By Marc Andre
StockSnap / Pixabay
Amazon is not only the world’s leader in e-commerce, it also offers the incredible opportunity for businesses and entrepreneurs to reach millions of buyers on its platform.
Around 50% of sales on Amazon are made by third-party sellers (source), which means the income potential is absolutely huge.
There are a number of different ways to sell on Amazon. You could buy and resell products (referred to as retail arbitrage), hire a manufacturer to create private labeled products for you, design and create your own custom product, buy and sell used products, or buy products wholesale and resell on Amazon.
The details of each business model are unique, but Amazon sellers will face some of the same challenges regardless of what business model they’re using.
In 2015, My wife and I started a private label brand selling on Amazon. Although we ran the business part-time, it grew very quickly and completely exceeded our expectations for the business. However, we also faced a lot of challenges that we weren’t expecting, and ultimately we decided that selling on Amazon was not something we wanted to do long-term. As a result, we sold our business and moved on.
This article will cover some of the specific challenges that you should expect to face if you’re considering selling on Amazon.
Amazon pays third-party sellers every two weeks. The challenge is, you’ll need to put out the money for inventory long before you start to see income from that same inventory.
Many sellers hire manufacturers in China to produce inventory for them (especially private label brands). Those manufacturers will usually charge somewhere around 25% of the cost of the inventory upfront before they begin production. Depending on the manufacturer and the quantity that you are ordering, the production may take about 1-2 months.
When production is finished, you’ll pay the remaining balance for the inventory and shipping and it will be sent to you. Shipping (including customs clearance) can take anywhere from a week to a couple of months until it reaches Amazon’s warehouse, depending on whether you ship by air or sea. That means that it may be several months before you start to get paid for the inventory that you buy.
That’s hard enough with one product, but if you have many different products, it becomes even more challenging. If you’re trying to grow your brand and launch new products, it becomes harder yet because those new products aren’t generating any cashflow.
Cashflow is easily one of the biggest challenges that most Amazon sellers will face (and really, this can apply to other ecommerce businesses as well). On paper, you may be making a nice profit, but you’ll need to keep cash on hand so you have it when you need to place an inventory order. Preparing for holiday shopping or a seasonal peak requires you to put up even more cash in order to get enough inventory to support higher sales volume.
Of course, a line of credit can be a solution to the issue of cashflow, but …read more
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