Avoid Vendor Lock-In in your Amazon
Private Label Business
Vendor lock-in is a business problem usually born out of inconvenience, and it is especially typical with Amazon private label sellers. The term describes a scenario in which too many of your business processes run through one vendor (e.g., your sales run solely through Amazon, or you have just one manufacturing supplier). In some cases, vendor lock-in can even stop you from easily changing aspects of your business.
So where do you look first? Analyze the parts of your business operations chain that haven’t changed since your first sale. Your manufacturer offers to dropship at a profitable margin, but could that margin grow if you managed the shipping logistics on your own? Your e-commerce store host handles the international aspects of your business, but are they really doing what is best for you? These types of considerations were previously a convenience chalked up to the cost of doing business, but it’s possible to take more control of these costs.
The biggest way to take advantage of opportunities to reduce costs is to use vendor services that allow you to remain flexible. Suppliers and business service organizations want to create vendor lock because it’s a much easier way to turn a profit—keeping the buyer continuously trapped in their services and paying a premium for the convenience—rather than constantly recruiting new buyers for a single service.
Here are a few areas to start your search and see if you’re trapped in a vendor-locked scenario.
Stock Storage Fees
When building a brand, nothing is more important than having your product available. No one can love your product if they can’t buy it to begin with. If you are selling through Amazon FBA, you may be managing this problem by always having more stock ready “just in case”. Remember that Amazon charges heavy storage fees for stock you keep in their distribution/storage centers (FBA centers). As you learn more about your business and throughput, you can minimize this cost by only storing what is needed for that sales cycle or by using third-party storage and fulfillment businesses.
Foreign Currency Exchange
Do you know what exchange rates you are getting? Take a look at how much your vendor charges for foreign purchases, and see if you can improve your profits by finding it yourself a better rate.
When you are ready to evaluate moving into a global market, you can start by looking at how currency exchange rates impact your profits. PingPong can help you navigate this exciting new time in your business while saving you a significant rate on your foreign transactions, helping you register and file VAT, and even helping you pay global suppliers. You’ll save significantly on each conversion and avoid potential double conversion fees when paying taxes and suppliers. To set up a free account in minutes, check out this quick video.
Amazon’s Fulfilled By Amazon (FBA) service, the largest benefit is that you get to take advantage of their vast continental shipping infrastructure (i.e., getting the product from you to the customer—often referred to as the “last mile”). However, if you are shipping directly to customers on your own, take time to evaluate (and re-evaluate) just how much you pay per pound for shipping through various local services (UPS, FedEx, USPS, etc).
Last-mile Shipping Costs (Not applicable for FBA)
If you are using Amazon’s Fulfilled By Amazon (FBA) service, the largest benefit is that you get to take advantage of their vast continental shipping infrastructure (i.e., getting the product from you to the customer—often referred to as the “last mile”). However, if you are shipping directly to customers on your own, take time to evaluate (and re-evaluate) just how much you pay per pound for shipping through various local services (UPS, FedEx, USPS, etc).
Cost of Quality Assurance
When manufacturing a product, some of them are going to be defective, broken, or unsellable for some reason—a normal business expense. However, when you begin to grow and are ordering an increasing amount of product, the cost of shipping defective products may be unnecessarily high. Consider hiring someone local who can handle quality assurance checks for you or a manufacturer that offers a better-guaranteed quality percent so that you spend less resources managing unsellable inventory.
Product Listing Marketing
By knowing your product, researching tips online, and properly utilizing your seller dashboard and metrics, it’s possible you have already built a great listing on your own, but do some research into the possible ROI of a professional managing your marketing and views. Not only could the increase in revenue potentially outweigh the cost of marketing, but it can give a young business one of the most important tools it can leverage—momentum.
In Conclusion
As you look into just how much it costs to run your business and where you can make improvements, you may find that you’re already doing pretty well for yourself. It’s still beneficial to take the time once per fiscal year to re-evaluate these costs to ensure you are promoting flexibility and the best competitive margins possible for your business. In addition, having multiple options for manufacturing, selling, or any other aspect of your business will give you more freedom to be nimble by avoiding that dreaded vendor-lock. Don’t put all your eggs in one basket!
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Avoid Vendor Lock-In in your Amazon
Private Label Business
Vendor lock-in is a business problem usually born out of inconvenience, and it is especially typical with Amazon private label sellers. The term describes a scenario in which too many of your business processes run through one vendor (e.g., your sales run solely through Amazon, or you have just one manufacturing supplier). In some cases, vendor lock-in can even stop you from easily changing aspects of your business.
So where do you look first? Analyze the parts of your business operations chain that haven’t changed since your first sale. Your manufacturer offers to dropship at a profitable margin, but could that margin grow if you managed the shipping logistics on your own? Your e-commerce store host handles the international aspects of your business, but are they really doing what is best for you? These types of considerations were previously a convenience chalked up to the cost of doing business, but it’s possible to take more control of these costs.
The biggest way to take advantage of opportunities to reduce costs is to use vendor services that allow you to remain flexible. Suppliers and business service organizations want to create vendor lock because it’s a much easier way to turn a profit—keeping the buyer continuously trapped in their services and paying a premium for the convenience—rather than constantly recruiting new buyers for a single service.
Here are a few areas to start your search and see if you’re trapped in a vendor-locked scenario.
Stock Storage Fees
When building a brand, nothing is more important than having your product available. No one can love your product if they can’t buy it to begin with. If you are selling through Amazon FBA, you may be managing this problem by always having more stock ready “just in case”. Remember that Amazon charges heavy storage fees for stock you keep in their distribution/storage centers (FBA centers). As you learn more about your business and throughput, you can minimize this cost by only storing what is needed for that sales cycle or by using third-party storage and fulfillment businesses.
Foreign Currency Exchange
Do you know what exchange rates you are getting? Take a look at how much your vendor charges for foreign purchases, and see if you can improve your profits by finding it yourself a better rate.
When you are ready to evaluate moving into a global market, you can start by looking at how currency exchange rates impact your profits. PingPong can help you navigate this exciting new time in your business while saving you a significant rate on your foreign transactions, helping you register and file VAT, and even helping you pay global suppliers. You’ll save significantly on each conversion and avoid potential double conversion fees when paying taxes and suppliers. To set up a free account in minutes, check out this quick video.
Last-mile Shipping Costs
(Not applicable for FBA)
If you are using Amazon’s Fulfilled By Amazon (FBA) service, the largest benefit is that you get to take advantage of their vast continental shipping infrastructure (i.e., getting the product from you to the customer—often referred to as the “last mile”). However, if you are shipping directly to customers on your own, take time to evaluate (and re-evaluate) just how much you pay per pound for shipping through various local services (UPS, FedEx, USPS, etc).
Cost of Quality Assurance
When manufacturing a product, some of them are going to be defective, broken, or unsellable for some reason—a normal business expense. However, when you begin to grow and are ordering an increasing amount of product, the cost of shipping defective products may be unnecessarily high. Consider hiring someone local who can handle quality assurance checks for you or a manufacturer that offers a better-guaranteed quality percent so that you spend less resources managing unsellable inventory.
Product Listing Marketing
By knowing your product, researching tips online, and properly utilizing your seller dashboard and metrics, it’s possible you have already built a great listing on your own, but do some research into the possible ROI of a professional managing your marketing and views. Not only could the increase in revenue potentially outweigh the cost of marketing, but it can give a young business one of the most important tools it can leverage—momentum.
In Conclusion
As you look into just how much it costs to run your business and where you can make improvements, you may find that you’re already doing pretty well for yourself. It’s still beneficial to take the time once per fiscal year to re-evaluate these costs to ensure you are promoting flexibility and the best competitive margins possible for your business. In addition, having multiple options for manufacturing, selling, or any other aspect of your business will give you more freedom to be nimble by avoiding that dreaded vendor-lock. Don’t put all your eggs in one basket!
