Amazon’s own brands generated nearly $450 million in sales in 2017, and third-party sellers are following the trend.
At first, this may seem like an easy way to make money in the market - buy generic products and sell them under your own brand. But what’s the catch? Even a simple idea has its drawbacks if not executed correctly. Let's look at common pitfalls.
1. Failure to conduct thorough product research
Product research is the first pitfall online sellers encounter when trying to become a private label brand on Amazon. Choose the product itself, or decide whether you want to make a profit.
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First, by choosing the wrong product category, they can really set themselves up for failure. The instinct is to see the best-selling products on Amazon and start from there. However, this is where online sellers get into trouble by falling into common merchandise categories such as clothes, children’s toys, food, and even the ubiquitous phone cases online. This isn’t to say that you’ll fail if you choose any of these product categories, but it can be particularly difficult to advertise them compared to the competition.
After carefully researching the product category that your online business is going to use, you have to purchase the product. Here are some prices that new sellers sometimes forget to consider:
The original cost of the packaging and the weight of the product
Shipping costs to Amazon fulfillment centers
Marketing costs such as giveaways or PPC (pay per click) make the final profit margin much lower than expected
Ultimately, if you study the data and information about your products and combine it with your own business acumen, you will be able to make an informed decision about choosing the best products to private label.
2. Poor product listing and no customer feedback
We all know how easy it is to be skeptical of a product when its page isn’t clear enough. If you’re a frequent Amazon shopper, you’re probably well aware of poor product listings, questionable images, weak titles, or misleading descriptions.
Not to mention, this is exacerbated by the lack of any reviews to prove reliability to your customers. While many online sellers may underestimate this, data from Shopify suggests that nine out of ten consumers read about 10 reviews before forming an opinion about a business.
Here’s how to improve your product page performance:
Listings: Consider what your potential customers might search for to find the types of products you sell. With this in mind, devise a long list of keywords to target in order to get more views to your product pages. Make sure your title, images, and descriptions showcase your product in the best light.
Reviews: Positive reviews are the height of importance for customers to trust your brand, especially private label brands. The beginning is always the hardest moment, but once you have an effective customer feedback strategy in place, new customers will be able to trust you more.
3. Delivery options and inventory issues
It’s easy to conduct poor product research, the very thing that made your private label big in the first place. This leads to poor decisions in the long run, such as thinking that Fulfilled by Merchant is a cheaper and easier option than FBA.
As an online seller, you can save a lot of time passing the responsibility onto Amazon. You ship your inventory to one of the FBA warehouses, and Amazon will store, pick, pack, and ship every order you receive to consumers — as a matter of course!
Whether you choose FBM or FBA, make sure you purchase enough inventory for each batch. If you’re out of stock, there’s less room for promotions and giveaways. If your online business can afford it, expect to purchase 500 to 1,000 units as your first trial.
4. No business tax collected:
When you sell on Amazon, you are self-employed. This means you need to fill out all your tax information under the Tax Settings tab in Seller Central. The same applies if your online business is registered through FBA. Often, new sellers forget the fact that even if they ship some of their inventory to an Amazon fulfillment center in another state, this requires them to pay sales tax in that state as well. Online sellers who ignore this will end up collecting taxes at the end of the year.
Can private labels succeed on Amazon?
To become a successful private label brand on Amazon, you have to think outside the box and persevere, even if you don’t see profits right away. Whether you’ve experienced the above points or are new to the private label game, beware of these pitfalls so you can set yourself up for success from the start.
