Solving for Growing Pains as an Amazon Seller

 

 

Selling products on Amazon is a great way to get your goods in front of customers worldwide. Amazon ships to more than 100 countries and regions, and U.S.-based sellers sold a shocking 4.5 billion items across the globe in 2023. That's 8,600 items every minute. Those U.S.-based sellers averaged more than $250,000 in annual sales in 2023, so many achieved great success. 

Unfortunately, while there's ample opportunity to excel on Amazon, there are also challenges if you're hoping to grow your business with the online giant. Specifically, some of the big issues sellers face as they expand operations include marketing to new customers; managing the logistics of inventory and order fulfillment; and complying with laws and regulations.

This guide will help you tackle these challenges head-on so you can effectively harness the opportunities Amazon provides. 

 

1. Expanding Your Marketing Efforts 

With so many sellers competing for business on Amazon, reaching new customers can be a huge roadblock for growth. Fortunately, there are proven techniques to get more eyes on your Amazon listings and to convince customers to buy. Here are a few effective ways to market your products.

Investing in Amazon ads

Amazon offers multiple ways to advertise, including the Sponsored Brands program, which allows you to create customizable ads featuring your company's info. These ads target either specific products or specific keywords and appear on top of and within Amazon shopping results if someone searches for a product or phrase. 

You can also explore programs like DSP, which harnesses the power of AI to deliver more impactful acts and to rapidly develop effective campaigns. 

Partnering with experts like Straight Up Growth can help you make the most of these tools as you can develop your advertising strategy after reviewing extensive market research, and while armed with information on proprietary ranking techniques. 

Optimize product listings

Great product listings help consumers find your items and inspire them to buy. By taking steps like enhancing your images, optimizing your content for SEO, and writing compelling descriptions, you can drive more business. 

SUG can help with this too, assisting with identifying and highlighting the most relevant details that prompt viewers to click "Buy."

Leveraging social proof

Positive reviews prompt potential buyers to open your listing and convince them to trust you with their dollars. Since Amazon offers the option to sort products by star rating, a good review also helps your products get found.

Using automated tools to request reviews can help encourage satisfied customers to make their voices heard, as can enrolling in the Amazon Vine program. On the flip side, providing a way for dissatisfied customers to reach out to resolve their issues directly can help you avoid negative reviews, as can responding quickly to customer concerns. 

Exploring External Traffic

Even if you're selling on Amazon, you don't necessarily want to count on the site's marketing tools to drive all your storefront's business. 

Google Ads, social ads, email marketing campaigns, and partnering with influencers are all potential ways to develop diverse sales channels and ensure a steady flow of customers to drive growth. 

 

2. Managing Inventory and Fulfillment

Finding customers is the first step. Getting them their items is the next step. Amazon focuses heavily on fast shipping and your inventory management system must be efficient to get the job done. To ensure speedy delivery, here are a few tips for managing inventory and fulfillment. 

Choosing Between FBA and FBM: 

Fulfillment by Amazon (FBA) allows you to send products to Amazon's fulfillment network to handle packing, shipping, customer service, and returns. FBA reduces the time you spend managing inventory and opens the door to offering fast, free prime shipping. Unfortunately, it also means incurring added costs and losing control of the process. 

Fulfillment by Merchant (FBM) means you maintain your inventory and ship products directly. This takes more time and you lose the operational efficiencies Amazon offers. However, you have more control and incur lower fees from Amazon -- although you'll likely have shipping and storage costs to pay. 

You'll need to carefully research the costs of both options, but many sellers find FBM is best if you have slow inventory turnover or large and bulky items as sellers in these categories incur the highest costs with FBA. 

Limit Amazon storage fees

Sellers can choose to sell some products via FBA and others via FBM. Being strategic about which products you choose Amazon fulfillment for will help you keep storage fees down. 

You should also monitor inventory carefully and use Amazon's removal orders to remove any items that remain unsold before long-term storage fees kick in. 

Avoid stockouts and overstocks 

If you effectively forecast demand, you can avoid excess storage costs for unused inventory and ensure you aren't delayed in sending products to customers. 

Inventory forecasting tools can help you track metrics like weeks of cover, restock date, and recommended restock quantity to help you get your inventory management right.

Consider a 3PL

In some cases, outsourcing fulfillment to a third-party logistics provider is the most cost-effective approach. This makes sense if fees paid to the 3PL are lower than those you'd pay Amazon and lower than the costs you'd incur if you managed inventory yourself. 

Getting prices from third-party providers and comparing their fees to the costs of other inventory-management solutions will help you decide what's best.

 

3. Automating and Streamlining Operations

Increasing operational efficiencies is essential as your sales volume grows.

Amazon offers a variety of seller tools, including automated pricing, automated feedback requests, and automated inventory tracking. Harnessing the power of these tools can save you time and ensure efficient operations.

Customer service can also be one of the most time-consuming tasks your business deals with. There are automated tools that respond to customers, or you may want to consider hiring a virtual assistant to handle inquiries and complaints

If you're struggling to respond to customer requests promptly, bringing in this outside help becomes important to protect your company's reputation. 

 

4. Handling Financial Growth and Compliance

Making more money is a good thing, but it can create new compliance requirements and require careful budgeting to make the best use of your funds. Here are some of the challenges you may face. 

Managing cash flow

When pursuing continued growth, reinvesting profits helps you achieve your target goals. In some cases, you'll also need to secure outside funding sources if you don't have enough cash coming in to finance your expansion. 

To ensure you have the money you need when you need it, look carefully at your Cash Conversion cycle. This measures how long your money is tied up in stock, supplier payments, and accounts receivable. 

You can reduce that time with techniques like just-in-time inventory or by negotiating longer payment terms with suppliers.

Understanding Amazon fees

Amazon sellers may face many fees including fulfillment costs, storage charges, and referral fees. You must account for these expenses when managing cash flow and when setting prices to ensure profitability. 

Amazon explains its standard selling fees online and offers multiple selling plans. Research your options and develop an effective accounting system for tracking fees and accounting for them in your planning process.  

Avoiding Common Tax Pitfalls

Amazon sellers have state and local tax obligations to full. You'll want to reduce your tax burden as much as possible by ensuring you're deducting all costs of doing business, including Amazon fees. 

You're also expected to pay taxes as you go in the U.S. so you'll likely need to make estimated tax payments throughout the year to avoid penalties. 

How you're taxed and the deductions you can claim also depend on how your business is structured. Consider talking with a lawyer about whether you should operate as a sole proprietor, LLC, or S-corp. 

 

5. Navigating Sales Tax as an Amazon Seller 

Sales tax compliance issues are some of the most complicated issues for e-commerce sellers. 

Under most state laws, once you do a certain amount of business in the state, you establish "economic nexus" and are required to collect sales tax from customers, register with the state, and pay those taxes. In most states, sales through marketplaces count toward nexus thresholds. You also have to pay sales tax in most states if you have physical nexus, which means you have storefronts, warehouses, or other physical locations in a particular state. 

Keeping track of when you have established nexus in states across the U.S. -- and registering and filing in all those states -- is an incredibly complex process. Sadly, the penalties for not doing it right are very serious as you could face audits, fines, and fees.

The good news is that most states have marketplace facilitator laws, which require large marketplaces like Amazon to take charge of sales tax compliance for ecommerce sellers on their marketplace. Because of these laws, Amazon takes care of collecting sales tax from customers when they buy your products and then pays the right states for you.

Unfortunately, you can't ignore sales tax rules even if Amazon handles this process for you on products you sell through their site. If you sell items elsewhere, you must comply with sales tax rules in all states where you have established nexus. This is a big issue if you use FBA because you may have physical nexus in all the states where Amazon stores your stuff in warehouses. 

The good news is that there are programs that help you automatically track when you establish nexus and have sales tax obligations in a given state. Some of these solutions, like Numeral, also handle all the resulting issues for you once you have nexus somewhere -- including registering to collect tax, submitting forms and payments, and dealing with correspondence from the state. 

While handling sales tax issues is overwhelming, Numeral allows you to devote under five minutes per month to this task while helping ensure you comply so you don't have to worry about a sales tax audit undermining your growth. 

 

6. Maintaining Long-Term Growth

Finally, the last key thing to think about is how to maintain growth over the long term. Often, this involves:

• Building a brand beyond Amazon: Expanding to Shopify or other marketplaces provides diversification of income and helps you reach even more customers.
• Adapting to Amazon Policy Changes: Keeping up with new regulations and algorithm shifts allows you to avoid penalties and ensure your products still get seen. Amazon should alert you when rules change on their platform, but you may also want to set up news alerts for stories relevant to e-commerce sellers to understand the broader marketplace.
• Leveraging data to make smart choices: Using analytics to track profitability and optimize performance helps ensure your growth is sustainable. Amazon provides much of the information you need, but it's also helpful to work with experts like Straight Up Growth that have their own proprietary data and can help you understand how to use it. 
• Avoiding Burnout as a Seller: Finally, managing company tasks can become overwhelming as the business gets bigger. Decide what obligations you're comfortable delegating or outsourcing and establish a budget for professional services.

 

Final thoughts

Growing your business as an Amazon seller presents challenges, but overcoming them creates tremendous opportunities for success. If you are proactive and address common growing pains before problems arise, you can ensure your efforts to scale sustainably are not derailed.

If you're ready to take your business to the next level and want to ensure sales tax problems don't lead to fees that reduce your available funds, consider partnering with Numeral to take sales tax off your plate so you can focus on the tasks that make expansion possible.