Originally published on January 20, 2015, updated August 4, 2020
It’s exciting to become an Amazon seller. But is it risky?
What you don’t know can hurt your business, so today we’ll reveal nine insider techniques top Amazon sellers use to protect their business. These techniques will help keep you on solid footing as you create a lasting business. Most are surprisingly simple and easy to implement.
Let’s assume you’ve already covered the standard risk-reduction strategies: hiring qualified business professionals, such as a banker, attorney, accountant, tax advisor, and business insurance broker.
Beyond these basics, there are other types of risks that are specific to eCommerce, including the Amazon seller platform. Let’s cover nine strategies for reducing those risks.
Buyers are fearful creatures. They’re afraid of getting cheated, afraid they’ll buy a product that doesn’t suit their purposes, and afraid it won’t get there on time. Most of all, they’re afraid you’ll ignore them if they have a problem. So if consumers are even a little disappointed in their buying experiences, they may take it out on you.
When someone posts a bad feedback, it’s shocking and hurtful. But seen in a positive light, it’s an opportunity for market insights. Maybe your customers are more demanding than you thought. Maybe they need some hand-holding or a reminder that they can return the product for a refund.
You can’t ignore them. The customer isn’t always right, but it’s always their money, and they have a right to speak up if they feel slighted. So reach out and take care of the problem. In the process, you may learn something that helps you reduce the risk of future complaints and the resulting bad publicity.
Sometimes Amazon seems like the world’s largest small-town — a place where anyone can read reviews and find out what other customers think. Amazon takes ratings seriously and will cancel your Amazon seller account if you receive too much negative feedback.
But here’s the good news. If someone posts a bad feedback, you can reach out, solve their problem, and ask them to revise it to give you credit for clearing up the problem. And when you treat customers like human beings, those who are reasonable will comply.
If someone posts a malicious rating, you can ask Amazon to remove it using the Amazon seller appeal procedure. If you’re just starting out and have few customers, you can handle this procedure manually. But as your business grows, consider handling the communication and follow-up procedure with Amazon feedback management software.
Serial entrepreneurs manage their capital using a concept based on how airplanes work. Here’s what I mean. Most air travelers think the landing is the riskiest time in a flight. Nope, it’s the takeoff, because if the pilot runs out of runway before reaching takeoff speed, there’s nowhere to go, and the result is disastrous.
Smart entrepreneurs think of their capital as a financial runway. They figure out how much cash they’ll need for equipment, office space, and other capital investments. Then they project monthly expenses for things like payroll, utilities, and supplies. That gives them a good idea of how much capital they’ll need. If they have enough money to buy (or finance) their infrastructure and to support cash-flow shortfalls for twelve months, then they’ll need to get the business on a paying basis within a year. Otherwise, they’re out of runway.
Have you done this arithmetic for your Amazon business? You can extend your runway by questioning every expense and negotiating every purchase. And of course, one of the best ways to extend your runway is by generating more sales.
Another way to extend your financial runway is to control your investment in product inventory. When products are sitting on the shelf, they represent dollars tied up and accrued interest expenses month after month.
Every sale frees up cash to buy more inventory, reinvest in your business, or put into your pocket. And it reduces or helps control finance costs. So smart merchants keep their inventory moving. And if a product isn’t selling, they cut their losses by returning it to the vendor or selling it at a reduced price.
In the early days of a startup eCommerce business, it may be possible to manage your inventory turnover using spreadsheets, inventory cards, or even by simply keeping an eye on how full your shelves are. But as your business grows, you may want to investigate inventory management software to reduce the risks associated with over-stocking.
Your best customers are counting on your expertise. They want you to do the shopping for them. So develop a reputation for knowing the products that are available in your niche. What’s the range of pricing? What is the quality of each product?
Competitor research is a great place to start. You may notice that some types of customers are being underserved or ignored, some niche products may not be widely represented, or the assortment may be limited.
These situations can be opportunities to differentiate your business and build a loyal customer base, reducing the risk of losing market share to sharper competitors.
Fortunately, you can do your research inside the Amazon platform: finding out how many sellers are offering a particular product, reading customer reviews, seeing how the product ranks on Amazon, and determining pricing strategies. You can even figure out potential commissions (based on category) and find out what charges you would incur if you use Fulfillment By Amazon (FBA).
The research is tedious but essential. If you choose a product that people don’t want, you risk holding the inventory for a long time, tying up dollars and incurring interest expense. If the analysis becomes too complex, there is Amazon research software that can deliver the information more accurately and in a fraction of the time.
Some customers seem to have a lot of time on their hands, always scouring the Web for bargains. But your best customers are the ones who count on you to provide the right products at the right price.
Here again, research is essential, but repricing your entire list is a big job, compounded by the fact that it needs to be done frequently. Repricing software enables you to set a min/max for each product or SKU, specify how to price the shipping, and re-price your list automatically according to a schedule you set in advance. This can help you turn your inventory faster and reduce the risks associated with over-stocking.
Losses are painful in the present and impose limitations on your future. Analysts call this lost opportunity costs (LOC), meaning that you not only lose the money, you lose its money-making potential.
A dollar saved is not only a dollar earned, but also a dollar you can reinvest in the growth of your business. So to reduce the risk of business stagnation, be on the lookout for ways to save money to reinvest in your business.
Software purchases can be a significant part of your capital or expense budget. And if you make the wrong choice, you risk losing your investment.
For some large companies, it may make sense to develop custom software. This is too risky for most operators, so they purchase standard systems, perhaps doing a bit of customization to integrate it with existing systems.
One popular alternative is software as a service (SaaS), a concept that lets you spread your risk over time. This means that you pay a monthly or annual fee to use the software, avoiding a capital expenditure. Often SaaS is deployed online using a browser, saving labor on software installation and updates.
It’s important to know the difference between a risk and an unknown. For example, when you add a new product, its future performance is unknown. That doesn’t mean you should stand pat to avoid the unknown. Nor does it mean you must plunge ahead and find out the answer. The smarter move is to weigh the pros and cons of two risks: action and inaction.
If you take action (add the new product) you risk losing money if it doesn’t sell. If you choose inaction (NOT adding the new product) you risk missing an opportunity to serve your customers. There’s a potential upside to each. But the potential downside is what will keep you awake at night.
So transform the unknown into a risk analysis. Then test your risky move on a limited basis and use the results to weigh the overall risk. That’s the smart way to optimize your Amazon business.
Originally published on January 20, 2015, updated August 4, 2020
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.