Costly Mistakes to Avoid When Selling on Amazon
by Drew Estes
The Amazon marketplace is a large and complex system, so mistakes are inevitable for new sellers and veteran merchants alike. Thankfully, many sellers have made these mistakes before you, so you can learn what decisions to avoid and in some cases, how to recover.
From the first days of figuring out what to sell, to the final delivery to a customer and even long after that, there are countless ways to stumble. But worry not: here’s a list of 13 things to be aware of.
Mistake #1: Picking the wrong niche after insufficient product research
Unless you love hitting countless dead ends, picking the right product early on is one of the most important predictors of your success.
So how do you know if you’re picking the wrong product? Odds are, your strategy to pick a product is relying on misleading data, or simply no data at all.
When it comes to misleading data, the most common issue is when sellers misunderstand which data is important. For instance, if you choose a large niche because of the raw sales numbers and popularity of the category, you may overlook the fact that these niches have insane levels of competition.
On the other end of things, you may choose a niche that’s too small. You may be avoiding competition this way, but then you soon find out that nobody entered the niche because there was so little demand for it.
It’s often wise to choose an identity group (such as “new moms” or “bike enthusiasts”), but aside from a wide range of interests, you may also want to consider people’s career levels, their income and education, or their religion.
Notice here that this discussion about product choice focuses almost entirely on customers. Choosing a niche is more than choosing a great product: it’s choosing who you want to help and how.
Aside from ignoring levels of demand or competition, some sellers try to sell products based on recent trends, but fail to notice their category is actually in a decline.
To avoid making these kinds of mistakes, top sellers use product research software to make sure any new product they launch has the highest possible odds of success.
Mistake #2: Getting into a category you don’t care about
Unless you’re the type of person who can just buckle down and throw yourself into work you hate, day in and day out, it’s hard to stay motivated when you don’t care about your category.
You may find something you love about the work, such as running promotions or other marketing tasks. Or maybe the money (and the freedom that provides) is enough.
Still, if you don’t know how to connect with your customers, you’re going to have a harder time selling to them.
To make matters worse, feelings of frustration and stress are going to take a harder toll on you when you aren’t enjoying your work at least some of the time.
This might not be a cost in the financial sense, but chronic stress can take its toll on your health and spread to other areas of your life. Don’t neglect your own well-being!
It’s important to understand the reasons you’re choosing to be an ecommerce merchant. If you like your category but are having doubts about continuing as a seller, you may want to check out our employee versus entrepreneur mindset article for some suggestions.
Mistake #3: Not prioritizing a high Review Count
Some sellers mistakenly think that having a few 5-star ratings is enough to see your sales numbers spike. However, a high total review count is actually more important if you want to stay competitive in your category.
The two main reasons for this are Social Proof and Algorithmic Proof. You may have heard the term Social Proof: we’re more likely to behave a certain way if we see many people have also made the same decision. Learn more about social proof in our post on user generated content. That is, we’re more likely to buy a product if we see a ton of reviews, providing proof that many other people have bought this product – even if they didn’t love it.
The other reason is Algorithmic Proof. Your total review count is one of the most important numbers to Amazon's A9 algorithm, so a higher review count (relative to a competitor) tells the software that your product is likely to generate sales, and thus deserves a higher ranking in search results.
You can read more about how to grow your product ranking, or how to get more reviews in our other posts.
Mistake #4: Neglecting Your listing optimization
Are you taking full advantage of data-backed keywords in your titles, descriptions, and backend search terms? Have you registered your brand with Amazon so you can introduce exclusive A+ Content to your listing and maximize conversions? (Here’s how to get your brand registered quickly)
Some of these might seem like second nature if you’ve been selling for a bit, but Amazon is changing every day, so there’s always more to learn. Read about how to optimize your listing on Amazon if you’d like a more detailed explanation.
Mistake #5: Using a Bad Pricing Strategy
There are many smart ways to price your product, but not every strategy is as good as it seems. Choosing the wrong price can lead to margins so tight you barely make profit, or sales numbers so small you can’t maintain a decent search rank
You’ll want to price high enough to make a good profit margin per sale, but low enough to make sure you’re getting enough sales to maximize your total profit.
Since Amazon shoppers are so price conscious, you also need a way to price competitively without getting into a price war.
Read about pricing on Amazon to get a better idea of how to price your product.
Mistake #6: Using sketchy, black-hat shortcuts to get traffic
The most classic example of this we see is people trying to buy or trade reviews. Unfortunately, aside from the ethical issues of this, Amazon has cracked down the last few years, so you have a very high chance of having your account banned or suspended.
If you’re considering buying reviews, read some more about why it’s a bad idea and find some great alternatives to buying reviews instead.
Outside of Amazon, you want to improve your SEO on Google as well. When your product gets more organic search traffic in Google, you’re essentially getting sales at no cost. However, if you pay someone to post your URL on their site (or across a string of sites), this is just one of many things Google may penalize. That means they’ll suppress or even delete your listing from their results.
Mistake #7: Ignoring supply chain logistics details
This mistake becomes many times more expensive as your business grows. Your supply chain has a ton of small costs, and while optimizing a small detail (like the size of your packaging) might only save a few cents per product, this number multiplies by thousands as your sales go up.
Other areas to look at include your choice of manufacturer or supplier, the freight forwarder you choose, the size of the shipping container, and your order size. Learn to balance the savings from ordering in bulk with the added storage costs that can occur when inventory isn’t moving.
Mistake #8: Ignoring taxes
It makes total sense once you hear it, but you’d be amazed how many sellers jump right into selling without ever considering tax.
Taxes on Amazon are notoriously complex and historically frustrating. Every state handles tax a little differently: it’s not just about what state[s] you’re selling in, but where the product is shipped from, where it’s going to, and a million other factors that seem to change by the minute.
Thankfully, Amazon has taken steps to make it a little easier on merchants, establishing themselves as a legal Marketplace Facilitator. According to their explanation of Amazon tax collection (bold text is ours):
“Marketplace Facilitator legislation is a set of laws that shifts the sales tax collection and remittance obligations from a third party seller to the marketplace facilitator. As the marketplace facilitator, Amazon will now be responsible to calculate, collect, remit, and refund state sales tax on sales sold by third party sellers for transactions destined to states where Marketplace Facilitator and/or Marketplace collection legislation is enacted. In certain states, local taxes are not included within Marketplace Facilitator Legislation; Amazon is not responsible for those taxes.”
So thanks to big changes in 2019 and 2020, Amazon has taken on the responsibility of sorting out most taxes (be sure to double check the link above to make sure you see your state, as some states are still not listed as of this writing). They automatically add the sales tax to the total sale price at checkout, and will handle most everything for you.
However, you should still check whether you have other local tax responsibilities. Look into taxes for the state your business is registered in, as well as which state you are physically operating from, and any states where you might have employees
If you’re still feeling uncertain after you’ve done your research, it may be worth speaking to a tax professional.
Mistake #9: Ignoring FBA
While there are some advantages to Fulfillment by Merchant (FBM), letting Amazon fulfill your orders takes a huge burden off your business.
Amazon’s logistics are hard to beat, so unless you have a product with exceptional size (or other shipping quirks that make FBA unrealistic for you), you’ll want to give it a try as soon as you can make it work with your margins.
Improving your logistics means faster delivery and fewer mistakes made along the way, leading to more satisfied customers.
Using FBA also maximizes your chances of winning the Buy Box. Without the Buy Box, you risk losing out on around 85% of potential sales.
Mistake #10: Overstocking inventory
You may have heard how certain seller metrics drop when you run out of inventory, to which you might think “well I can just order a ton of inventory and not worry about it.” Unfortunately, this has some drawbacks too.
For instance, newer sellers might encounter issues with their products early on, and if you need the manufacturer to change something, you now have a ton of flawed inventory you need to clear, often at a loss.
Another issue is with FBA storage fees, which can add up quickly if your inventory isn’t moving. You can use our free FBA fee calculator to get a sense for what you might be paying.
Again, this is where having your supply chain organized, streamlined, and even diversified will save you a ton of money and hassle. A steady and predictable flow of products (arriving at a rate that keeps pace with sales) will make it easier to keep a lower amount of total inventory.
However, a spike in sales may leave you out of stock, so some level of excess inventory can be a good insurance policy. The extra stock can also provide a cushion against upsets in your supply chain.
Not all supply chain problems are as extreme as the ones from a global pandemic, but issues like trade wars, natural disasters, or even material shortages can cause big delays in shipping.
Mistake #11: Violating Amazon’s policies
This one should be obvious, but many sellers like to think it doesn’t apply to them. This might seem like a great idea until you suddenly aren’t allowed to sell on Amazon anymore.
Aside from buying reviews, there are plenty of ways to get in trouble with Amazon. Whether you have multiple seller accounts, or you include coupon deals in your listing title, or even promote an external site in the listing, you risk getting your account suspended or even banned.
So if you’re thinking of pulling a fast one and trying to sneak around Amazon, it’s only a matter of time before they catch you and give you the boot.
While some violations will result in a simple warning from Amazon, bigger violations will lead to an immediate suspension or ban. Amazon reserves the right to decide how they handle each violation. They’re pretty fair about how they handle these situations so you might get some leeway for an honest mistake, but try to avoid any sketchy practices.
Mistake #12: A marketing budget that’s too low
You might have a great product with an optimized listing, you might follow all the rules and have a nice supply chain setup, but... none of it will help if you’re not selling anything.
Sales are the lifeblood of your business, so you need to put the time, energy, and money into marketing your product if you want to succeed.
Make sure you have a substantial marketing budget. Amazon Sponsored Product ads are one of the best investments to make for a new product, but they don’t translate to instant sales.
On top of the learning curve for running these ads on Amazon, your conversion rates in the beginning will be pretty disappointing until you get more reviews, so you may want to use Snagshout to get initial sales and boost reviews until your listing has enough social proof to perform better.
On top of this, other PPC ads like Google Ads and Facebook Ads are a great way to supplement your ads and target your audience outside of Amazon. Facebook Ads let you promote through Instagram as well, and both are great ways to find your customers and give them a customized, visual ad.
There are countless other ways to market your product, but these are some of the most sophisticated and cost effective for Amazon sellers. For more ideas, read our guide about strategies to get more Amazon sales.
A clever and well-executed marketing strategy goes a long way when launching a new product, so don’t throw all your money away on non-essentials like logo design or fancy logistics software.
Mistake #13: Misleading or mistreating customers
Don’t prioritize an extra sale over the satisfaction of your customer. For starters, this means you shouldn’t try to mislead them (such as by making them think your product can do more than it actually can).
Don’t assume your customers have the time or motivation to read every detail of your listing. If they’re upset with something because they misunderstood what they were buying, it’s wise to swallow your pride and fix the situation as best you can.
Getting angry or rude in response to bad reviews isn’t going to help your seller rating. The customer might not always be right, but the short term cost of deferring to them is usually worth the long term benefit.
Parting Words
With all this talk about mistakes, it’s about time to wrap it up. There are a ton of ways to mess up big on Amazon, but don’t let this intimidate you. Even with all the preparation in the world, you’ll still make some mistakes along the way.
The important thing to remember is that it’s all a learning process, and so long as you follow Amazon’s Terms of Service as best you can, you can always bounce back from these mistakes and get back to growing your business.
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