Running a business already carries a considerable risk - must you take on even more for the sake of convenience? What if those entities you're relying on to do the heavy lifting had the power (and the rights) to close your business down instantly?
In our previous blog post, we discussed the 8 benefits of having your own online store
to inform those using third-party marketplaces
of the risks that come with putting all eggs into one basket.
Today’s article is a continuation of that dialogue, but we will dig deeper to reveal the hidden risks and the true costs of relying too much on Amazon, eBay and Etsy - three of the most popular third-party marketplaces in North America.
Let’s start things off by assessing the fees sellers pay these marketplaces up-front:
(Take note - the information listed here is accurate as of April 25th, 2018. Prices and policies are subject to change. For up to date info, it’s best to get it straight from the horse’s mouth. Click on the company names to go to their respective pricing pages.)
Seller fees: Amazon
Amazon had more than 310 million active customers in 2016
. It is by far the most popular third-party marketplace in the world, and works best for people looking to move many varieties of products at high volumes as quickly and efficiently as possible.
Seller fees on Amazon (USD):
are $0.99 per item sold ($0 if on “Pro” Selling Plan at $39.99/mo).
(Basically a transaction fee) range from 6% to 45%
, but is 15% for most categories of items sold through the marketplace. The referral fee is calculated based on the total amount the buyer spent, including taxes, shipping, and gift wrapping options.
are mitigated via Amazon’s shipping credits, and the credit amount varies depending on the Selling Plan. Costs going beyond the shipping credits usually get added onto the product price (which has raised eyebrows in the past)
. This also happens quite often with eBay.
Variable Closing Fees (also known as Closing Fees)
are a set $1.80 charge for any kind of media item such as music, video, software and game consoles sold through Amazon.
Seller fees: eBay
eBay had 170 million active users as of 2017
. People using this marketplace perform best when selling items with higher margins, like rare collectibles or vehicles.
are planned for May 1st, and will continue to go live at intervals going into summer 2018
Seller fees on eBay (USD):
are $0.30 per item listed on the marketplace. Barring some exceptions, the first 50 listings are free.
Final Value Fees
are charged once an item has sold. A percentage of the total amount of sale is taken, which vary depending on the item category (3.5% - 10% of the total sale amount, up to a maximum of $350 and $750, respectively). A final value fee will still be charged if contact information is exchanged with a seller to make an offline transaction.
Additional fees may apply depending on the legislations in your country of residence.
And we can’t forget PayPal transaction fees
. When receiving funds from a PayPal account, a seller must pay:
- (In Canada) 2.9% of the transaction amount plus $0.30 CAD.
- (In the U.S.) 3.7% of the transaction amount plus $0.30.
- (Everywhere else) 3.9% of the transaction amount plus a fixed fee (which depends on the currency).
Seller fees: Etsy
Etsy saw more than 33 million customers use their marketplace as of 2017
. Etsy is best known as a marketplace for arts and crafts makers to sell their handmade goods.
Seller fees on Etsy (USD):
are $0.20 for each item listed for sale on Etsy. Listings are taken down after four months, and sellers must pay again if they wish to re-list the item. If a seller wants to sell five quantities of the same item, they are charged a listing fee of $0.20, and $0.20 is charged for each subsequent item sold.
are 3.5% of the display price in addition to gift wrapping costs:
Payment Processing Fees
- In Canada and the U.S., transaction fees won’t be calculated alongside shipping costs and taxes (unless taxes were included in the listing price).
- Selling from anywhere else in the world involves calculating the transaction fee based off of the listing fee, which should be including applicable taxes. Shipping costs aren’t included in the calculation.
are set by Etsy. Etsy has its own payment gateway called Etsy Payments
. Orders placed through this gateway are subject to processing fees which differ from region to region
, ranging from 3 - 4.4%.
is a subscription-based platform which allows sellers to create a customizable, standalone website that appears outside of the Etsy ($15/mo). Anything sold from the Pattern site will be charged a 3.5% transaction fee of the item price minus shipping costs and taxes. If Etsy Payments is used, an additional payment processing fee will be charged.
At a glance, these baseline rules might seem fair.
But keep in mind these rules can change at any time, without much (or any) notice. They are under no obligation to provide advanced notice.
This means you technically don’t own your store or even the customer relationships you worked so hard to foster, making growth and scaling extremely difficult.
All things considered, 10-20% of your profit margin might seem like a small price to pay, but these numbers aren’t taking into account:
- Material and labour costs of making products
- Time and money spent on handling, packaging and shipping
- Resources spent promoting and advertising inside and outside of the marketplace
- Profits lost from returned items, including shipping or repackaging, or worse - when products come back used and can’t be resold
- Time spent contacting customer support with regard to fraudulent buyers, hijackers, and account suspensions/shutdowns (and possible lawyer fees)
In addition, Amazon, eBay and Etsy force businesses to compete solely on price. When factors like brand equity
and customer loyalty are diminished, businesses have no choice but to sell their products at razor-thin margins. When profits are already so marginal, a 20% deduction is a hard pill to swallow.
It’s a volatile, hostile and cruel place to be - especially for small business owners.
Stories You Should Know
Here are some of the issues people have faced when selling through Amazon, eBay and Etsy.
A seller's inventory worth $100,000 disappeared
, and Amazon Fulfillment Services (AFS) insists nothing is wrong.
Amazon shuts down merchant account after a fake law firm complained
about the merchants’ best-selling product.
Seller loses over $400,000 and forced to let go of employees after receiving a barrage of low customer reviews for best-selling item. Counterfeit product hijacks the top spot
Glitch in a third-party software cut product costs down to 1p. AFS shipped out products priced at next to nothing at the detriment of several small businesses. Many faced heavy losses or closure
Amazon changes return policy, third party sellers are forced to absorb costs
of not only costs of return shipping, but even the cost of products via “fake return” scams.
The risks of using Amazon are apparent with one look
at how many attourneys specialize in defending Amazon sellers from hijackers and account suspensions.
Businesses owners outraged after eBay drops “Top-Rated Seller” (TRS) discount from 20% to 10%
The curious case of disappearing listings
“...eBay policy allows (this) fraud”
by giving the benefit of the doubt to buyers
in return scenarios, and is slow to respond
even in clear cases of on-going fraudulent activity.
eBay suspended a seller for refusing
to entertain a buyer’s offer to make an off-site transaction.
Encouraging sellers to welcome buyers with zero feedback scores
- many accounts which are likely to be users who were bad buyers that eBay suspended in the past.
One seller’s list of reasons
why eBay is no longer small business friendly, and a Facebook group of former eBay sellers
that left after experiencing frustrations with the platform.
One seller had their store shut down
after a complaint from a fraudulent buyer that was given the benefit of the doubt.
When people clicked on a social link to a seller’s listing, they saw items similar to what the seller was trying to promote instead of the specific product the seller was promoting
Sudden and hidden policy changes (aside from a post on a thread
) made buyers and sellers searchable by their real names
- revealing their previously private search and purchase history in an attempt to make Etsy more like a social networking site.
Moving away from supporting small sellers of handmade products to supporting mass-produced items
that often imitated popular products, clogging search results and pushing small shops down in search results and algorithms.
Accused of censoring commentary
critical of the platform on its own forums, and deleting reviews
critical of Etsy's best known sellers to give them 100% positive feedback ratings.
One person’s list of issues
with Etsy, and a Facebook community of former Etsy sellers
that were suspended, banned or are trying to move on from the platform.
Running your own business already carries a tremendous risk. But that risk increases a hundred-fold when your livelihood is being placed in the hands of companies that are only accountable to shareholders.
The stories above are a reminder of this reality: Amazon, eBay and Etsy do not care about you. They care about their customers, and their bottom line.
The true cost of selling through third-party marketplaces is having to live every day in constant fear and anxiety - being at the mercy of ever-changing, uncontrollable and external factors, all the while having to run a business on thin profit margins.
It’s not sustainable, and it’s not good for anyone’s physical or mental well-being.
There are still benefits to selling through third-party channels - it can be quite beneficial to sell on third-party channels and
sell through your own independent online store at the same time. But If you’ve yet to establish your own store, your own direct to customer sales channel, now might be the time to consider it.
It’s time to take matters into your own hands. Isn’t this why you wanted to started a business in the first place?