Amazon Vs My Own Site: Which One is More Profitable?
Online selling vs offline selling (local or national market) used to be a question earlier. But after the pandemic has started, the importance of selling online is clear and sound. Businesses are trying to capture a bigger market base by selling their products online and reaching out to national or even global target audiences.
The primary question while selling products online that pops up in a businessman’s mind is which one to prefer; Amazon vs My Own Site?
Some of the common questions companies have at this stage are:
- Which one is more convenient?
- Which one is feasible?
- Which one is more profitable?
- Which one is time-consuming?
- Which one to prefer if we are focusing only on the local market?
In this blog, we are going to explain different factors to consider while taking sales online and integrate the two options; Amazon vs My Own Site, with all the factors.
Amazon vs my own site; which one to choose?
We understand businessmen and businesswomen speak numbers. Hence, we have involved all the facts and figures for a detailed comparison between Amazon vs own site.
Convenience is the major influencing factor for businesses planning to sell online. While selling products on amazon, the capital expenditure is very low as compared to developing your own website. Since amazon is a ready-to-use popular platform, businesses get access to a huge audience with a low cost of ownership. But with immense convenience, sellers have to pay heavy commissions which go up to 40% to 50%. We have explained more in detail below.
Another major convenience factor by Amazon is the Fulfilment By Amazon (FBA). Sellers opting for this service have access to additional advantages like;
- The Prime tag
- Discounted shipping rates
- Quick delivery
- More storage space, etc.
But with advantages, sellers must learn about the other side. Need not be mentioned that Amazon charges extra money for delivering these delightful services. Did you know that the storage fees by amazon do not depend on the cost of products but on the size and weight of products? The FBA charges are calculated on similar equations and sellers need to pay storage fees and fulfillment fees with the Amazon FBA program.
It also applies the cost of long-term storage fees where if your products are there in the storage facilities for more than 180 days, the FBA charges increase. The intention behind increasing storage fees is to motivate sellers to sell more. Amazon has a calculator to evaluate the FBA fees for each seller. It is clear enough that Amazon’s FBA is not a feasible option for businesses with low-cost products.
For USA sellers, here is the FBA calculator demo:
2. Cost and Ownership
Businesses want to learn money to be invested and to be expected. When it comes to overall cost, and cost associated with ownership, there are two angles of it;
I] Amazon way-
While explaining the cost, we are not going to talk about the cost to set up a whole online business. We are going to discuss what would it cost you as an offline business to start selling on amazon vs own site:
Let us consider a small to medium-sized business here investing the following amount while selling on Amazon vs own site:
- Workplace rental- 10,000 INR per month
- Staff cost- 40,000 INR per month
- Sundry expenses- 5000 INR per month
- Advertisement on platform- 10,000 per month
- Packaging expenses- 15,000 INR per month
- Total Average Running Expenses- 80,000 INR per month
- Amazon Fees- 25% of the selling price
- GST- 18%
- FBA Fees- 12.5%
Your Own Website-
- Team of developers and designers to custom build eCommerce storefront- 20,000 to 50,000
- INR depending on the complexity of the website.
- CRM- 2500 INR per month
- Resources such as computer, machines, servers for developers- 50,000 INR
- Shipping setup- 00 INR
- Initial marketing- 20,000 INR
- Total Average Initial Cost- 3,00,000 INR
Now that all the figures are in front of you, it is more than clear that selling on Amazon requires very little initial investment as compared to your own website.
II] Your-own-website way-
One of the primary factors of going with your own website is Ownership. Let us put it this way; Amazon is a platform you can rent but your own site is something you get the ownership of.
Though developing and maintaining your own website is associated with a heavy cost, selling on Amazon also involves rent charges along with other expenses. To simplify this, Amazon charges:
- $39.99 as monthly subscription fee + additional selling fees to sell in the US market
- £ 25 (excl. VAT) as monthly subscription fees + additional selling fees for Europe market
- AUD 49.95 (excl. GST) as monthly subscription fees + additional selling fees for Australia
- And there are no monthly subscription fees to sell in the Indian and UAE market. Though the sellers still have to pay a Referral Fee (the basis of the product they sell), needless to say, the % cut on sales is relatively on the higher side.
Example of different fees calculated by Amazon:
We have calculated this out for our readers:
If you are earning revenue of 5,00,000 INR by selling in the US market every year, you have to pay a 35,100 INR subscription fee and other expenses like Referral fee, Closing fee, Shipping fee, other fees, including GST.
Since the sellers rent the platform, they have less control over their business’s presence on the website. With their own website, businesses can modify and maintain their online presence as per their desire and market demand.
Also, identity is something that you struggle with while selling on amazon. Though amazon helps you in branding, it is very difficult to create your own brand ownership identity among the huge competition
There are 1.9 million sellers actively selling on Amazon across the globe. It becomes a tough job to outsmart all the competitors and match their level of quality and prices.
Though there are many ways sellers can have a good sale on Amazon in spite of the competition; with good ratings & reviews, and with sponsored ads.
Sponsored products, Audio ads, Video ads, Custom ads, etc. options are there to beat the competition. Amazon charges Cost Per Click (CPC) for all sponsored posts. The average CPC is 0.81$ which can go up if the seller’s products are competing for highly competitive keywords.
A simple trick to check on your ad spends and profits is to calculate the Advertising Cost of Sale (ACoS). It is nothing but calculating how much you spend on ads and how much revenue you earned from those ads. To calculate ACoS, simply divide the Ad Spend by Revenue from Ad and multiply the whole by 100. If the percentage is more than the net profit, you need to strategize the ad campaign. Don’t worry Amazon experts will help you!
When it comes to Own Websites, there is a competition there as well. But businesses can opt for Organic Online Marketing or also Google ads (which has similar bidding methods as Amazon). Not all businesses are online with their own websites and that makes your way a bit easier when dealing with huge competition.
To simplify this, let us take an example:
Suppose you are a wallets and bags manufacturer or seller. While selling on Amazon, you will find thousands of brands and sellers selling wallets and bags but there are very few E-commerce websites customized for wallets and bags. Here is a great opportunity to beat the competition and grow as an E-commerce Brand.
4. Targeting Global Market
Amazon has a 300+ Million user base all around the world. In the US, there are more than 150.6 Million Amazon app users.
Even in European countries like France, Germany, Italy, Poland, and the UK, Amazon is preferred. At the beginning of March, Amazon launched Amazon Poland because in 2019-2020, Poland broke records of online buying. Sellers across the globe can benefit from the fact that any product can attract any customer from any corner of the world!
In the case of websites, reaching a global audience takes much time, cost, and effort making it a less suitable option for targeting the global market.
Not only Amazon but every small to large scale online marketplace charges certain fees on every sale.
Generally, the percentage charged by Amazon is around 25% to 40% depending on the facilities you select. Though Amazon well deserves the big share in products as it delivers immense convenience and a huge open market for direct online sales, the profit margins are much higher if you opt for your own website with a long term goal and a proper advertising strategy.
If your Amazon shop has generated 10,000 INR in a month for the European market, you spent 2,600 INR for monthly rent and an average commission of 25% i.e. 2500 INR. The expenditure is almost 50% of the revenue generated.
These numbers will vary if we consider a higher sale.
If your Amazon shop has generated 1,00,000 INR in a month for the European market, you spent 2,600 INR for monthly rent and an average commission of 25% i.e. 25,000 INR.
These calculations indicate that the businesses having a huge product base and full inventory storage have better profit margins.
For your own websites, you need not worry about the product base and inventory storage. Excluding the maintenance and resources expenses, no fees are involved in your own websites. With help of SEO, SMM, Email Marketing, and PPC, businesses can generate heavy profit margins for their own websites.
6. Amazon Looks After Marketing
The skilled team of Amazon not only offers a great platform to sell your products online but also takes care of many things.
Amazon’s famous personalized targeting involves smart and AI-based positioning. Do you often see the ads of products that you have recently viewed on Amazon? These are called personalized ads. Amazon not only keeps motivating users to buy the products they have viewed but also reminds them to put reviews and offer ratings.
This feature of Amazon helps sellers boost their customer base and increase chances of listing their products on the first page of search results. Such high-level targeted marketing for own websites requires extremely skilled and dedicated resources.
7. Access To Better Customer Insights
Having your own e-commerce website has the big privilege of customer insights. Every e-commerce website owner gets access to customer-related data such as their contact details, the time they spent on each page, their preferences, their other details like location, age group, etc.
All such data is extremely crucial while retargeting this audience. The customer insights enable businesses to cater better and enhance website performance. Businesses can analyze the data and get knowledge about most selling products, most viewed products, most abandoned products, etc.
This complete data can be utilized in branding, marketing, advertising the website as an independent brand.
8. Zero Downtime
Right from widely used social media apps like Facebook & Instagram to tiny one-page information-based websites, it all experiences a downtime. Downtime is the time when websites are down. The reason could be anything; server issues or technical issues.
Why does downtime matter? Downtime is directly related to losses! The more your website is down, the more it is restricting users to get in and shop, and the more you are facing losses.
Let us put this in an easy way;
Suppose you are displaying your website ad on Google using PPC, and one-click costs you $4 (300INR), and the user gets to see an error message; you bear a loss of 300 INR straight away.
To simplify further, here is a standard formula for calculating losses due to downtime.
- Consider a duration to test the downtime effects. Let’s consider this monitoring time in seconds as T [31,536,000 seconds]
- Let’s consider the Gross Revenue for a year as GR [1,00,000 INR]
- Let’s consider the percentage website revenue PW [100%]
- Let’s consider TD as Total Downtime [1,622,300 seconds]
(GR/T) x PW x TD = Losses
(1,00,000 INR /31,536,000 seconds) x 100% x 1,622,300 seconds = 5144.27 INR
If your website is down for 1,622,300 seconds in a year, you bear a loss of 5144.27 INR
Even a finely developed website might face downtime issues, but when we talk about Amazon, their downtime is almost Zero!
The team of subject matter experts having huge experiences make sure that the site and also the app does not experience downtime.
The comparison would be incomplete if we didn’t discuss Logistics! Logistics takes care of the supply to the destination having demand.
When you go with Amazon, you certainly get few benefits of their globally appreciated logistics system:
- Amazon offers 2 days shipping and free shipping options for Prime users. No matter where your end customer is, Amazon offers fast delivery to Prime service users.
- Amazon takes care of the fulfillment services side of the business and saves your time.
- They look after customer service and returns
But there are few cons as well:
- Sellers have to comply with existing Amazon logistics processes and cannot customize it
- Every shipment and every box has Amazon’s name and logo. Brands can display their packaging inside the Amazon packaging
- Higher warehousing prices as compared to major 3PLs
But if you go with your own site, you must consider these pros and cons of hiring 3rd party logistics (3PLs):
- The warehousing charges by 3PLs are comparatively less and many 3PLs offer free storage for a limited duration
- Brands can customize their packaging
- 3PLs maintain smooth communication processes
- Many 3PLs offer both B2B and B2C shipping
- Any bad service by 3PLs can affect a Brand’s image
- Finding a trustworthy and good 3PL is difficult
- Customer service quality might differ from the customer service standard you have built for your business
Wait! The comparison isn’t over yet. We wanted our readers to understand the comparison in-depth and hence decided to interview someone who has already been through the stage of ‘Amazon vs my own site’.
Mrs. Bhande started selling homemade candles a few years back with the brand name Candle Moments for all occasions like Christmas, Diwali, Birthday Parties, New Year Eves, etc. Soon she realized how online selling is imperative. She was in the phase of sixes and sevens between ‘Amazon vs my own site’. Since Mrs. Bhande offers homemade candles, she wanted to study the online market and did not want to jump directly to developing her website considering the cost involved. Hence, she chose Amazon. In the interview, she mentioned several advantages and disadvantages of selling on Amazon.
In the end, Mrs. Bhande mentioned that she is planning to start her own e-commerce website once the product base increases. As per her experience, any newly started venture, any small-scale company should first go with Amazon and then try a hands-on own website.
With all the facts and figures, we are sure you have your answer ready. There is no particular formula while talking about your sales online as it completely depends on multiple factors and varied scenarios. Though online selling is helpful, there is no alternative for offline local markets.
Do let us know your views on this in the comment section below.