The Economics of a $7.4M Amazon Business
You might not be surprised to hear that Amazon is the most expensive marketplace to sell on.
What might surprise you is by how much.
“If we sell $100 worth of product on our Amazon store, on average, we get $48.25 back. At our Walmart.com store, we get $54.50 and on eBay store, we get $57.50 back.”
In the post, he identifies three key factors that contribute to this difference: refunds, storage, and advertising.
Of course, if you’re already selling on Amazon this might not come as a surprise, but from his lens of “how do I diversify my revenue” this might spark some ideas for 2021.
- Refunds on Amazon (2.6% of revenue), Walmart (1.9%), and eBay (1%)
- Storage in Amazon fulfillment centers (2.4% of revenue)
- Advertising on the Amazon platform (3.55% of revenue)
All said and done he paid Amazon $3.56 million dollars to facilitate 93.4% of sales.
What I found most interesting about this story wasn’t his emphasis on Amazon holding sellers hostage to defend their brand with ads, it wasn’t his point on review inflation that allowed newer sellers to “catch-up” to his established products, it was the comparison in conversion rates.
1.3% of his company’s total sales came from his website because his conversion rate was 0.7%.
$4.6 million of products added to cart and $97,000 in sales, not a good look.
Compare that with his Amazon products that converted at 40%.
In my experience, I see the most successful Amazon sellers doubling down on what’s already working.
So my question to you is what are you doing to increase your conversion rate this year?