Tag: Taxes

100 terms every Amazon seller should know

Selling and marketing on Amazon involves dozens of moving pieces. To help with this problem, we’ve compiled a list of 100 terms every Amazon seller should know, including terms related to digital marketing, logistics, finances, and the fundamentals. For ease of use, the terms are listed in alphabetical order. 

Also check out our list of 20 Terms Every Walmart Seller Should Know.

1. A9 Algorithm: Amazon’s proprietary search engine algorithm for determining search results on Amazon.com. 

2. A/B Testing (Split Testing or Bucket Testing): An online marketing strategy used to see which of two versions of marketing collateral yields the best results. The difference between the two versions is typically limited to a single element, such as the subject line of an email, so that testers can confidently attribute differences in performance to the changed element.  

3. Ad Management Software: Software used to streamline management of Amazon ads, typically by improving data visibility, the user interface, and automation. In the case of Amazon, most ad management software is for pay-per-click (PPC) ad types, such as Sponsored Product Ads. 
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4. Advertising Cost of Sale (ACoS): The cost of ad divided by the sale. For example, if a product costs $10 and it takes $1 worth of ad spend to generate a sale, the ACoS would be $1 divided by $10, or 10%. ACoS is often used to assess the efficiency of advertising campaigns on Amazon. 

5. Amazon A+ Content: An extra feature for product detail pages available to brands that are enrolled in Amazon Brand Registry. This feature allows brands to add additional copy and images below the bullet points in a product detail page. Amazon claims they increase conversion rates by up to 10%.  
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6. Amazon Ad Groups: On Amazon, Ad Groups are a subsection within a sponsored ads campaign that contain ads, targets, and a default bid. Ad Groups can contain a single ad or multiple ads grouped by like products, brands, or campaign goals. Targets can be either keywords, ASINs, or categories. Ad Groups are available for Sponsored Product and Sponsored Display campaigns. 

7. Amazon Attribution: An Amazon service that allows sellers to measure the impact of different sales channels, such as email, video ads, and display ads, by creating unique URLs that enable attribution tracking. The Attribution dashboard in Seller Central allows users to see conversion metrics, such as “page views,” “add to cart,” and “purchases.” 
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8. Amazon Best Deals: One of several types of promotions that sellers can run on Amazon where a product is offered with a 15% discount over a 2-week period. During the deal, the product is featured on the Today’s Deals page. The product must have an average rating of at least 3.5 stars and selling price of at least $10. 
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9. Amazon Brand Gating: An invite-only Amazon program that allows manufacturers and private label sellers to control who can resell their products. This program helps prevent unauthorized third-party sellers from listing products. 
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10. Amazon Brand Registry: An Amazon program that enables brands to gain additional protections and access to additional marketing services. Enrollment in Brand Registry is free, but requires a trademark registration number. Brand Registry provides access to Amazon’s infringement reporting tool, brand stores, A+ Content, Sponsored Display Ads, Sponsored Brand Videos, and more. 
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11. Amazon Brand Store: A curated digital storefront on Amazon where brands can list their entire Amazon catalog in a convenient and branded experience. This feature is available only to brands enrolled in Amazon Brand Registry.
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12. Amazon Buy Box: The top right section on the product page where consumers can add items to their carts. The Buy Box is awarded by Amazon to sellers based on product price, availability, seller performance, and whether the product is offered with FBA or Prime shipping.
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13. Amazon Coupons: Advertisers can enroll up to 50 ASINs into a single coupon and offer either a dollar amount or percentage off. The coupon cost to the advertiser will equal the discount + $0.60, both of which are subtracted from the coupon budget. Each coupon must have a minimum of $100 for the budget, however, advertisers will be charged only for redeemed coupons. 
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14. Amazon Damage Allowance: To cover the cost of handling and disposal of damages, Amazon charges vendors a damage allowance. Vendors can choose not to agree to this damage allowance, but they then must fund the cost of returning the item themselves. 

15. Amazon Early Reviewer Program: The Early Reviewer Program is an Amazon-run initiative that can generate up to five new reviews on a selected product. Amazon randomly contacts verified buyers of an enrolled product and offers the customer an incentive to leave a review within the specified offer period. Amazon offers the buyer a small Amazon account credit (typically $1-$3) that can be used on future Amazon purchases. To qualify for the program, products must have a price point of at least $15 and fewer than five reviews. The product can remain in the program up to one year or until it receives five new reviews, whichever comes first. 
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16. Amazon Enhanced Brand Content: A feature offered to Amazon’s vendors and Brand Registered brands that allows them to add additional information to their product detail page. This extra real estate appears below the bullet points on a product detail page. 
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17. Amazon Headline Search Ads: Renamed to Sponsored Brand Ads, this ad type displays a banner ad at the top of the search results page. The banner ad contains a brand image and features up to three products. This ad type is typically best suited for generating brand awareness. 
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18. Amazon Lightning Deals: Deals that run for several hours on and appear on the Today’s Deal page. This deal type offers a limited quantity of units determined by the seller. To be eligible, the brand must have a proven track record of selling well, a minimum 20% discount off the lowest price in the trailing 30 day price or lowest price YTD (whichever is lowest), sales history, and a 3–star rating or higher. 
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19. Amazon Live: Through Amazon’s app, Amazon Live Creator, sellers can broadcast livestreams where they demonstrate products usage, features, and benefits. Featured products appear directly below the live broadcast.
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20. Amazon Marketing: Marketing services that are available on the Amazon platform, including Sponsored Product Ads, Sponsored Brand Ads, Sponsored Display Ads, Sponsored Brand Videos, Amazon Coupons, Deals, Amazon Live, Amazon Posts, DSP, Brand Stores, A+ Content, and more. Amazon continuously adds and retires marketing services. 
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21. Amazon Product Categories: Amazon groups products by specific categories and has different selling requirements for each. These requirements can include additional fees, performance checks, and other qualifications. An example of a product category is “Apparel,” which includes Outerwear, Athletic Wear, Innerwear, Belts, and Wallets. 

22. Amazon Prime Exclusive Discounts: A price discount exclusively for Amazon Prime members. Products with Prime Discounts display strike-through pricing. To be eligible for this promotion, a product must be Nationally Prime Shipping Eligible, have a rating of 3.5 stars or above or no reviews, offer 20% off current price, the discount must beat the lowest price offered for the ASIN in past 30 Days by 5%, and the seller must have at least a 4-star seller rating. 

23. Amazon Seller Central: An Amazon platform used by Amazon sellers to market and sell products to Amazon customers.  

24. Amazon Sponsored Brand Ads: Formerly called Headline Search Ads, this ad type displays a banner ad at the top of the search results page. The banner ad contains a brand image and features up to three products. This ad type is typically best suited for generating brand awareness. 
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25. Amazon Sponsored Brand Videos: An Amazon ad type that displays a video on the Amazon home page and in the search results. The videos display on mobile and desktop. Amazon recommends including subtitles in the video. 
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26. Amazon Sponsored Display Ads: Pay-per-click (PPC) ads on Amazon and Amazon-owned websites and apps that target shoppers by searches, views, purchases, or products. 
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27. Amazon Sponsored Product Ads: Pay-per-click (PPC) ads that appear in strategic areas on Amazon, such as the top of the search results page and within a product detail page. These ads give brands’ products more visibility and increase the likelihood of purchase by consumers.
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28. Amazon Spotlight Deals: Deals that run for 24 hours on the Amazon Today’s Deals page or until stock runs out. These Deals are subject to minimum revenue and units sold thresholds. Criteria for Spotlight Deals include whether the item is Top Selling Product, the lowest price trailing 365 days, and a 4-star rating. 

29. Amazon Standard Identification Numbers (ASINs): A unique alphanumeric code for a product listed on Amazon. The ASIN can typically be found in the URL of an Amazon product detail page and in the further details section of the product detail page. 

30. Amazon Vendor Central: The Amazon platform used by manufacturers and distributors to sell product directly to Amazon’s first-party (1P) retail division, Amazon Retail. 
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31. Amazon Vine: An invite-only program for Amazon customers who regularly leave reviews marked helpful by other customers. These customers are deemed trusted reviewers and gain access to free products, for which they provide customer reviews. These reviews are identifiable by a green stripe and labelled with Amazon Vine Program. 

32. Amazon Web Services (AWS): Amazon’s cloud computing platform that offers services such as infrastructure as a service (IaaS), platform as a service (PaaS), and packaged software as a service (SaaS). AWS also offers solutions for database storage, compute power tools, and content delivery services. 

33. Automatic Campaigns: A campaign type within Sponsored Products in which the advertiser sets a default bid at the Ad Group level and Amazon places ads automatically for customer search queries it deems to be relevant. These are commonly used to find new keywords that Amazon’s algorithm views as relevant for the products being advertised. 

34. Average Order Value: The average amount a customer spends at a digital storefront in a single order. You calculate this by dividing sales revenue by the number of orders taken. 

35. Average Time on Site: The average amount of time a visitor spends on a website. Usually defined within a specific timeframe. 

36. Bid: The maximum amount an advertiser is willing to pay in order to get an ad to place for a specific search term. 

37. Bid Optimization: The act of adjusting the bid for keywords in Amazon ad campaigns in order to improve performance. Bids may either be increased because ads are not competitive enough for important keywords, or they be can be decreased because ads are utilizing budget too quickly. 
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38. Brand Awareness: The degree of consumer recognition of a brand based on the brand’s copy, colors, logo, products, qualities, and style. 

39. Business to Business (B2B): A transaction in which a business sells products or services to other businesses. 

40. Business to Consumer (B2C): A transaction in which a business sells products or services to an end consumer. 

41. Call to Action (CTA): The action that marketing materials are trying to encourage the audience to take, such as “subscribe,” “add to cart,” or “sign up.” 

42. Certified Service Providers (CSP): A person or organization that is certified under the Streamlined Sales and Use Tax Agreement to perform sellers’ sales and use tax duties (excluding the obligation to remit tax on its own purchases).  
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43. Chargebacks: When a customer contacts their bank about a charge they don’t recognize or dispute, rather than contacting Amazon or the seller about the issue. 

44. Click-Through–Rate (CTR): The percentage of visitors on a page who first view then click on an advertisement. 

45. Copywriting: The writing of marketing, advertising, and promotional materials. 
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46. Conversion Rate: The percentage of visitors to a page who take a desired action, usually in the form of purchases.  

47. Cost of Labor: The sum of employee wages that have been paid. This also includes employee benefits and payroll taxes.  

48. Cost-per-Click: A method of billing determined by the number of times a visitor clicks on an advertisement. This is Amazon advertising’s primary billing model. 

49. Demand Side Platform (DSP): Amazon’s advertising platform that enables advertisers to use Amazon’s consumer data to target shoppers on Amazon and Amazon-owned websites and apps with display and video ads. 
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50. Dropshipping: A method of retail fulfillment where the seller does not keep product in stock. Instead, the seller waits until a consumer purchases the product online, then the seller buys the product from the manufacturer and has the product shipped directly from the manufacturer to the consumer. This method is often used for products not eligible for preferred fulfillment methods, like FBA. 
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51. Discount Code (Coupon Code or Promo Code): A code that shoppers use during checkout to redeem special offers or discounts. 

52. First-Party Seller: A seller who owns the marketplace upon which they sell. Amazon Retail, for example, is the one and only first-party seller on Amazon.com.  
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53. Fulfillment by Amazon (FBA): An Amazon service in which third-party vendors keep their product at an Amazon fulfillment center. Amazon will pick, sort, pack, ship, track, and handle shipping, returns, and refunds of these products for a fee. 

54. Fulfillment by Amazon (FBA) Fees: A fee charged by Amazon for each unit processed through FBA. The fee is based on the product’s size and weight. 

55. Fulfillment by Amazon (FBA) Storage Fees: A fee charged by Amazon for your inventory that occupies space in an Amazon Fulfillment Center. This fee is based on the daily average volume (in cubic feet). 

56. Fulfilled by Merchant (FBM): A fulfillment method where the seller manages and controls their handling and shipping process, as opposed to Amazon or a third-party logistics provider.  

57. Fulfillment Centers: A physical location where third-party logistics (3PL) providers, like Amazon Fulfillment, fulfill customer orders for online sales. 

58. Gross Margin: The revenue a business retains after subtracting costs, calculated by subtracting cost of goods sold from net sales revenue. The higher the gross margin, the more working capital a company has.  

59. High-Converting Keywords: Keywords in a pay-per-click (PPC) advertising campaign that drive high conversion rates. Identifying these keywords and adding them to sponsored ad campaigns is an essential part of optimizing an ad campaign. 

60. Influencer Marketing: The promotion and selling of products or services by having people with social influence and followings promote the product on their social media accounts. 
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61. Invoice: An itemized record of a transaction between a seller and a buyer. 

62. Key Performance Indicators (KPIs): Metrics that are actively tracked in order to gauge a company’s long-term overall performance. These are usually set to compare the company’s performance to other companies within the same sector and to previous years’ performances. 

63. Keywords: Words or phrases that shoppers frequently use when searching for a given product. Including keywords in the copy on the product detail page or in Amazon sponsored ad campaigns helps products place higher in the search results and drive more traffic to listings. 

64. Landing Page: A webpage created solely for an advertising campaign. It is where visitors “land” after clicking on an ad or a link. 

65. Listing Optimization: The process of revising the copy and images on a product detail page in order to improve organic placement in the search results and conversion rates. This process often includes adding keywords to the listing title and bullet points, revising copy to improve readability and highlight key features, and including images that demonstrate product use, features, and benefits. 
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66. Low-Converting Keywords: Keywords that drive particularly low conversion rates within a pay-per-click (PPC) advertising campaign. Identifying and negating these keywords is an essential step in improving the efficiency and performance of a sponsored ad campaign. 

67. Minimum Advertising Price (MAP): The minimum price for which sellers can advertise a product, typically issued by the manufacturer. 

68. Minimum Order Quantity (MOQ): The minimum number of products or units that a supplier will produce at one time. This number helps ensure that the supplier is producing enough products or units to drive a profit after the costs of production. 

69. Marketing Campaign Management: The planning, executing, tracking, and analysis of marketing campaigns from the beginning to the end. 
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70. Marketing Co-op: An agreement between a manufacturer and a seller where the manufacturer pays for a portion or the entirety of paid marketing efforts for their product. 

71. Marketplace Facilitator: Businesses or organizations that arrange with third parties to sell products and services on its platform. Through this they can facilitate retail sales. 
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72. Marketplace Facilitator Laws: Legislation around sales tax responsibilities of Marketplace Facilitators. 
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73. Manufacturing Cost: The cost of materials and production borne by the manufacturer. 

74. Media Gallery: The section at the top of an Amazon product detail page containing images and videos. 
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75. Net Profit Margin: The percentage of revenue that a company retains as profit after subtracting all costs. 

76. Net-Terms: The amount of time that passes between a seller acquiring inventory from a manufacturer and the seller paying the manufacturer for that inventory. This delayed payment enables sellers to generate revenue to help pay for the purchase order.  

77. Paid Social: Paid targeted advertisements run on social media platforms, such as Facebook and Instagram. 
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78. Pay-per-Click (PPC): A type of digital marketing in which marketers pay a specific amount each time their ads are clicked. This model is used in most types of Amazon ads. 

79. Purchase Order (PO): The order a retailer places with a vendor to acquire product. This includes the quantity of product ordered and the price paid for it. 

80. Product Description: A section near the bottom of the Amazon product detail page where additional product information can be shared. 

81. Product Detail Page: Also called a “listing,” the page featuring a specific product that includes a title, bullet points, product description, media gallery, enhanced brand content, and customer reviews. 
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82. Product Profit Margin: The difference between how much the product sells for and the actual cost of the product itself. This is sometimes referred to as a “markup.” 

83. Product Rank: A product’s rank compared to other products in each category as determined by Amazon’s algorithm. A lower rank is better, indicating higher customer reviews, more traffic, more sales, and better organic placement on the search results page. 

84. Production Costs: The cost for manufacturing products or services. These can include labor, raw materials, supplies, delivery costs, and general overhead. 

85. Retail Arbitrage: The practice of buying products from distributors, wholesalers, retailers, and so on, then reselling those products at higher price. The resale usually takes place online. 
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86. Retail Price: The price of product when sold to an end consumer. 

87. Return On Advertising Spend (ROAS): A measurement of the effectiveness of a digital advertising campaign. Very similar to ROI, this metric is specifically for paid advertising campaigns and helps online business determine best methods and improvements for future digital advertising campaigns. 

88. Return-On-Investment (ROI): A comparison of the amount invested to the amount generated by that investment. ROI is frequently used when measuring the value of paid marketing in generating overall revenue. To calculate ROI, divide the amount generated by the cost of the investment.  
89. Sales Tax: A tax on a sale, transfer, or exchange of a product or service. Usually this tax is applied to the end consumer and not the seller. 

90. Search Engine Optimization (SEO): The science of making web pages more attractive to search engines by implementing highly searched keywords in a page’s frontend content and meta content, optimizing content length, and more. On Amazon, SEO typically involves implementing keywords into product detail pages to improve their organic placement on the search results page. 
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91. Search Engine Results Page (SERP): The page that is generated from a system after the user inputs their query. An example of SERP would be the Google results page. 

92. Seller Agreement: A contract signed by businesses that sell on Amazon wherein they agree to comply with all of Amazon’s policies.

93. Social Media Marketing: A type of marketing conducted on social media platforms such as Facebook, Instagram, Twitter, LinkedIn, Pinterest, Snapchat, and more. This marketing typically seeks to connect brands with their target audience, build brand name recognition and loyalty, increase sales, and drive website traffic. Social Media Marketing often involves content creation, engagement with followers, analysis, and running paid social media advertisements.  
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94. South Dakota v. Wayfair, Inc.: A landmark supreme court decision that holds sellers responsible for collecting and remitting sales tax in any state where they surpass a certain sales threshold, even if the business lacks a physical presence in the state. 
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95. Third–Party Seller(s): An independent company that sells products on a marketplace they do not own, such as Amazon. Third-party sellers are common on Amazon, accounting for over 50% of all sales on Amazon.com. 
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96. Third-Party Logistics Providers: A business that provides services for inventory management, distribution, warehouse storage, product preparation, labelling, and fulfillment for other companies. 
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97. Today’s Deals: A page on Amazon that features products currently running Deal of the Day, Lightning Deals, or Best Deals. This is the second most visited page on Amazon. 
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98. Use Tax: A tax on a storage, use, or consumption of a product or service which has not had sales tax applied to it. 

99. Vendor Fees: A fee collected by vendors to cover the cost of processing sales taxes and transferring them to state and local governments. 
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100. Wholesale Costs: The price of products purchased in bulk from the manufacturer, as opposed to the retail price, which is an increased price charged to end consumers commonly used by retailers/resellers. 

Amazon taxes for online sellers

Death and taxes: the two certainties in life. This phrase is often credited to Benjamin Franklin, though the true source is unknown. Regardless though, the idea of taxation, and sales tax specifically, has been around about as long as commerce and trade itself.  

This reality was temporarily destabilized by the sudden and rapid growth of online marketplaces like Amazon, with legislatures struggling to keep pace with the fast-paced innovations. For many years, brands and marketplaces alike avoided paying sales tax in many states. That changed in June 2018 with the landmark supreme court case of South Dakota v. Wayfair, Inc. 

South Dakota v. Wayfair, Inc 

South Dakota believed that online retailers like Wayfair were not paying duly owed sales tax, shorting the state important sales tax revenue. Earlier tax laws included “physical presence” clauses, which meant that if a brand did not have a brick and mortar store within the state’s borders, they were exempt from the sales tax. South Dakota argued that that these physical presence clauses no longer make sense in today’s digital economy, and they fought for the ability to tax online retailers for sales made in their state. Ultimately, the Supreme Court agreed.  

As a result, brands that exceed a certain number of annual sales within a given state must pay the state’s sales tax, even if the brand doesn’t have a physical presence in that state.   

Key Takeaways 

  • Online sellers are now required to collect and remit sales & use tax for online sales in 42 states, even if they lack a physical presence in that state  
  • 33 states have enacted Marketplace Facilitator laws, which transfer the responsibility from sellers to online marketplaces like Amazon, Walmart.com, and eBay 
  • Sellers who sell outside of online marketplaces, such as on a direct website, are still responsible for collecting and remitting sales & use tax 
  • Some states have designated Certified Service Providers (CSP) that manage the tax nexus for online retailers. Kaspien partners with one of these CSPs to handle sales & use tax collection and remittance for our partners and clients 

 

How Marketplaces Are Affected 

This landmark decision opened the door for other states to revise or create ecommerce tax laws, requiring sellers to collect and remit sales taxes. So far, 42 states have implemented laws compelling sales tax collection for ecommerce sales.  

States have recognized that these new laws are burdensome to both states and sellers, as they create more administrative work for both parties. As such, many states have taken steps to simplify the process and relocate the burden to marketplaces (i.e. Walmart, Amazon, eBay, Etsy, etc.) through Marketplace Facilitator laws.  

Marketplace Facilitator laws were created because states believe that a platform is far more likely to consistently meet or exceed the economic nexus threshold, resulting in more consistent sales tax revenue to states. This approach also lowers states’ administrative costs, so they process returns for the platform instead of every seller.  

Additionally, many states are working to create a more uniform sales and use tax system across the country because they realize that a simpler process will result in more widespread compliance. Twenty-four states have banded together to form the Streamlined Sales and Use Tax Agreement (SSUTA), with more states moving towards these same measures.  

How Sellers are Affected 

Not every state with ecommerce tax laws has enacted Marketplace Facilitator laws, which means that there are still some states where sellers bear the burden to collect and remit sales tax, rather than the marketplace.  

Keeping track of all the laws and requirements of each taxing jurisdiction is a full-time job in itself, and not all sellers are equipped to make immediate adjustments needed to comply with the laws.  

To help with this problematic situation, the Streamlined Sales Tax Governing Board (SSTGB) has designated certain providers as Certified Service Providers (CSP) of the SSUTA. These CSPs calculate and automate the filings at no charge to the retailers. Some CSPs utilize software applications to help sellers track when they have reached the point of economic nexus in a specific threshold, help you register in those tax jurisdictions, and then assist with the actual filing of returns for those areas. Some software platforms even integrate into your accounting software to track the transaction data and compile the necessary information to prepare the returns.  

Kaspien offers one such sales & use tax service, partnering with TaxCloud to offer our partners and clients the best solution for automated sales & use tax compliance for both online and brick & mortar sales.  

TaxCloud offers the following benefits: 

  • TaxCloud automatically registers brands in SSUTA member states and assist with registration in non-member states 
  • TaxCloud tracks brands’ total sales and alerts them when they are approaching a nexus threshold and may be required to register 
  • TaxCloud can integrate directly into the Amazon Seller Central account or with the Walmart.com portal and pull in all transactional information without requiring any manual formatting 
  • TaxCloud can file for brands in all 9,998 tax jurisdictions in the U.S. at the required cadence (monthly, quarterly, annually) for each 

The advantage of leveraging TaxCloud through an Kaspien partnership is that we can provide the service in addition to dozens of others, functioning as your one-stop shop for all things ecommerce. View all of Kaspien’s services. 

Request more information about Kaspien’s tax and compliance services through our contact form.  

Ecommerce Taxation Around the World 

Over time, how we do business changes, and with it, the collection of taxes. Currently, France is leading the charge in Europe to enact digital taxes on giant tech companies (Facebook and Amazon being some of the largest companies affected) because they feel that they are missing revenue from these companies. It will be interesting to see how all of that shakes out. Death and taxes; the two certainties in life. And from the looks of things, neither of those certainties are going to change anytime soon. 

How much does it cost to sell your product yourself on Amazon

For the third installment of our costs of Amazon series, we’re examining the Amazon business expenses associated with direct selling. In the previous posts in this series, we looked at the costs of Amazon third-party sellers and the costs of Amazon Retail.  

WHAT IS DIRECT SELLING & HOW DOES IT WORK ON AMAZON? 

Direct selling is the business model where a brand operates as both the manufacturer and seller of a product. Amazon’s private label brand, Amazon Basics, is one example of this. Costco’s Kirkland Signature brand is another. If you want to own the supply chain, retail, and marketing portions of your Amazon business, you’re interested in direct selling.  

Benefits of Direct Selling 

Direct selling has many benefits, not least of which is maximum control over your brand’s online representation. Rather than relying on third-party sellers or Amazon Retail to present your products accurately and entice customers, you control your listings.  

You also have control over your supply chain, potentially all the way from manufacturer to customer. Controlling your supply chain helps mitigate the risk of counterfeits entering your distribution network or unauthorized sellers undercutting your pricing. 

And while we’re on the topic of price, you control that too; no one can cut your pricing when you are the exclusive seller of your product.  

Challenges of Direct Selling 

The first and foremost obstacle is resources. Handling production, supply chain, marketing, creative services, compliance, customer service, taxes, etc. requires a great deal of research, time, and effort. 

Managing these elements is easier for brands that only have a few products because the workload grows exponentially with the addition of more product lines or marketplace expansion. To scale successfully and sustainably, you need to either expand your team (preferably with experienced personnel) and/or use software to automate processes.  

WHAT ARE THE COSTS? 

As the manufacturer and seller of your products, you’re responsible for nearly every expense. This is not inherently a bad thing, but it’s a major factor for determining your business strategy. 

Personnel 

Running an Amazon seller account at scale requires employees. That means paying wages, salaries, and benefits. These investments quickly add up. If you wish to pursue direct selling, how many employees do you need, what experience and skills do they need, and can you afford them?  

Supply Chain 

Logistics and supply chain will account for a significant portion of your annual expenses, with fees coming from sourcing, compliance, manufacturing, packaging, freight, taxes, warehousing, processing, shipping, demand planning, liquidation, and battling counterfeiters, to name a few.  

Do you have the knowledge, tools, and personnel necessary for managing your business’s supply chain from start to finish? If not, which portions can you acquire and which can you outsource?  

Amazon’s fulfillment centers take care of the final leg of the supply chain (although FBA comes with its own fees). Brands can also work with services like Deliverr to offer two-day shipping for other online marketplaces, including Walmart, eBay, Shopify, and more.  

Supply chain is one of the most extensive and significant obstacles to direct selling, which is why many manufacturers turn to third-party sellers, first-party sellers (aka Amazon Retail), or agencies to outsource that segment of their business. 

Digital Marketing 

Marketplaces are increasingly crowded. To ensure your products can be found, digital marketing is a must.  

Fortunately, not all marketing has an expense. Listing optimizations are among the most important efforts a seller can make, and they require nothing more than time, research, and effort.  

Here’s a brief overview of how to create great listings: 

  1. To optimize a listing, start with keyword research. Which search terms have the greatest relevancy to your product and what’s the competition like for those search terms? A mixture of high search volume and low competition keywords can help your product establish a foothold.
  2. Use short–tail and long–tail keywords. Short-tail keywords can help listings populate for more general queries (boosting visibility) while long-tail keywords are more likely to lead to conversions (shopper has specific interest and therefore stronger intent). Plug keywords into the listing title, bullets, and product description.
  3. Last but not least, review and revise the listing to achieve a balance of discoverability with buyability. The listing must be keyword-rich to be discoverable by Amazon’s algorithm, but it must also be persuasive to a human being. If the listing is just a string of keywords, shoppers won’t convert, and then it doesn’t matter that your listing was discovered. 

 

You can read more in our blog post, 5 Tips for Improving Listing Discoverability.  

Product images and videos are also incredibly important for improving sales velocity. Keywords make a listing appear on the search results page, but it’s the image on that entices a shopper to click into the listing itself. You can read more on that and what goes into creating quality photos and videos for Amazon here. 

Another free marketing service is Amazon Live, which allows brands to livestream product videos directly on Amazon. The service launched early in 2019 and has proven to drive excellent visibility.  

While free services are fantastic, brands should also consider paid marketing services. For Amazon, this includes Sponsored Product Ads, Sponsored Brand Ads, Sponsored Display Ads, Coupons, and Deals. Beyond Amazon, brands can look into paid marketing on social media with services like paid social ads, direct B2C social media engagement, and influencer marketing.  

As with everything else, each of these services require time and effort, and they greatly benefit from being driven by someone with experience in search marketing or social media marketing.  

Brand owners interested in selling their products themselves can research best practices, guides, and tutorials so they can take on these services themselves, expand their teams internally, or outsource marketing to freelancers or agencies.  

Brand Protection 

Online brand protection is a necessity. The reality is that there are unscrupulous individuals and companies who will steal intellectual property, make counterfeits, undercut pricing, or make false allegations to get your seller account shut down.  

To defend against these threats, brands need to proactively protect their IPR by filing for trademarks, copyright, and trade secrets whenever appropriate. This includes domestically and internationally.  

Defending against counterfeiters means working with trustworthy manufacturers who won’t sell your designs or products to other parties, closely monitoring your supply chain to prevent counterfeits from entering your inventory, monitoring listings, and periodically making test buys to verify product authenticity.  

Another element of brand protection is product pricing. Price consistency is important because it reflects brand integrity. When a product is offered for far less than the MSRP, shoppers question if its legitimate and why the MSRP is higher. If you are your products’ exclusive seller, controlling pricing is easy. If you also partner with other retailers to sell your product, you need to be able to monitor and enforce your pricing policies. This can be done manually, as detailed here, but it’s a time–consuming process that is difficult to scale without automation.  

Finally, if your account is suspended due to false allegations, the quickest way to get it restored is to provide the necessary paperwork showing that you own the product you sell and that it’s not counterfeit.  

You can read 11 more tips for protecting your brand online here.  

THE MIDDLE GROUND – OUTSOURCING PARTS OF YOUR BUSINESS 

The benefits of direct selling make it extraordinarily appealing to many brands, but many discover through experience that they’re not yet equipped to handle it. For those brands, there’s a middle ground: partner with an agency and/or utilize software. 

By outsourcing to an agency, a brand gains a team of experts to run their marketing, supply chain, brand protection, or any combination of the three for a fraction of what it would cost to hire a team in-house. It’s a cost-effective approach that can drive profitability and sustainable growth, giving brands time to develop and pursue their short-term and long-term goals.

In addition or as an alternative, brands who wish to sell their product themselves can pay for software that automates and/or simplifies various services, reducing the time and personnel required to successfully run an online business. This option has the greatest profitability potential, but it again depends on who’s running the tools. If the tools are excellent, but the person using them is inexperienced, the tools will yield only a fraction of their full potential. Working with an agency or software provider who can train your team on the software is a great bridge to independent direct selling.

THE TAKEAWAY – WHICH BUSINESS MODEL IS THE BEST? 

After reviewing the business expenses associated with Amazon third-party sellers (3P), Amazon Retail (1P), and direct selling, there’s no clear answer to which is the perfect solution. The best Amazon business model for your brand depends entirely on your business’s goals, needs, limitations, and priorities.  

Kaspien offers services for third-party retail, direct selling with an agency, and direct selling independently. If you’d like to learn more about any of these services, reach out through our contact form.

Amazon Retail Vendor Central fees

In a continuation of our series on the costs of the primary Amazon business models, today we explore the costs of Amazon Retail and the Vendor Central platform. You can read about the costs associated with Amazon third-party sellers in our previous blog post here. 

In our next post, we’ll explore the costs associated with direct selling, where a brand operates as both manufacturer and B2C seller.  

WHAT IS AMAZON RETAIL & HOW DOES IT WORK? 

Amazon Retail is the name of Amazon’s first-party (1P) platform. In this model, Amazon itself serves as the middleman, buying product wholesale from manufacturers and reselling it on Amazon.com.  

When working with Amazon Retail, manufacturers operate in Vendor Central (as opposed to Seller Central). In Vendor Central, manufacturers can monitor purchase orders and inventory levels, view reports, and, depending on the manufacturer’s size and budget, dictate some marketing control. Overall, Vendor Central provides much less control and customization than Seller Central since Amazon assumes near absolute control once they acquire inventory.  

Amazon Retail is an enticing option for those starting an Amazon business or brands who wish to focus on being a manufacturer and take a hands-off approach to customer engagement. Another benefit is that Amazon Retail will often place larger purchase orders than many third-party sellers, although those orders will be placed less frequently since they are larger. 

Will Amazon Retail Remove Smaller Vendors? 

Amazon Retail has contributed less and less to Amazon’s total revenue over the years. In 2015, third-party seller sales surpassed Amazon Retail sales for the first time, tipping the scales to account for 51% of all sales on Amazon. That trend has continued ever since.  

As first party market share wanes (even while total sales grow), advertising has become one of Amazon’s most profitable revenue streams, leading industry experts to predict that Amazon will eventually limit its first-party platform to only the highest-revenue brands and force all other brands to work with third-party sellers or enter direct selling, allowing Amazon to focus its attention and resources on only the most lucrative divisions.  

This prediction was seemingly substantiated in early 2019, when Amazon Retail abruptly stopped placing purchase orders with thousands of vendors and notified some that Amazon would no longer purchase inventory. Some saw this as the first step towards the fabled “One Vendor” system, that would merge Seller Central and Vendor Central. A week later, Amazon redacted the move and quietly resumed business as usual, largely ignoring questions about vendor stability and any harm caused by the disruption.  

The concerns resurfaced less than three months later when Bloomberg reported that Amazon was preparing to slow walk the vendor removal, letting contracts expire and not renewing them.  

Since then, no new concerns have been raised, and as Amazon undergoes heightened federal scrutiny, it may exercise extra caution towards acts that could lead to widespread outcry. 

WHAT ARE THE COSTS? 

While the top-level overview of third-party sellers and Amazon Retail seem very similar, they have some important differences in their pricing structures.  

Percentage-Based Fees 

Amazon Retail charges a handful of percentage-based fees for marketing co-op, damage allowance, early payment, chargebacks and shipping. In contrast, the third-party seller business model makes the 3P seller responsible for paying Amazon fees instead of the brand. 

We’ve included two examples of how Amazon’s fee structure differs from a third-party seller fee structure, using Kaspien data as an example.  

 Example of Amazon Retail fees

Digital Marketing 

Like third-party sellers, Amazon Retail offers marketing services to brands. Brands fund these services, and they can choose to manage them themselves or pay Amazon to manage them. 

*Brand Registry is required to access this service.  

Amazon’s service fees vary. In many cases, Amazon will negotiate a PO discount in lieu of charging fees for their marketing services. Vendors can run these services themselves or hire Amazon to run them, which would be written into the contact. If Amazon runs marketing through Vendor Central, visibility into performance through reporting is very limited.  

Brand Protection 

Amazon’s brand protection services, with the exception of the Transparency program, are free. These programs include Brand Registry, Brand Gating, and Project Zero.  

Each of these programs is available to any brand on Amazon; they are not restricted to Amazon Retail partners. You can read more about each of these services in our blog post on online brand protection.  

COMING UP: THE COST OF DIRECT SELLING ON AMAZON 

To summarize, Amazon Retail charges a handful of percentage-based fees, but otherwise, there are no automatic costs for working with Amazon Retail. Like third-party sellers, Amazon Retail offers a variety of opt-in services for Amazon marketing.  

In our next post, we’ll detail the costs associated with direct selling on Amazon, where a brand serves as both the manufacturer and seller.  

How much does do Amazon third-party sellers cost?

One of, if not the first and most consistent questions business owners have to ask is, “How much will it cost?” When it comes to selling products on online marketplaces, finding a clear answer can be surprisingly difficult.  

To address that issue, Kaspien will spend the next several posts delving into the costs of doing business on Amazon. 

Currently, there are three primary business models brands can use for selling their product on Amazon: 

  • Sell product wholesale to third-party (3P) retailers (FBA and dropship) 
  • Sell product wholesale to Amazon Retail (also called “first-party” or “1P”) 
  • Sell directly from your own seller account on Amazon. This has two sub-options: 
    • Work independently, supplying labor, expertise, and resources internally 
    • Work with an agency or consultant to outsource labor, expertise, and resources 

In this post, we’ll explore the costs associated with the most prominent business model on Amazon, third-party retailers. 

WHAT IS A THIRD PARTY SELLER & HOW DO THEY WORK?

In the most simplified terms, third-party retailers are middlemen. A brand manufactures product, sells the product to a third-party retailer, and then the third-party retailer resells the product at a higher price point on marketplaces, often utilizing custom marketing strategies to increase velocity. These third-party retailers utilize the Amazon Seller Central platform to resell product. 

This model works well for brands because they receive a large check from the third-party retailer; they don’t have to wait for the product to sell unit by unit to make a profit on manufacturing costs. This model also has the significant added bonus of reducing labor costs for brands. If brands want to sell product directly to consumers, they need to supply the manpower, hardware, software, strategies, and expertise themselves. By outsourcing, they save on those expenses.  

For third-party resellers, this model relies on thin margins. After purchasing product from a manufacturer, they resell – or retail – it for a higher price, deriving their profit from the difference. Those pennies on the dollar have to pay for the third-party retailers’ expenses, from salaries and benefits to warehouse storage fees and business development.  

In the best 3P partnerships, this business model is mutually beneficial, providing a steady and growing cashflow to both the brand (in the form of monthly, quarterly, or annual purchase orders) and the third-party retailer (in the form of good product margin).  

WHERE ARE THE COSTS? 

You’ll notice that in the section above, there are no costs. That’s because, at the basic level, there are no costs for working with third-party retailers. A retailer pays the brand for product, and that’s it. 

Where the costs come in is in additional services. Today, most third-party retailers don’t just retail; they offer many other services on top of simply storing, listing, and distributing product.  

Digital Marketing 

Perhaps the most common service retailers offer is marketing. By marketing products, retailers sell more. And the more they sell within a set period, the more product they can purchase from manufacturers in their next order.  

In this way, marketing is a mutually beneficial service for both the brand and the retailer. Most retailers will ask brands to fund marketing, which is often done through monthly or annual funding or discounts to purchase orders. In some cases, retailers may commit to help fund marketing with a small percentage of revenue, though this varies widely across the industry. 

There is a myriad of Amazon marketing services brands can use to increase brand exposure and drive sales. Below, we’ve included some of the most effective marketing services, along with the minimum starting budget Kaspien generally recommends: 

Brand Protection 

Retailers like Kaspien may also offer software for online brand protection. Brand protection software varies, but most feature some combination of detecting unauthorized sellers and pricing policy violations, identifying IPR violations, identifying potential counterfeits, and providing historical seller data. 

This type of software is typically available on a subscription basis. 

Retainer Fees 

Retainer fees are the exception to the norm. As we said earlier, there are no upfront costs to working with third-party retailers. The exception to that rule is when brands and/or their products are new to the marketplace, and retailers do not expect to make a profit from retailing.  

Instead of relying on margin to fund their expenses and generate a profit, retailers may charge a brand a retainer fee in exchange for bringing the product to market. In these cases, the retainer fee transitions to a traditional wholesale retail relationship once the product has gained enough traction and velocity to be profitable.  

For Kaspien’s First-to-Market (FTM) Program, we typically transition from the retainer model within 6 months of launching the new product. 

For brands, this model represents a long-term investment developing a strong buyer-supplier relationship. Retailers expand their reach and open additional sales channels, positioning them for future growth. 

COMING UP:

THE COST OF AMAZON RETAIL & VENDOR CENTRAL 

To summarize, typically there is no upfront cost to brands for a third-party retailer relationship. Brands can incur costs by opting into additional services, but in most cases, these services provide a positive ROI and eventually pay for themselves. For non-revenue-generating services, such as brand protection software, the intangible benefits may outweigh the tangible risks. 

In our next post, we’ll review the costs associated with selling as a vendor to Amazon Retail (1P) through the Amazon Vendor Central platform.