Selling via Amazon FBA is a relatively low barrier to entry prospect, inviting thousands to get onboard and attempt to grow successful revenue streams.
Low barrier to entry does not mean it is low risk, however.
While there are many sellers who have been highly successful, you will find that they all tend to manage that risk well, taking steps to either minimize or mitigate. You have every opportunity to make a success of your FBA venture, but you do need to stay on your toes – be aware of what’s happening, notice market or policy changes and understand how they could impact you.
Let’s run through a few of the biggest risks associated with selling on Amazon, and some tips for managing them:
Risk #1: Account suspension
If we were to point to any single risk where everything could be put on the line, it would be account suspension. It’s more common than you might think – there are plenty of horror stories in the forums of sellers who found themselves suspended all of a sudden with little or even no forewarning. The worst case scenario is that your account ends up terminated permanently and you are banned from selling on Amazon.
This means that there are two things, in particular, you need to do:
- Work to prevent or reduce the risk of account suspension.
- Put measures in place to mitigate the impact of an account suspension.
Taking steps to prevent your account from being suspended involves several aspects. First, you need to be familiar with Amazon’s rules for account holders. Any running afoul of those rules can be grounds for automatic suspension. These include things like:
- Not selling counterfeit products or misrepresenting your products in any way.
- Not selling any products that are restricted.
- Complying with Amazon’s rules for product pages.
- Maintaining healthy performance metrics.
- Avoiding prohibited seller activities and actions.
- Operating multiple Amazon accounts. (They allow this on a case-by-case basis, but you have to have sought their approval first and provided your reasons for needing more than one account).
Remaining compliant with all of these things means being vigilant. This is the second tip we have for sellers; you need to stay on top of any rule changes and know exactly how they impact your business. Amazon typically has a few changes each year, of either minor or major impact. If you keep your head down and continue to run as you have been, you run the risk of messing up. For example, if you’re still trying to incentivize product reviews, stop right now!
Should you find your account suspended, there are steps you can take to appeal, but this process can take a long time with no guarantee of an outcome in your favor, which is why it pays to try to mitigate any account suspension impact.
How can you cushion the blow of an account suspension? The rule of not “putting all of your eggs in one basket” comes into play. Quite simply, have channels outside of Amazon through which you build up a following and can continue to sell to whether or not your Amazon account is operating.
Here are a few ideas:
- Create your own ecommerce website. Have a way to build an email list that you can market to directly.
- Build up a following on social media.
- Sell through other channels, such as eBay or Etsy.
The bottom line is to be wary of building your entire business on another company’s “real estate.” They make the rules and can change or enforce them at any time.
Risk #2: Niche or product hijacking
Another big risk inevitably happens to sellers who have enjoyed great success with a product. Just when they think they have the niche or product dialed in, along come new players, trying to take their spot in the market. We’re not talking about the illegal form of product hijacking (which you can do something about), but the kind that competitors engage in every day. They see your success and want a piece too.
This is the same risk that everyone in business has, but on Amazon, there’s also the potential that your competition will be Amazon themselves. You see, while you get the benefit of accessing Amazon’s vast customer base, they get the benefit of accessing your sales data and all metrics tied to your account. You’re providing them with valuable market research!
Amazon, with their broad resources, has been known to undercut other sellers, even selling at a loss in order to gain control of a category. Of course, given their size, they also tend to be able to access better supplier pricing too, giving them another distinct advantage.
To add another possible competitor to the mix, suppliers have also been known to get in on the act. There are many stories out there of people who have sourced a product from offshore which they believe they have exclusive rights to, only to find that the supplier then sets up their own Amazon account.
You can’t prevent this type of hijacking from happening, but you can seek to mitigate your risk. This means taking steps like:
- Monitoring product performance and competitor activity closely.
- Having a range of performing products, rather than relying on one good one.
- Having other selling channels outside of Amazon.
Risk #3. Poor product choice
Your choice of products is definitely a risk. You never know exactly how something is going to perform until you actually test it out, but there are some things you can do to make that risk more of a “known quantity.”
For example, there has been a lot of talk over the last couple of years as to whether private labeling is now “dead,” with many agreeing that the tactic is a goner. What they really mean is that it’s no longer viable to simply choose a cheaply-made product from a manufacturer’s catalog, slap a private label on it, and put it up for sale on Amazon.
Why? Because everyone else is doing it too. There may be some outlier products which aren’t yet saturated, but private labeling in this way is the most easily copied strategy, leaving you to fight for crumbs.
Another risk you face with product choice is that you could end up receiving something that you weren’t expecting from the supplier. Perhaps the quality doesn’t stack up with the samples you saw, or it isn’t quite made the same way. Either way, you can find yourself in a sticky situation, potentially with a load of unsellable product.
Besides ensuring that you do sufficient product research, here are a few tips for mitigating risk:
- Find, design or have built a product that is truly unique. Something that can be patented cannot be easily copied.
- Do small test orders first. Negotiate with suppliers if you would like an amount smaller than their minimum order.
- Always be monitoring. Markets can change quickly and you need to be ready to make a move.
- Vet your suppliers carefully. Look to build solid relationships with quality manufacturers.
- Have good contractual agreements in place, so that you have something to fall back on
Risk #4. Poor inventory management
This is a risk that we have honed in on in particular with the Forecastly software. Why? Because your inventory is the lifeblood of your business. Poor inventory management leads to lost revenue – a huge amount of lost revenue.
Where inventory is poorly managed, you either end up with too much stock sitting stale in the FBA warehouse, or you have stock-outs, meaning lost revenue because you’re not making sales if you don’t have product!
It’s not just the revenue that is directly lost, it is the impact that a stock-out has on your Amazon listings over a longer period. Stock-outs give competitors the opportunity to capture the Buy Box and move ahead in the best seller ranking, meaning you need to scramble to get it back once you have stock. This can be enough to take a severe hit on your revenue.
We’ve written about inventory management tips previously, and really, one of the most reliable actions to reduce your risk is to put in place an automated inventory management software such as Forecastly. This takes the manual work out of it and reduces the risk that you become so busy, you don’t notice what’s happening with your inventory. A software like this will nudge you to reorder and will provide you with automated reporting, reducing your hours spent trying to put data together.
Besides poor overall business management (an obvious risk which we haven’t discussed here), the four risks outlined are some of the top ones faced by FBA sellers. Some will stumble and take a hit, but those who are aware of the risks and take steps to mitigate them tend to put themselves in a better position.
What would you do if your Amazon account was suspended tomorrow? What about if competitors crowded in on your niche? These sorts of things happen all the time, so it’s better if you have a plan of action ahead of time.
Start a free 14-day trial today and find out for yourself how Forecastly improves your inventory management. Click here for more info.