for “Repackage Unsellable Customer Returns.” This means that Amazon applies its own packaging to returns to deem them sellable. In theory, they should only do this for products that they’ve inspected and found to be sellable, then placing them in your sellable inventory.
Where do the pitfalls occur? There are a couple of places; firstly, sometimes they make a mistake in the busyness of the warehouse environment and stock gets put back into inventory that really shouldn’t be, resulting in a poor customer experience when that product then gets sent out.
Secondly, with the repackaging into an Amazon box, some customers immediately take that to mean that they’re receiving a used, or perhaps even counterfeit product. Again, they complain and this can go against your account standing.
We would suggest turning off this “Repackage Unsellable Customer Returns” feature and having returns either destroyed (if obviously defective), or sent back to you for checking before returning to inventory.
#4. Bottom-line profits
We’ve touched on this previously, but it is such a common pitfall that it’s worth mentioning here again. You can be the top seller in a category, selling hundreds of units per day, but this means nothing if you don’t realize a good profit for the products sold.
This is a mistake that is often made by newer sellers. Sometimes it’s difficult to determine whether a product will be profitable because they haven’t accounted for all of the costs involved.
Learn to calculate your adjusted gross margin correctly and be on top of whether or not the product is worth selling. Mismanagement of your vital numbers is one of the quickest ways to go out of business.
#5. Brand clampdowns
Be very cautious when it comes to selling products from any big, well-known brands on Amazon. If you’re a new seller, you may find that the option just isn’t open to you for the product that you’re thinking of selling, but many current sellers have experienced anguish as a brand they were selling became restricted and they were blocked from selling.
This is a response to an influx of counterfeit products. Amazon wants to protect its reputation with customers and is making an effort to ensure counterfeit products are kept out, thus the introduction of “brand gating” – where sellers are required to pay a fee and prove that their products come from legitimate sources.
For many sellers, this will mean that it’s simply not worth trying to sell a big brand name. Consider your options carefully – there are plenty of private label or wholesale options which will sell well and aren’t likely to lead to brand headaches.
#6. Inventory lag time
FBA is a great system for taking some of the pressure off the seller by taking care of fulfillment and customer service. Overall, we recommend it as a great way to do business, but that doesn’t mean that it is without pitfalls.
Mishandled inventory is a complaint that comes up with relative frequency among FBA sellers. For example, perhaps they’ve sent a shipment of replenishment inventory to Amazon and found that there is a huge lag time before it is logged into the FBA system and available for sale.
Another complaint which happens across different third-party logistics companies (including Amazon) is issues with mispicks. Red Stag Fulfillment presented a report and goes into some detail about the flow-on effects of mishandled inventory for sellers, not least being that they may lose the customer.
It’s not that you can prevent these mistakes in any way if you rely on FBA, but you need to go into the business with your eyes wide open. This means taking measures to ensure that you’re managing inventory well from your end and allowing plenty of time for replenishment stock to be added. Mistakes can happen – plan ahead to manage them.
#7. Amazon dependency
Amazon makes the whole process of setting up and opening an account so simple that sellers can be lured into thinking it’s a no-brainer to go the easy route. You get access to a large pool of possible customers and you don’t have a whole lot of setup hassles of your own to get started.
The danger here is that people become very dependent on Amazon. In the end, they’re a third-party platform and this means you always play by their rules. Sellers have found their accounts suspended in an instant, or, a product that was selling well suddenly stops selling overnight when Amazon introduces it themselves.
If you’re dependent solely on Amazon for your business being in existence, you can find yourself in a situation where you suddenly have nothing, a story that plays out in many reports in the seller forums.
The same can be said for relying on any third-party platform really – what if you relied on Facebook, for example? Circumstances can turn on a dime, so you either go in fully prepared for this risk, or you make contingency plans.
For Amazon sellers, this might include selling on other platforms as well (eBay or Etsy, for example), or setting up their own ecommerce website. It depends on your risk preference – what will you choose?
Amazon FBA is an excellent platform for giving sellers access to a wide audience, but you need to go into it aware of the potential pitfalls.
This isn’t intended to put anyone off, but more to bring awareness to the issues that can crop up so you can make a plan to avoid or mitigate them. There are plenty of sellers enjoying great incomes through Amazon – we hope you will be one of them!