Start Business on Amazon

Reasons to start a business on Amazon

Amazon is the most popular marketplace in the world, presented on almost every continent. As of 2020, Amazon has over 300 million active users from over 180 countries and over 2.5 million active sellers. According to Feedvisor, 89% of shoppers surveyed prefer Amazon to other marketplaces.

Thanks to sophisticated logistics, quality service and fast delivery, the platform attracts more than 2 million new users from all over the world every year. Amazon is undoubtedly the e-commerce hub of our time, selling over 4,000 items per minute. In the third quarter of 2020, the total trading turnover of the site was USD 96.1 billion.

Business on Amazon opens up e-commerce opportunities for companies around the globe. LKS Consult OÜ offers the registration of a legal unit that is most suitable for trading on one of the European Amazon platforms. The advantage of an Estonian company is the absence of income tax and the possibility of its completely remote establishment and maintenance.

Almost any company that manufactures its own goods or is the official representative of the trademark can act as an Amazon Seller. The advantage of expanding to Amazon Europe is that you only need to deliver your product to the Amazon warehouse, after which the platform itself will be responsible for delivering it to the customer. On such conditions, every two weeks you will be receiving payments from sales.

In addition to guaranteed reliability, Amazon offers entrepreneurs transparency in the system of costs, which allows them to calculate payments and profits without risks. Selling finished products through Amazon will only require the initial investment for the purchase or production of the product, and there will be no costs for opening a physical store. The advantage of such a scheme is a completely remote collaboration with Amazon.

Fulfillment by Amazon program

Launched in 2006, Fulfillment by Amazon (FBA) program gives you access to the infrastructure of the trading platform for a small fee, which includes storage, shipping and return of the products you sell. Such e-commerce model is convenient in that the entire process is automated, and after the goods are sent to the warehouse of the marketplace, the customer is serviced by Amazon employees.

FBA: order processing

• Sending finished products to the Amazon warehouse
• Product acceptance, distribution, and storage in the Amazon warehouse
• Order made by the buyer on Amazon Europe website
• Marking and packaging of the ordered goods in the Amazon warehouse
• Delivery of the order to the buyer’s doorstep by the FBA service

There are two strategies for trading on Amazon:

• Drop shipping – reselling goods at a higher price by an intermediary, bypassing traditional distribution channels.
• Private Label – sale of goods produced under a private label.

Delivery of goods to the Amazon warehouse

Delivery of finished products to the Amazon warehouse takes place in several ways:

• Through an agent (freight forwarder) who will settle issues with customs and deliver products to the specified place
• By cooperating with a private delivery company such as DHL
• By sea (30 to 50 days)
• By air transportation (from two weeks to a month)

Choosing a Selling Plan

Before starting business, sellers on Amazon need to decide on a selling plan. There are two selling plans for registering a seller account: Individual and Professional. Professional sellers pay a higher price for access to more advanced features, thus ensuring that their Amazon trading business flows smoothly.

Individual (Natural Person Account)

The Individual selling plan maximally limits the seller’s ability to work with the site, allowing to sell no more than 40 units per month. This sales rate is complicated by the fact that not a single offer from an Individual seller will ever make it to the top of search results or to the coveted BuyBox window. As part of the Individual selling plan, the service will charge USD 0.99 for each unit sold, adding a commission from 8% to 20% depending on the product category.

Individual plans are limited to specific sales categories. Selling goods in the following categories is only possible for Professional sellers:

• Cosmetics
• Collectibles (coins, books)
• Spare parts, tools, equipment,
  and accessories for cars
• Clothes, shoes, bags, and sunglasses
• Wristwatch
• Jewelry

• Fine art objects
• Gourmet and grocery products
• Luggage and travel accessories
• Video, DVD and Blu-Ray
• Wine

All sellers are subject to other restrictions. See the full list on the Amazon website.

Unlike a Professional, an Individual seller are not allowed to create their own webpage. Among other things, they will have access to the market of only one region. It will be impossible also to sell products in any category, adjust shipping rates, participate in promotions, launch advertising campaigns, and use the convenience of the sales center analytics. For these reasons, the Individual plan is not a popular option and cannot be used to generate real profits from international trade.

Professional (Company Account)

The first month of subscription is free. The monthly subscription fee is USD 39.99 without additional commissions on sales. Calculations show that selling 40 units of goods per month will be many times more profitable to a professional seller than a seller with an individual selling plan. As noted earlier, Amazon offers to create your own online store page and does not limit product listing. The Professional selling plan offers the ability to upload an item using a feed, allowing all products to appear on an Amazon listing in a few minutes. In comparison, the Individual selling plan forces a seller to add each item individually and wait for those items to match the product availability in Amazon warehouses, while the Professional plan already includes an inventory reporting feature.

And although Amazon’s rules state that the seller has the right to change the current Selling plan at any time, this will require another time-consuming process of identity confirmation.

Due to the restrictions on listing and sales of the Individual plan, LKS Consult OÜ considers it advisable to start trading on Amazon immediately as a Professional seller, therefore, we offer our services to customers wishing to choose the Professional selling plan.

A common mistake when trading on Amazon is doing business as a natural person without registering a company. When starting to trade on Amazon, it is especially important to think about a full-fledged business and register a company that will allow you to trade on Amazon Europe without restrictions and additional tax costs. It is also worth mentioning that Amazon does not have a Sole Proprietor concept.

Doing business on an individual basis is more expensive, since a Sole Proprietor pays turnover tax, and a company only pays tax on the distributed profits. If all the profits at the initial stage of trade are invested in the purchase of new goods, no taxes arise.

Recommendations by Service

• If you do not have a registered legal entity yet, set up an Estonian company to optimise your business on Amazon.
• Pay close attention to the official information, requirements, and rules of trading on Amazon in your country of choice.
• Study carefully the list of product requirements on Amazon.
• Conduct market analysis (competitors, prices, products on Amazon).
• Calculate all costs competently (logistics, Amazon fees, cost of goods, delivery times).
• Consider a Professional selling plan.
• Consider how the Amazon sales revenue will be accrued.

LKS Consult OÜ will help with business optimisation for launching the trade on Amazon Europe Marketplace. We will provide you support of experienced and qualified professionals at all stages and help with the entry of your business to Amazon in Europe.