About 50% of sales on Amazon are provided by third-party sellers, which means that the potential revenue is absolutely huge.

There are multiple ways to sell on Amazon. You can buy and resell products, hire manufacturers to make products with private labels for you, design and create your own custom products, or wholesale and resell products on Amazon.

The details of each business model are different, but no matter which business model is adopted, Amazon sellers will face some of the same challenges.

This article will introduce some of the challenges you will encounter when selling on Amazon.

1.Cash flow

Amazon pays third-party sellers every two weeks. The problem is that you need to prepare stocking funds before you can earn income from inventory. Many sellers hire manufacturers for their production inventory (especially private labels). These manufacturers usually charge about 25% of the cost before starting production. Depending on the manufacturer and the quantity you ordered, production may take about 1-2 months.

After the production is completed, you need to pay the balance required for production and transportation of the inventory, and the inventory will be sent to you. Shipping (including customs clearance) can take a week to several months to reach Amazon’s warehouse, depending on whether you are shipping by air or by sea. This means that it may take several months for you to start earning money from the inventory you buy.

Having one product is troublesome, but it becomes more challenging if you have many different products. If you want to expand your brand and launch a new product, it becomes even more difficult because the new product does not generate any cash flow.

Cash flow can easily become one of the biggest challenges most Amazon sellers will face (on paper, you may make a substantial profit, but you need to keep cash in preparation for holiday shopping or seasonal peaks because you need to invest More cash to get enough inventory to support higher sales.)

Of course, credit can solve the cash flow problem, but interest expenses will be an expense that sellers need to consider.

2. Intense competition

With millions of sellers on Amazon, the competition is brutal, as many sellers are competing with each other to gain exposure in search results.

The approach most private label sellers follow is to look for products with low competition. However, such products are becoming difficult to find.

Excessive competition makes it difficult for new sellers to enter. Buyers tend to choose well-known brands or existing products with hundreds of customer reviews, rather than new products with few reviews.

3. Price war

Excessive competition has exacerbated prices. The response of most sellers when facing competition is to reduce prices.

Selling products through a price war on Amazon is a bad idea, because there will always be people willing to sell products for a lower price. This results in lower costs during manufacturing, lower product quality, negative customer reviews, and lower sales.

Overall, price wars have resulted in extremely low profit margins, making it difficult for sellers to survive. Some sellers are willing to sell products at a loss to get customer reviews, improve search rankings, increase sales speed, and hope to raise prices later. This usually doesn’t work, and means that sellers may face competitors who are willing to sell their products at extremely low prices.

4. Product reviews and seller feedback

Product reviews and seller feedback play an important role in Amazon customers’ purchasing decisions. Some buyers and new sellers may not understand the difference between the two.

Product reviews are directly related to the product, and seller feedback is related to issues such as order fulfillment and customer service, not the product.

If you sell through Amazon’s FBA program, because Amazon handles all matters related to fulfillment and shipping, many of the potential issues that sellers report will be irrelevant to you.

Previously, Amazon allowed sellers to gift products in exchange for reviews, as long as the reviewers explicitly stated in the reviews that they received the product for free or at a discounted price for review.

But in 2016, Amazon made significant changes to its review policy, no longer allowing sellers to offer free products, discounts, or any other rewards in exchange for reviews. This is the result of sellers and reviewers manipulating reviews, and customers are beginning to lose trust in the reviews they read on Amazon. Although this is the right move by Amazon, it makes things harder for sellers.

Amazon has also strengthened rules regarding sellers asking customers for reviews and following up on emails sent to customers after purchase.

These changes make it hard for sellers to get reviews for new products, and when you compete with products that have a lot of reviews, it’s almost impossible to get sales without reviews.

Another challenge is that many customers will not post reviews unless they have poor product experience. Under the old rules, sellers could try to remind customers to leave a review, but now sellers must wait for customers to decide to leave a review.

5. Changes in Business Tax Law

Business tax laws are changing very quickly. Many states are passing new laws, and as sellers, understanding the different tax laws of the 50 states is a major task.

In the past, Amazon placed the burden of reporting and paying sales tax on third-party sellers, but some states are now forcing Amazon to play a more active role, which may be beneficial to third-party sellers.

Even sellers who want to follow the rules may face challenges and confusion about how to comply with regulations.

6. Customer returns

One of the reasons why Amazon is so successful is because Amazon is very friendly to buyers. As a customer, dealing with Amazon is usually a great experience, and Amazon’s return policy is more customer-friendly than many other e-commerce sites.

Returns policies may vary by product category. Some categories offer customers free returns, but as a third-party seller, you pay for it. The free return policy essentially encourages customers to buy multiple products, choose one they want, and then return the other products. This leads to higher return rates and a lot of costs to the seller.

In addition, returned products are usually already open and may be in a state of resale. The cost of a product return, lost sales revenue, and the inability to resell the product are frustrating experiences for sellers.

Amazon actively repackages returned products that are in a return status. This sounds good to sellers, but the problem is that the ability to resell products is entirely up to the judgment of Amazon employees. Employees are likely unfamiliar with your product, and they may not even be sure if everything is in the package. They may resell products with missing parts, or buyers may think they have received used products. The buyer can file a complaint about your sale of new and used products, and Amazon may suspend your account.

There is a setting in your Amazon seller account that lets you tell Amazon that you should not repackage and resell your returned inventory. This way, you can send the returned item back to you (at your expense) and you can determine for yourself whether it can be resold. You can repack it to avoid confusion with used products. As a seller, it costs more money to do so, but it can avoid giving customers a bad experience.

7, category restrictions

Over the years, Amazon has allowed stricter third-party sellers to allow sellers to sell certain categories of products. This is mainly to ensure the safety of buyers and to try to reduce the number of counterfeit products sold on the platform.

Obtaining permission to sell certain categories can be difficult, especially for small sellers. In some cases, you need to purchase inventory in order for the documents required by Amazon to be approved for sale. This means that if you are not approved, you will need to pay for inventory that cannot be sold.

8.Unsmooth communication with Amazon

Overall, Amazon’s communication with sellers can be improved. Most of Amazon’s rules are clear, but challenges often involve enforcement. Sellers may have their account suspended without a clear reason, or they may not be able to talk to anyone on Amazon to find out what they need to do to restore their seller account.

Also, as a seller, you may get a different response from each Amazon Seller Support Representative you talk to. All of this can make sellers’ businesses challenge.

9.Fully under Amazon’s control

As a third-party seller, you are completely in control of Amazon. Obviously, Amazon offers sellers unprecedented opportunities, but Amazon also has a very strong influence on third-party sellers.

If Amazon believes you violate their rules, they can reasonably and legally suspend your seller account. Of course, most seller account closures make sense and are in the interest of everyone (Amazon, customers, and legitimate third-party sellers).

Amazon’s suspension will halt your business. The solution to this problem is:

Make sure you are familiar with all Amazon policies for sellers and stay up-to-date.

Make sure you follow the rules, and if in doubt, treat it with caution.

Committed to building your business on other platforms, including your own e-commerce site, so you won’t be 100% dependent on Amazon.