Chapter 1

Laying the Groundwork

IN THIS CHAPTER

Brushing up on ecommerce basics

Weighing the pros and cons of different Amazon business types

Figuring out the costs of doing business on Amazon

Getting up to speed on Amazon Seller rules

Prior to engaging in any endeavor, you're wise to pause and consider what you're about to get yourself into. You may be excited by your future prospects, which is good because your eagerness provides the energy and drive required to succeed. However, you also need to consider the likely challenges and potential obstacles that may stand in the way of success. Having realistic expectations going in improves your chances of success when the going gets tough.

Consider this chapter part preparation checklist and part reality check. Here, we bring you up to speed on the basics of selling online and specifically on Amazon, introduce you to the different Amazon Seller business types, inform you of the costs of doing business on Amazon, explain the rules, and present the different product categories and restrictions tied to certain categories.

Getting the Lowdown on Selling Online

Online retailing is the digital version of owning and operating a brick-and-mortar retail store - without the brick and mortar. Online retailing enables you to provide goods and services to consumers across the Internet, removing the traditional physical barriers between stores and shoppers. The Internet has also removed barriers of entry to the retail industry, allowing anyone with a computer and an Internet connection to sell online.

However, online retailing is still a business. As such it requires a certain level of ambition, commitment, and expertise to succeed, especially as competition increases. Before you take the leap into online retailing, examine the pros and cons and develop a general idea of where you want to set up shop. In this section, we provide the guidance for making preliminary decisions.

Weighing the pros and cons of online retailing

Many retailers - from huge companies to individual sellers - have become rich by selling products online. But achieving success isn't always as easy as it may seem. In this section, we draw your attention to the pros and cons of starting and running an online retail business.

Recognizing potential benefits

Selling online has multiple advantages over traditional retailing, including these:

• Low start-up costs and overhead: You can start without having to build a store, hire employees, or develop and maintain complex operations.
• Easy access to customers (nationally and globally): You can sell products to anyone, anywhere who has an Internet-enabled device.
• Option to outsource inventory storage: Products can be stored and shipped from third-party warehouses.
• Deeper customer insights: By analyzing shopper activity online, you gain deeper insight into what they want and the effectiveness of your advertising and promotions.
• 24-hour sales: You make your own hours, while customers can shop 24/7. You can sell products in your sleep!
• No waiting in lines: Customers don't have to wait in line, which can boost sales.

Considering potential drawbacks

Although online retailing has numerous advantages over traditional retailing, it does have several potential drawbacks, including the following:

• Increased competition: You're often competing against both big businesses and individual sellers.
• Lower profit margins: According to the law of supply and demand, increased competition drives down prices, especially in popular marketplaces, such as Amazon.
• Higher costs: Although overhead costs are significantly lower, you can expect other costs, such as the cost of building and maintaining an online store, pay-per-click (PPC) advertising, transaction fees on marketplaces such as eBay and Amazon, and so on. (See the later section "Tabulating the Costs" for details regarding Amazon Seller fees.)
• Reduced consumer trust: Until you become an established retailer, some shoppers may not trust you enough to place an order. Selling in a trusted marketplace such as Amazon eliminates these trust issues to a certain degree.
• Reduced customer loyalty: Online shoppers are fickle and usually swayed more by prices than by any feelings of loyalty to a particular retailer. However, over time, you can build a more loyal customer base.

Taking a tour of online stores and marketplaces

As an online retailer, you're free to choose where you want to list and sell your products. You have three options:

• Your own online store: You can find plenty of ecommerce web hosting services that provide the tools for setting up and maintaining your own store, such as Shopify.com.
• Pure marketplace: A pure marketplace, such as eBay, simply brings buyers and sellers together and facilitates and secures transactions between the two. It doesn't carry or sell inventory of its own.
• Hybrid marketplace: A hybrid marketplace, such as Amazon, brings buyers and sellers together, facilitates and secures transactions between the two, and sells products, competing with other sellers in the marketplace.

These choices aren't mutually exclusive. In fact, you may want to build and maintain your own online store and establish a presence on multiple pure and hybrid marketplaces to extend your reach. Having your own store also gives you the opportunity to improve customer trust and loyalty.

Online marketplaces (both pure and hybrid) typically profit by collecting a commission on all sales. In exchange, they offer several advantages, including the following:

• Diverse product selection at competitive prices, which attracts sellers
• Secure transaction processing for both buyers and sellers
• Access to millions of shoppers eager to spend
• Virtually unlimited scalability to accommodate any level of growth

In this book, we focus almost exclusively on the Amazon marketplace, which has revolutionized the world of ecommerce with its superior technology, universal reach, ability to offer nearly every imaginable product, and the unmatched trust and loyalty it has earned among shoppers.

Exploring How Amazon Works

One of the big draws to selling on Amazon is how easy it is. Here, we break the process down into two stages: before you start selling and selling products. We also explain the basics of how Fulfillment by Amazon (FBA) works.

Before you start selling

Preparing to start selling on Amazon is a simple three-step process:

1. Figure out what you want to sell.

   Amazon has 20 product categories open to all sellers and 10 or more additional categories open only to Professional Sellers.

2. Decide on a selling plan.

   If you plan to sell fewer than 40 items per month, choose an Individual plan, which charges $0.99 per item. If you plan to sell 40 items or more, go with the Professional plan, which charges a $39.99 monthly fee and no fee per item. (See the later section "Comparing Amazon Business Types" for details.)

3. Register to become an Amazon Seller.

   Go to SellerCentral.Amazon.com to register and follow the on-screen prompts.

Selling products

After you're registered, you can begin to list products for sale. Chapter 9 covers the product listing process in detail, but the process basically consists of the following four steps:

1. List the product(s) you want to sell.

   You have two options:

   1. List products already on Amazon.

      Choose products already listed on Amazon and specify the number you have available, their condition (new or used), and your shipping options.

   2. List products not on Amazon.

      If the product you want to sell isn't being sold on Amazon, you need to specify the item's universal product code (UPC) and stock keeping unit (SKU); write a product title and description, and provide product photos.

2. Sell the item.

   Selling consists of waiting for someone to buy the item you listed. When someone clicks your listing and buys the product, Amazon notifies you of the sale. During this time, you can try to improve sales via pay-per-click (PPC) advertising on Amazon and engaging in other marketing and advertising efforts. Chapter 12 discusses ways you can market and advertise your products.

3. Ship the product to the customer.

   Upon receiving notification of the sale, you ship the product to the customer or, if you use Fulfillment by Amazon (FBA), Amazon ships it from its warehouse for you. (See the next section for more about FBA.)

4. Get paid.

   As you sell products, Amazon deposits payments (less Amazon Seller fees) into your account and notifies you when payments have been made.

Using Fulfillment by Amazon (FBA)

With FBA, you ship inventory to various Amazon fulfillment centers across the country and, if desired, around the world. When someone clicks your listing and orders...