Amazon

6 Common Mistakes Brands Make When Starting on Amazon

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With over 2 million active sellers on Amazon (marketplacepulse.com) and driving over 50% of total marketplace sales, third-party sellers are a vital component of Amazon’s success and are presented a massive revenue opportunity.

The purpose of this article is to highlight a few of the most common mistakes we see brands make when they first begin their Amazon journey and what you can do to avoid them. As the playing field becomes more saturated and Amazon tightens its grip on unruly sellers, it is critically important that your brand starts with a solid foundation. If you can understand and avoid the following mistakes, you will be better positioned for success!

1. NOT ENROLLING IN BRAND REGISTRY

Before you create your first listing, you should understand the Brand Registry program and determine if you are eligible to be enrolled. If you aren’t familiar with Brand Registry, check out our blog post on it here. There are 2 ways you can get access to Brand Registry: (1) you are the owner of an issued and active trademark registered through 1 of 17 global trademark offices, or (2) you sign up for Amazon’s IP Accelerator program to begin the trademark process and get early access to Brand Registry.

We often see brands begin selling without Brand Registry and they are severely limited in both creative and legal control of their brand. If possible, we highly recommend enrolling in the Brand Registry program before creating any new product listings for your brand.

2. NOT READING THE AMAZON SELLING POLICIES

Everyone is guilty of scrolling through the Terms of Service without reading them and blindly clicking “I agree.” Do not let yourself fall into that trap when it comes to selling on Amazon. Amazon is notoriously ruthless when it comes to suspending and even permanently banning 3P sellers – sometimes for false claims. The Amazon Selling Policies outline the “Seller code of conduct” and 6 other main categories:

  1. Category, product, and listing restrictions
  2. Product detail page rules
  3. Prohibited seller activities and actions
  4. Drop shipping policy
  5. ASIN creation policy
  6. Recalled products

It is imperative you read through this documentation and understand how it applies to your business model and product line. Here is the link to Amazon’s Selling Policies (US).

3. DETAIL PAGES NOT “RETAIL READY”

This is another subject we have an in-depth blog post on here. Retail Readiness is when a product detail page includes all the necessary information for a customer to make a purchase; customer reviews, clear pictures and description, stock availability, etc. A lot of this will seem logical, but it is important to understand the specific components that comprise a Retail Ready detail page:

  • Accurate and complete title and bullet points
  • Professional product images (6 or more)
  • Sufficient inventory
  • Rating and reviews (3.5 stars and at least 15 reviews)
  • A+ content

All of your marketing efforts will struggle to perform at peak efficiency unless you have a product detail page that accurately and effectively displays your products.

4. FORGETTING TO COLLECT SALES TAX

Most individuals or teams tasked with managing a brands presence on Amazon are not accountants or tax specialists. In general, this is definitely for the best, but it is important to rope those finance specialists into the mix every now and again. Sales tax is an especially complicated area and it is no different on Amazon.

In the tax world, Amazon is referred to as a “Marketplace Facilitator.” In layman’s terms, this means that Amazon is responsible to calculate, collect, remit, and refund sales and use tax on orders shipped to certain locations. For the 41 state jurisdictions (including DC) that have enacted Marketplace Facilitator laws, Amazon will automatically charge customers a sales tax amount, and pay that to the state where the customer is located.

Amazon currently does not collect sales tax for sales made in Delaware, Florida, Kansas, Louisiana, Mississippi, Missouri, Montana, New Hampshire, Oregon, and Tennessee. As a 3P seller, you are responsible for collecting the appropriate sales tax and remitting it to the appropriate state agencies. It is important you consult with your tax specialist and make sure you are staying up-to-date on your tax responsibilities. One program we use to simplify the tax remittance and calculation process in TaxJar. You can check them out here.

Nothing will hurt your business quite like an unexpected tax penalty!

5. POOR INVENTORY MANAGEMENT

Another seemingly obvious factor, proper inventory management is often a struggle for new brands on Amazon. You don’t want to have too little or too much – avoiding a stockout, but also avoiding excessive storage fees and locked up inventory. As a general rule of thumb, we recommend carrying 3 months of inventory at Amazon (if you are using FBA). This allows your inventory to be sufficiently disbursed throughout the FBA network, unlocking 1- and 2-day Prime for all Prime shoppers.

It is also important to understand Amazon’s replenishment process, if you are using FBA. Even if you have inventory available to send to Amazon, a miscalculated lead time can lead to stockouts and ultimately lost sales. To avoid this, we recommend allowing no less than 3 weeks lead time between when a shipment is sent TO Amazon and when you plan to stock out. Plan on longer (4-8 weeks) for peak shopping seasons.

6. NOT UNDERSTANDING AMAZON FEES

Amazon didn’t get to be one of the largest companies on Earth by doing things for free. It can be a real shock to your P&L if you aren’t fully aware of all the fees Amazon can (and will) charge you for selling on its platform. Aside from the 2 big fees (Amazon commissions and FBA fees), here are some other fees that you need to be prepared for and know how they will impact your account:

  • FBA storage fees ($0.75-$3.63/ft3)
  • Long-term FBA storage fees ($6.90/ft3; inventory at Amazon for 365+ days)
  • Refund administration (fees paid to process FBA refunds)
  • Removal fees (cost to dispose/remove inventory from FBA; $0.25+/unit)
  • Inbound shipping (cost to ship INTO Amazon)
  • Advertising (variable; based on a pay-per-click model)
  • Labeling costs (If required, costs $0.30/label)
  • Promotional costs (fees to run Lightning Deals, coupons, etc.)

CONCLUSION

There are a lot of factors to consider before even creating your first listing. Amazon is not a sales channel that you can pawn off to the marketing intern and call it good (no offense, marketing interns). To be truly successful on Amazon, your entire organization from finance to operations to marketing should all be involved and committing resources. The 6 common mistakes listed can be avoided and if properly executed, can setup your brand for long-term success.

Pitted Labs offers services for brands to outline a selling strategy for Amazon. From simple phone calls to onsite executive strategy sessions, we can help set your brand up for success – and have done so for many other brands! If you are interested in our Amazon consulting services, drop us a line by following this link.

Author

Tyler Allgaier

Taking his background in accounting and applying it to his love of all-things business, Tyler is the businessman behind the Pitted Labs curtain. Having led the financial operations of multiple startups and working with some of the nation's largest companies, Tyler knows what it takes to be successful. As a wise man once said, "Every company needs a Tyler."