Amazon is a huge online retailer. It’s one of the top sites on the internet and has been around since 1994.
What Brings Amazon Most Revenue: You’ve probably heard that Amazon’s main source of revenue comes from third-party sellers on the site, and while this is mostly true, it might surprise you to know how much more sales Amazon itself makes compared to its vendors.
What Brings Amazon Most Revenue?
In fact, the eCommerce giant makes up over 30% of the company’s net income—about $13 billion in 2016 alone. But what are these moneymakers? And what does this mean for your own Amazon strategy? Keep reading to find out about the three main sources of revenue that make up most of Amazon’s $136 billion in net sales.
The Small Stuff Counts
If you think big is beautiful, think again. Many small, seemingly insignificant features help contribute to a successful marketplace: quick item reviews and feedback, free shipping on eligible items, and Prime membership perks. Of course, such features don’t exist in a vacuum. The majority of these services are tied to Amazon Prime—and membership has been steadily increasing since its launch in 2005.
Today there are nearly 80 million users paying $99 per year for services that include unlimited two-day shipping on many items, free movie and music streaming (for some programs), discounted overnight shipping, and other benefits. These users account for nearly half of all revenue generated by Amazon—so why not give them, even more, to make sure they keep coming back?
In fact, one way to increase your bottom line is to attract new customers with targeted promotions—which also drive up sales from existing customers. For example, if you’re a small business owner who sells clothing through Amazon FBA, you can use special offers to advertise discounts on specific styles or brands at certain times of the year when demand might be higher than usual.
This ensures your products get noticed while also enticing shoppers who might not have otherwise visited your page. In addition, take advantage of other tools available through Seller Central like A+ Content and Sponsored Products ads which can bring in new buyers without having to invest heavily in advertising campaigns.
FBA vs. Retail
The one that’s worth it, and why. – The two biggest revenue sources for Amazon sellers are Fulfillment by Amazon (FBA) and selling on your own. FBA is often heralded as being the best way to make money with your products, but is that really true? What’s so great about FBA? And how can you tell if it’s right for you or not? Here’s a breakdown of exactly what it is and why it makes so much sense for many sellers. You’ll be surprised at just how useful it can be!
You’re Ready To Start Your Own Business: Now What? – Starting your own business from scratch sounds exciting—and daunting. How do you even get started? That’s where we come in! In today’s post, we’ll walk through all of those first steps that go into launching a new business. From figuring out your finances to deciding which type of business structure is best for you, here are all of those little things you need to take care of before officially starting up. It may seem like a lot, but don’t worry—we’ve got you covered!
You Shouldn’t Sell On Amazon Until You Read This: There are many reasons why people decide to sell on Amazon rather than using their own eCommerce site. Some want more control over their brand and products, while others just want to avoid dealing with fulfillment and customer service issues.
But there’s one thing that many sellers forget about when making their decision—taxes! While it might be easier to list on Amazon, taxes can make or break your profit margin depending on how you handle them. So what should you know about taxes as an FBA seller?
Finding the Right Niche
If you’re looking to start a business on Amazon, finding a niche that is not only profitable but has room for growth can be difficult. You don’t want to spend time and energy developing products that won’t sell or won’t do well in your niche. One of the best ways to find a profitable niche is to start with product categories that are already selling well on Amazon. Clicking on a category will show you which subcategories within it are most popular. This is a great way to determine what might work for your niche.
For example, if you see that Sports & Outdoors > Outdoor Recreation > Camping & Hiking > Backpacking is one of the top-selling subcategories under Outdoor Recreation, then backpacking might be an ideal niche for you to target. This also works if you have an idea for a specific product—you can search by keyword and see how many units have sold over time.
If there isn’t much competition in terms of a number of sellers (there’s more than one), then there may not be much competition when it comes to sales volume either. This could mean it’s a good opportunity for someone else who wants to get into selling on Amazon too!
Inventory Management
Amazon’s biggest product groups are Consumer Electronics, Apparel and Accessories, and Grocery. With all of that in mind, it makes sense that inventory management is one of their biggest growth opportunities. In fact, one of our highest priorities for 2017 is reducing fulfillment costs, said Jeff Wilke at last year’s Investor Day presentation. The company reported more than $6 billion in spending on fulfillment centers and equipment in 2016 alone—and it shows no signs of slowing down.
By increasing its ability to store and ship products efficiently, Amazon can reduce costs while simultaneously growing revenue. This would be an important step toward improving gross margins and furthering Amazon’s goal of being a low-cost provider.
Using Suppliers Who Understand Your Business Model
Choosing a supplier is not unlike choosing a spouse: it’s important to pick someone who shares your values and has similar goals. To make sure you select a business partner that understands your needs spends time with prospective vendors to determine whether they would be able to fill any gaps in your inventory pipeline. For example, if you are sourcing products at cost, ask potential suppliers how quickly they can ramp up production and delivery of your goods.
Make sure you find out what their short-term goals are so you can align your suppliers with yours. If it’s clear they have no idea where Amazon is headed in the future (which I suspect is most vendors), then pass on them – keep looking until you find someone who gets it. The worst thing you can do is go into business with someone who doesn’t get it. Just like in a marriage, there will come a day when you need to part ways for various reasons, but if both parties understand each other from day one, parting ways will be easier and smoother for everyone involved.
In general, avoid long-term relationships with suppliers as they often end badly. Try to develop shorter-term relationships as much as possible which allow you to shop around more frequently and avoid getting stuck using a bad vendor. Always try to set minimum order quantities because it allows you to try different vendors without having too much money tied up in inventory
Which reduces risk and gives you more options down the road. Never take longer than 60 days from initial contact with a new vendor before placing an order; ideally, 30 days or less is better as long as your new vendor is willing to work within those parameters. Suppliers will respect and appreciate you more if you work together rather than always making demands.
Outsourcing Where Necessary
According to Bloomberg, Amazon Web Services (AWS) brought in $6.11 billion of revenue for Q2 2018. The cloud-computing business is growing at a compound annual rate of 62% and is forecasted to reach $24.3 billion by 2020. The only reason they are able to achieve such high revenue is that they are constantly adapting to new technology and evolving as a company. The only way they will continue to grow exponentially in such an industry is by outsourcing certain aspects of their services that do not directly pertain to their expertise.
In other words, if it isn’t core to what makes them money then they should consider outsourcing it so that they can focus on what makes them money. If you have ever watched any of Jeff Bezos’s interviews he has stated many times before how important it is to be adaptable and willing to change with your customer’s needs. AWS does just that by continuously improving its product based on customer feedback and implementing new technologies when necessary.
This continuous adaptation allows them to stay ahead of their competitors like Microsoft Azure and Google Cloud Platform who both have similar offerings but don’t appear as forward-thinking as AWS does in terms of where the technology may be going next. I predict AWS will continue to dominate the cloud computing market due to its willingness to outsource less important things while focusing on what makes them money.
Also Read: What is Amazon’s Main Product?
Conclusion
It may be surprising to learn that consumer electronics such as gaming consoles and tablets are among the least important revenue-generating products for Amazon. Instead, consumer staples and groceries account for many billions of dollars each year.
Perhaps unsurprisingly, given that half of all Americans are subscribed to Prime and have access to free shipping, it’s fair to say that FBA has been very lucrative for Amazon. Of course, non-subscribers still have access to free shipping on any order over $35.
So don’t forget about those benefits when shopping! Additionally, even after taking into account shipping fees and returns costs, third-party sellers still earned nearly $2 billion in 2013 thanks in large part to FBA.
