Amazon is Platform that is controlled by Amazon
When beginning to sell on Amazon you need to understand that Amazon is a platform and is controlled by Amazon. They will make changes to there policies that can greatly affect you as a seller. When making these changes they look at the platform and not sellers individually. This means some of the changes they make can greatly affect one seller while not affecting other sellers. It is important for you to pay attention to these changes and evaluate how these changes will affect you as a seller and adjust your business to mitigate the problems that can arise from the changes they make. It is also important to realize that while it may seem like Amazon should put out adequate notice of when new changes are going into effect so you can make the necessary changes sometimes some policy changes will go into effect without notice because they are being put in effect to solve a problem immediately. While this type of change is not common it does happen and unfortunately there is little you can do to be prepared for them.
You only have one customer
One of the primary concerns and most overlooked concerns by most sellers new and experienced is that when you are selling on Amazon, they take steps and have policies in place to shield a customer’s identity from you. Amazon claims these policies are put in place for security reasons, but I believe the primary driver for these policies is to prevent you from poaching Amazon customers from Amazon and pushing them to make purchases off the Amazon platform. You might ask Why is this bad? What this means is that you may be selling items to hundreds, even thousands of people creating the illusion that your business has many customers when you only have one customer Amazon. If Amazon decides to change a policy, or not allow you to sell on their platform anymore you immediately go from having hundreds or thousands of customers to zero. For any business to have only 1 customer is a great risk as you want to diversify yourself across multiple customers so you can afford to lose a customer and not be shut down. This is the number one reason why Amazon should be a part of your business and not be the only income source you have. This way if there is ever a policy change that affects your ability to sell on Amazon you will still have a business and income flowing in while you adjust to Amazons new policy.
Restricted Products
Another huge downside to selling on Amazon is Product Restrictions. Many manufacturers of products are going to Amazon and demanding that they do not allow third party sellers to sell products they manufacture. These companies are mainly doing this to prevent the sale of items that are not purchased directly from them. While in many instances you can apply and get approved to sell these items this process is not always simple. It can take time to figure the proper company to purchase the item from and get approved to sell the item. In some instances, Amazon may also restrict an item and simply not allow you to apply to sell the item. If a huge amount of what you are selling gets restricted it can cause a huge number of lost sales waiting to get the approval to sell the item, or you may not be able to get approved for the items and you will be back to square one and will need to find a new product to sell. Your best solution to this problem is to make sure that when selling you are selling multiple products from multiple manufacturers so if something does get restricted you are only losing a portion of your sales and not all your sales.
Account Suspensions Happen
The most frightening of all the downsides is account suspension. We discussed earlier how even though you may be selling to thousands of customers on the Amazon platform you are only selling to one customer Amazon as they shield you from the customers identity. This means if something happens, and Amazon suspends your account all those customers go away until you can sort the suspension with Amazon and get your account reinstated. This process can take weeks or maybe even months to get resolved. A common response I get from people when talking about account suspensions is that if you do not do anything wrong on Amazon you will never get suspended. While this seems like it should be very true, I always point out the fact that a human never suspends an Amazon account it is all done by Bots. In some instances, the Bot is just going to read something wrong, and an account will get suspended for something that just does not make sense. Also, it is said that about 90% of people who get suspended can get there account back. If only people who are doing something wrong are getting suspended do you think that so many people getting suspended would be able to get there account back? Suspensions are used for many reasons, and I think many of the suspensions that happen are as a warning to minor infractions or simply because a Bot saw something that was not there.
Continuing FBA Restrictions
The final downside only affects sellers that are part of the Fulfilled by Amazon, which if not familiar is the program that allows you to send inventory Amazon and amazon will ship the item when it sells to a customer on your behalf. Because of the popularity of this service and the growth Amazon has seen with sellers sending inventory into Amazon warehouses, Amazon has started to experience overwhelm in their warehouses and they cannot keep up with everything that is being sent in. To help alleviate this problem they have begun restricting the amount inventory people can send into there warehouses using restock Limits, and IPI scores. Both restrictions will have a blog post of there own and I am not going to go into them in detail in this post, but what you need to understand is these restrictions can have a huge impact on your business and the amount the business can scale. The effect these restrictions will have on you will be based on the products you sell; a lot of retail products will have a fast enough sell through rate that these restrictions will have no affect on you, but if you are selling more long tail products like books and media these restrictions will have a huge effect on your business operations. For more details check out the specific posts on the IPI score and Restock Limits.
In conclusion
This outlines the major downsides to selling on Amazon. Like I said in the Upsides posts though these downsides may seem extreme the upsides still strongly outweigh the downsides, it is important that you understand these downsides and are thinking about them while you build your business.
