Chapter 7 Amazon Selling Pitfalls Even the Savviest Sellers Forget [Infographic]
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So you're up and running as an Amazon seller, and you think you've figured out the Amazon marketplace. The good news is, if you've made it out alive (and profitably) through your first holiday shopping season, you're doing well.
But, there are a number of issues that even large or long-term Amazon sellers don't figure out.
Selling on Amazon is endlessly complex, with traps that even veterans fall into.
I'm pleased to unveil the pitfalls to you now –– but like a child who thinks she's figured out how a magician does a trick, you still will need to work hard to avoid the common problems many sellers encounter when they start selling on Amazon.
Knowing these will at least set you up to be more aware of where those pitfalls might be hiding. Use the infographic to help visualize the issues and read through exactly how to solve them in the article below.
It's a little shocking how many sellers never set up state tax collection options on Amazon, thinking that Amazon somehow automatically takes care of all sales tax issues from sales on the Amazon marketplace.
It turns out nothing could be further from the truth. While Amazon is happy to collect state sales tax for you (for a small fee), it's up to every seller to indicate in which states it wants Amazon to collect tax, and to manage the remittance of the taxes to the appropriate tax jurisdictions across the country.
There are many tax remittance services available for online sellers (such as taxjar.com, avalara.com, taxify.com, and vertexsmb.com), but the seller ultimately has the responsibility of paying its taxes. While a seller may choose not to collect state sales tax (choosing to absorb that as a cost of doing business), the responsibility of remitting the tax is not optional.
A seller can designate its account to collect state sales tax in particular states. Unfortunately, however, Amazon’s default when setting up new listings is to designate each SKU as having a no-tax label, which can overwrite the seller’s general request to collect state sales tax across all of its catalog.
Set your taxes up right the first go around
My advice is to, immediately upon signing up a new seller account, go into the Settings –> Tax Settings, and designate not only in which states you want Amazon to collect state sales tax, but also set the “Use default Product Tax Code” setting to “A_GEN_TAX.”
While the seller may offer products that warrant a slightly different tax rate, that level of tweaking can follow later.
If the seller is using Fulfillment by Amazon (FBA) and isn't proactively collecting state sales tax in all of the tax-collecting states where Amazon has fulfillment centers, it won't be long before the seller accumulates tax liability from having incurred tax nexus by way of FBA inventory being stored – even briefly – in these states' fulfillment warehouses.
Each FBA seller should invest in a tax consultation with an online seller tax consultant to understand the responsibilities and potential liabilities of using FBA.
Too many sellers focus on top line sales numbers rather than bottom line profits.
"I want to sell $1MM/year on Amazon" or "If only I could get to be a $10MM/year seller on Amazon."
Honestly, other than ego and maybe a few volume discounts, there isn't much long-term benefit to being a big, but not particularly profitable seller on Amazon.
Focus on bottom growth and account for all costs upfront
I’d much rather see any seller grow its bottom line profits year-over-year much faster than its top line sales. That typically requires a SKU-level understanding of profitability, incorporating overhead and indirect costs into each SKU's profit calculation. This includes certain less than obvious Amazon fees, and product write-downs/write-offs.
While I'll discuss this matter much more in a subsequent chapter, it's important to focus on those parts of your catalog that make you money and shed those parts that don't make you money.
Stop averaging everything out, and looking only at your overall sales numbers and margins. Start thinking about every SKU you sell on Amazon as having its own P&L, its own market forces, and its own level and types of competitions. Such an approach has helped many a seller rationalize its catalog, focusing on bottom line growth ahead of all other financial goals.
Fulfillment by Amazon
The Issue with Co-Mingled SKUs
There are a number of problems here, and I'll start with the use of co-mingled "stickerless" SKUs.
As mentioned in a previous chapter, a seller has the option of sending product into FBA without having to provide SKU-level stickers on each unit. Such stickerless inventory has the potential to get mixed in with the inventory of other FBA sellers of the same SKU. Then when a customer places an order from one FBA seller, Amazon pulls the most convenient inventory, even if that inventory isn't actually the inventory that the seller sent into FBA itself.
And, if other sellers have sent in counterfeit product or used condition product that they are trying to pawn off as new condition product, now the seller with this new sale may get itself into trouble with Amazon for selling problematic product to a customer. Amazon responds when customers complain about product quality –– and the heavy lifting falls on the individual sale-level brand.
At roughly $0.20/unit for Amazon to sticker items or whatever a seller’s own warehouse costs are, we see the costs of stickering FBA units as far lower than the implied cost of having one’s seller account suspended for apparently selling counterfeit co-mingled product to a customer.
Stickerless v. Stickered Inventory
The other complicated issue around stickerless vs. stickered FBA inventory is when a seller designates its account to be stickered. By default, each new FBA account starts off as stickerless. When a seller creates a shipment of product to send to Amazon’s fulfillment centers, that stickerless designation will be applied to the seller’s SKUs and will remain forever going forward with that SKU. So, if the seller wants it's FBA product to be stickered, the seller has to change the default setting before creating its first shipment to FBA. Otherwise, the seller will have to create a duplicate stickered offer on the same product listing.
We’ve seen many sellers not get this sequencing right, leading to situations where they think they changed their account to stickered, only to discover that certain SKUs remain stickerless because they were initially sent to FBA before the whole account got switched over to stickered. So if in doubt, flip everything to stickered (not co-mingled) immediately upon turning on FBA (but before creating the first FBA shipment), or contact Amazon Seller Support to get clarification if any SKUs in your catalog are unknowingly stickerless.
Bottom line: when you start off, make sure you read up on how to sell on Amazon FBA so you don't fall victim to these pitfalls.
Repackage Unsellable Customer Returns
Next, Amazon defaults every FBA seller's account to enabled for "Repackage Unsellable Customer Returns." This means when a customer returns an FBA order, if that product's packaging is damaged, Amazon may apply its own packaging to make the unit resellable. Unfortunately, it's not unusual for customers to see this Amazon repackaging as potentially an identifier of counterfeit or used product, resulting in a customer complaint or even an infringement against the seller for selling used condition product as new condition product.
Unless you sell your product in a generic polybag or generic cardboard box (with no logos on the packaging), I suggest turning off this repackaging feature immediately, and handling all repackaging yourself to ensure only the highest quality product (with proper packaging) is presented to Amazon customers.
The Amazon Seller's Solution Provider DirectoryOptimize your return flow by connecting with an Amazon solutions expert. For a full list of recommended experts, visit our Amazon Solution Provider Directory.
There are a number of sources of data available within Seller Central that can be used to improve the listing quality of your catalog. For many sellers, the process of building and optimizing listings is a one-time deal, as they understandably turn their focus to other operational matters.
Use the Sponsored Product Ad campaign reports
A significant opportunity, however, lies in using the reports from the Sponsored Product ad campaigns. In these reports, you can see the exact keywords that were connected to Amazon customers buying your products. By examining these reports periodically (specifically for automatic targeting campaigns), you'll find that there are keywords leading to sales that you never anticipated being effective.
Lifting those terms directly into your generic keywords will improve the SEO discoverability of your listings. I encourage sellers to repeat this process every three months to make sure that customers’ behavior specific to certain words haven’t changed. And with the generic keyword capacity for words now much larger than ever before, there is room to add many more keywords and get click benefit through SEO rather than paid efforts.
Include answers to previous product inquiries on your product page
It’s also worth paying special attention the inquiries that you get from Amazon customers. If customers are asking product specific questions, newly addressing these issues in your product detail page content is likely to improve customer conversation over time.
For too many Amazon sellers, the customer inquiry process doesn’t include an indexing of questions and answers back to specific SKUs, thereby causing a seller to lose out on known product clarifications or embellishments that are needed.
Ask for the category listing report
Finally, I'm a big fan of the "Category Listing Report," a report available in the Inventory Reports section, but only when requested through Seller Support. This report will recreate your product listings' flat file, making it much easier for you to identify any data gaps in your listings (including missing bullet points, generic keywords, improper tax codes, etc.).
While you request this report for only a finite period (i.e., seven days, 30 days), it's worth pulling this report at least quarterly to make sure your product listings contain all of the necessary data you believe they should.
Read our chapter on optimizing Amazon Search to get more tips on boosting your product rankings.
And now the biggest category of all. Managing the operations of an Amazon seller business is the most time-consuming part of every seller’s day. Too many sellers don’t focus on the right activities, leading them to work too hard to make Amazon money.
Let’s Start with Returns
Do you have a clear process for handling returns efficiently?
Do you have a way of testing or grading returns, upgrading packaging where needed, and recovering as much revenue as possible by making these items sellable again on Amazon (or some other channel, as needed)?
For too many sellers, handling returns is something done at the end of the month when they have time, rather than something that is managed strategically through analytics and continuous improvement.
Yes, returned products aren't likely to be 100% recoverable as new condition products.
However, if you carefully track the return rate of each SKU, the recovery rate of each SKU (i.e., what proportion of expected new condition revenue you actually recover from each SKU), and which products are most likely to be returned damaged by customers, you can identify which products you need to remove from your active catalog. You'll also identify with which products and brands you may need to negotiate a returns allowance with your suppliers/distributors/brands.
Once you have this data in hand, you’ll likely be surprised to discover just how much financial loss you incur because of high return rates and high write-down/write-off costs.
Some of the best sellers on Amazon know, for each SKU, exactly where to sell returned products to get the highest recovery rate. It's worth talking with other sellers to figure out if you are unknowingly leaving a lot of money on the table by mishandling returned products, or if you are appropriately managing returned products as a core part of your overall seller business.
Look Out for Duplicate Listings from Competitors
Duplicate listings on Amazon can be an effective way for competitors to divert traffic away from your product listings back to theirs. It’s worth, at least once a quarter, to search the whole Amazon catalog for duplicate listings of your items.
If you find other listings of the same products, consider filing tickets with Seller Support to get duplicate listings merged. And, if the duplicate listings were created maliciously by sellers using incorrect data (e.g., irrelevant UPCs or incorrect brand names), it may be worth also filing tickets reporting violations against those sellers. I have seen far too many sellers confused about why their sales are dropping on top-selling items, only to find that the sales are being diverted to a duplicate listing newly created by a coy competitor.
Inventory Management Skills are Required
Inventory management skills require constant refinement on Amazon, whether it's actively addressing soon-to-be stale inventory or rebalancing products based on changing customer preferences.
While I see most sellers ramping up inventory levels for the holiday shopping season, few sellers stock up enough products to cover most of January as well. Often this leads to unnecessary stock-outs caused by higher than expected demand in December or inadequate time to replenish in early January when your suppliers are closed for the holidays.
Either way, I like to see sellers planning their holiday shopping inventory levels in such a way that they potentially overstock a little bit for January and February, thereby giving themselves a little bit of breathing room in December, January, and February. Such an approach is especially relevant for products that are expected to continue to have some meaningful sales after December.
Test Your Competitors
Test-buying your competitors' products on Amazon is a very easy way to figure out what your competitors are up to, regarding how they package product, how they follow up through email to customers, and how they handle customer returns (if needed).
While you and your competitors may be selling the same products, there are likely some aspects of your competitors' overall offering that you can learn through periodic test buys.
Plan for Pricing and Procurement
Finally, with so many changes to competitors and prices on Amazon, I have watched too many sellers be slow to plan how to evolve their catalogs over the next three to six months. Sellers should, at least once a month, focus a few days on the procurement of new selection, as some portion of their existing catalog will likely become unprofitable or below an acceptable margin threshold, leading to a need for better use of capital on other product selection.
This is particularly the case for resellers that don't have exclusive sourcing relationships. It's only a matter of time before some competitor with a lower margin threshold starts selling the same product, and makes your offers unsellable.
While a brand may think it has decent control of its distribution, Amazon is a very efficient marketplace for gray-market or diverted product to surface, leading you to find that you have to cut your prices just to match some new entrant.
For private label sellers on Amazon, remember that that your product sales successes on Amazon are an invitation for the next private label seller to copy your product and make a lower priced version; so keep evolving and stay nimble. The active catalog you have today isn’t likely to be as profitable or relevant in 6 to 12 months from now.