Selling on Amazon.com Inc.’s online marketplace is a necessity, not an option, for Palouse Brand. That’s more true than ever, says Sara Mader, CEO and founder.
The family farm in Washington state sells legumes and grains direct to consumer (DTC). The COVID-19 pandemic led to “huge, steep growth patterns” for Palouse that the small retailer couldn’t keep up with. It was forced to shut down some ordering channels to keep up, with a growing focus on sales through Amazon.
Palouse was operating with a hybrid shipping model, using Fulfillment by Amazon and fulfilling some orders itself. That system couldn’t scale up fast enough to meet demand, Mader says.
“We needed a solution that would allow us to ship semi loads to a distribution center and then have it go straight from that distribution center. … We could not keep up with order demand and stock them fast enough,” she says.
Working directly with Amazon caused delays between distribution centers and shipping orders to consumers, Mader says, though she says she doesn’t want to speak negatively of Amazon, “because they’re really great in some areas” and “redefined” Palouse’s sales, she says without adding more.
What are the benefits of selling on Amazon?
Just being on Amazon can be a boon to sales among some groups of consumers.
“For us, protecting our Prime badge is key,” Mader says of the distinction placed on some Amazon products denoting that they come with free one- or two-day shipping to Prime Members.
“Customers demand one- to two-day free shipping. If you don’t have it you’re in trouble,” she says.
The Prime badge gives consumers confidence that those demands will be met.
Amazon ranks No. 1 in the Top 1000, Digital Commerce 360’s ranking of North America’s online retailers by web sales. Amazon is also No. 3 in the Global Online Marketplaces Database, Digital Commerce 360’s ranking of the top 100 online marketplaces.
44% of online shoppers said they make purchases from online marketplaces at least weekly in a May 2023 survey of 1,039 consumers from Digital Commerce 360 and Bizrate Insights. 76% of those respondents reported purchasing from Amazon in the past year. 46% of respondents said that they’d made a purchase on Amazon without noticing if the product was sold by Amazon or another marketplace seller.
That’s good news for retailers like Palouse who might sell on Amazon, because consumers aren’t necessarily looking only for products sold by the online giant. In even better news, 52% of online shoppers said that they’d be willing to buy from brands or sellers they’d never heard of. 29% weren’t sure, and just 19% were against it.
What are the costs of selling on Amazon?
Amazon charges sellers a referral fee for products sold on its marketplace. Sellers pay either a percentage of the sales price or a set fee of $0.30, whichever is higher, according to Amazon. Fees range from 8% to 20% for most categories, and up to 45% for Amazon device accessories. Those fees are in addition to other seller fees of either $0.99 per item or $39.99 per month.
Sellers also pay to use Fulfillment by Amazon, the online marketplace’s shipping and delivery service. They pay by shipping weight and dimensions of the products, ranging from $3.22 for small standard packages to $158.49 for oversize products.
Products priced under $10 are in a separate tier, starting at $2.66. That’s after the marketplace ended its small and light program and implemented new pricing in August 2023, blindsiding some sellers.
Is selling on Amazon worth it?
Some small and medium-sized businesses use Amazon to find new customers, but that’s not really where they make money.
Cleaning brand Cleancult, for example, sells products on Amazon.com, Walmart.com, its own DTC website, and in Walmart stores. Amazon is not a moneymaker for the retailer.
“It’s break even at best,” co-founder and CEO Ryan Lupberger previously told Digital Commerce 360.
Shipping and digital marketing costs eat into potential profits of online sales, but it’s necessary to be searchable on these platforms to find new customers.
“If they find us in store and believe in the Cleancult brand, join the website. But if they need a quick shipment, buy on Amazon. And if they are grocery shopping, they can pause their subscription and buy from the grocer,” Lupberger says.
Amazon sales do drive profit for men’s grooming brand Huron, co-founder and CEO Matt Mullenax says. However, consumers make different purchasing decisions on the marketplace than they do on the retailer’s DTC site.
“It’s pretty rare that you get a customer who is a subscriber or multi-time purchaser on usehuron.com that then reverts back to jumping on Amazon to buy [a single item],” he says.
Average order value is higher on usehuron.com, but the conversion rate is higher on Amazon, he says.
Adding a DTC aspect “created a lot of volatility” for gluten-free cookie brand Mightylicious, founder Carolyn Haeler says. “I realized that direct to consumer is sort of the future; it’s not going away.”
The majority of sales come through stores, and DTC, including Amazon, made up about 10% of total sales as of May 2023. However, being on Amazon is unavoidable, Haeler says. Soon after creating listings, she had customers around the U.S.
“I couldn’t believe the people who were finding me, where they were in America, from Hawaii to Alaska. Small towns in the middle of America that don’t even look like they have a road running.”
The benefit of Amazon is reaching consumers who want gluten-free products who live in places where those aren’t typically carried in stores, she says.
Amazon can be the answer to fulfillment troubles
While Amazon has been useful for finding customers who wouldn’t see Mightylicious in stores, DTC fulfillment is complicated, Haeler says.
“For me, the biggest challenge with direct to consumer is that … there’s a tracking system and there’s a tracking number across all of the providers. They don’t scan it,” she says.
She says problems equally plague all the shipping providers Mightylicious works with, which she attributes to overburdened staff and high turnover. As of May 2023, late orders or incorrect notifications impact about 10% of DTC Mightylicious orders, Haeler said. That means 90% are getting orders as expected, but she said late orders should ideally be fewer than 2% of shipments.
The cookie retailer is switching its DTC sales system to work with Amazon, so Fulfillment By Amazon will handle these logistics. It’s a tradeoff, Haeler says, because Amazon has more expertise in shipping and fulfillment than Mightylicious, but she will lose direct visibility and control over the process.
Like Palouse Brand, Mightylicious also actively worked toward getting a Prime badge on its products, though it has not had the distinction long enough to measure against previous sales.
Gretchen Salois contributed to this article.
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