Success in ecommerce requires long term thinking..
There is no ‘best way’ to build an ecommerce business that works. In fact, the more research you do, the more you’ll realize that there is an endless list of business models, marketing strategies and (of course) ‘expert’ opinions on how to best set up an ecommerce business for long term success. A challenging choice facing small business owners is the Shopify vs. Amazon dilemma.
(A quick note before we go forward: we have customers that are 100% Shopify model and mostly-Amazon model alike, so this article is an honest opinion.)
Over the last four years I’ve had conversations with thousands of business owners and ecommerce marketers, and in that time there has been a recurring question that I always try to fit into my meetings: “what’s your opinion on Amazon?”
Whatever your current business model looks like, I’m willing to bet that if you’re not already selling on Amazon you’ve seriously considered it at some point. I hope this article gives a bit of perspective about how this decision can logically be weighed to keep your long term vision viable.
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Shopify vs. Amazon: The Costs
Before we outline some of the basic operating costs, it’s important that you recognize that these are two totally different animals. Amazon is a marketplace and Shopify is an ecommerce platform.
On Amazon, you sell in their established marketplace while on Shopify you build an owned storefront. This difference becomes significant when you start selling higher volumes of products (likely resulting in higher monthly operating costs), but even at the basic level it’s important to recognize how your long term trajectory looks with either company.
Shopify basic operating costs:
Unlike Amazon, with Shopify you’ll be building an owned website and an ecommerce channel in one. In order to cater to a wide variety of business sizes, Shopify offers three tiers that are easy to self-select into.
|Tier name||Tier cost||Key Value|
|Basic Shopify: “All the basics for starting a new business”||$29/mo||Everything you need to sell on your own site|
|Shopify: “Everything you need for a growing business”||$79/mo||Added functionality for omnichannel brands (with multiple retail locations, for example)Increased number of seats availableProfessional reportingLarger discounts through shipping partnersLower per-transaction credit card fees|
|Advanced Shopify: “Advanced features for scaling your business”||$299/mo||The most functionality for omnichannel brands (with many retail locations, for example)15 seat countAdvanced reportingLargest discounts through shipping partnersLowest per-transaction credit card fees|
The above costs don’t include any marketing investments or other foundational expenses like securing a domain (you can do that through Shopify, too). Overall, the costs are impressively small for the amount of value that is offered.
There are a couple of initial takeaways from the above fee structures:
- Regardless of your omnichannel status, there is a Shopify tier built to allow inventory management across your physical sales channels.
- Small businesses can start selling for a very small investment on their own online storefront. Here they can build a brand and interact with their customers directly.
- There will be extra costs associated with the business, but Shopify’s robust App Store has made it very easy to build a finely-tuned business against the Shopify platform.
Amazon basic operating costs:
First, you’ll pick a monthly fee structure largely based on the quantity of goods you’ll be selling. Amazon makes this relatively easy by giving only two options.
|Amazon Account Type||Basic Costs|
|Individual (40 items sold/month or fewer)||$0.99 fee/item sold (+any additional selling fees)|
|Professional (greater than 40 items sold per month)||$39.99/month (+any additional selling fees)|
If you’re only dipping your toe into the Amazon waters, or if you will be selling 40 or fewer items a month, you’ll have an Individual account. This account is very simplistic, giving you access to the marketplace but restricting access to Amazon’s more powerful inventory management, advertising, and fulfillment tools that require a Professional Account.
For the sake of long term evaluation, let’s assume that you’ll be wanting to sell far more than 40 items/month. If this is the case, the other two basic Amazon operating costs must be seriously evaluated.
|Amazon Selling Fees (paid in addition to Account fees)||Basic Costs|
|Referral Fees: The fee you pay to Amazon for facilitating the discovery of your product via their marketplace. This fee is based off of the total price for the buyer’s transaction (including shipping charges, etc.)||Minimum fee: $0.30/sale (if the referral fee percentage on your sale doesn’t reach $0.30, you’ll pay this minimum fee)|
Percent commission: This per-item fee ranges based on the product’s category. These percentage fees range from 6-45% of the total selling price, and as long as this percent is more than $0.30 you’ll pay this larger amount to Amazon.
|Fulfillment fees: The fee you pay to get the product to the customer.||Amazon fulfillment: You’ll pay a fee to Amazon for use of their fulfillment logistics– they’ll deliver your product to the customer. Amazon sets their own shipping and fulfillment fee costs, which vary by item.|
Seller fulfillment: You deliver the product to the customer. You’ll set your own shipping rates and receive a shipping credit from Amazon (varies by item).
There are a couple of initial takeaways from the above fee structures:
- Certain product categories, like Amazon product accessories, will carry very expensive Amazon referral fees, potentially making it difficult to maintain a healthy margin
- Regardless of product category, referral fees will eat into your margin
- This model would work well with a high-volume, high-margin product with inexpensive shipping costs
- These costs do not include any advertising investments to ensure that your customer is seeing your product
Shopify vs. Amazon: Keeping your customer long term
Remember, this article is focused on ‘long term’ strategy. If you wanted to simply list a product for sale and call it a day, you would best be served by Amazon’s Individual or Professional accounts to put your product out there right now. You’d let the machine take over and go on with your life.
In the beginning, Amazon could eliminate a lot of the ‘figuring out’ a company has to do in order to get in front of a new customer.
Time for a bit of a reality check, though. If you’re selling on Amazon, your customer is buying a product on Amazon, not necessarily from ‘you.’ The marketplace is all too willing to recommend competitive products to your buyer (oftentimes for less money), and some of those recommendations are simply fueled by another product’s advertising dollars. Your brand exposure is incredibly limited, you don’t get to build a relationship with that buyer, and Amazon holds the keys to getting to them again. In other words, good luck sending that person an email about your 4th of July sale.
You might be selling a product that has little to no requirement for ‘brand recognition,’ has great margins at a low unit cost, and can operate a high-volume business that can deal with the above issue without needing a loyal following. But, I bet things would be easier for you if you knew who that buyer was and could count on their business again.
Every company needs to find a way to get repeat buyers, regardless of what channel they’re choosing to sell on. The best way to do this is to have a place that you own where that customer can spend time with your brand, your product, and the content that will make them love you. That person needs the means to opt into email marketing from you or to simply submit an email to you upon checkout. You don’t own your customer on Amazon, but this is a huge ‘pro’ of Shopify where you own every piece of that customer interaction.
(We won’t get into it here, but Matcha has written at length about the importance of growing your email list and has specialized features to help you get it done easily.)
Driving repeat purchases is a compounding way to increase revenue, and if you’re also saving margins by selling directly to the customer you’ve created a win-win.
Shopify vs. Amazon: Help! My business is successful!
I know business owners who are doing great with both Shopify and Amazon-dominant models, but I also have seen the stress that hits when a big chunk of revenue is dependent on something you don’t directly control.
Let’s fast forward 5 years, a lifetime for a young business. If you’ve built your business on Shopify, you’re likely controlling a good number of the variables. I won’t be naive enough to say that you’re totally safe (remember COVID-19?), but you hopefully have built yourself a solid brand with some recurring business through unpaid direct traffic, email and word of mouth growth that is incredibly cost efficient. You’ve likely built an advertising strategy that is streamlined based on the customer data you own, and because of this you’re getting good value out of platforms like Facebook and Google.
To flip this around, if you’re 5 years into an Amazon-dominant model you’re likely looking to diversify your revenue stream a bit. There are a few reasons for this.
- Your missing margin has to sting a bit. Imagine giving 15% of your sale to Amazon on every transaction, for years.
- Increased competition on the marketplace drives costs down. “It’s a race to the bottom” is something I’ve heard too many times to count.
- #SCAMazon is a real concern. Whatever you sell, Amazon could enter the market with its own product and happily facilitate your sales while becoming a lower-priced competitor.
So what should you do?
There are companies that make Amazon-dominant models work, but I hope the above analysis helps you decide which model is the best long term bet for yourself. Regardless of which way you decide to go, do everything you can to avoid investing heavily in systems that put your success in the hands of an algorithm that you don’t own.
You should want to control your data, you want to control your margins, and you really want to control the relationship you have with your customer.