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May 6, 2024

Protecting your e-commerce business

The Roman Empire was famous for being the greatest empire in the ancient world. It lasted hundreds of years. It controlled the then known world, which was around Southern Europe and the Mediterranean, but it’s 410 AD, the barbarians sack Rome. What happened? And how can we learn from this as e commerce operators?

Stay tuned.

Protect your Empire!

Hey folks, Michael Veazey here from Amazing FBA. I want to talk about this under appreciated topic. Everyone’s obsessed with growth, and of course they should, and the empire building. But once you’ve got something valuable and desirable, then of course, you’re going to get people attacking it in some form or degrading it.

And one of the things that a more mature entrepreneur will do when they move from pure startup phase, where you just growth, growth, growth, revenue, revenue, revenue is to understand that you’ve got something valuable, and now you need to protect it.

So that’s why we’re going to talk about it today.

Success invites Attack

You think about the Roman Empire, this fertile ground in Italy where it was was focused and Rome is halfway down Italy. It had costly desirable infrastructure, a whole city with beautiful buildings and they had a reputation. They were famous. They were the kind of tall guy that everyone wanted to take a pop at.

And although you probably don’t feel like you’re running the Roman Empire right now, you may have in your category a reputation and an obvious desirability of the market so you need to be protecting it.

 If you’re working in e commerce or Amazon specifically, if you’re running a business for fewer than 10 years, 60-70% percent of all the cash you ever see from the business will come when you sell it. Guess what? If you don’t have the proof that you own the things that you sell, like your trademark, If you cannot show that you have dealt with the risks inherent in the business, and we’ll talk about those, the business is either not sellable, or you will sell it for hundreds of thousands of dollars or pounds less than you could have sold it for.

And that is a huge loss. That is real money, not in your pocket, that could have been. So reason to take this stuff seriously.

Let’s talk briefly about the threats, which is not much fun, and the ways you can protect yourself, which is much better. In no particular order,

Sales Channel risk

The first one is sales channels risk.

The, the Amazon sales channel is a great powerful thing to have access to, but it can be suspended. So there are two ways that can happen.

Listing Suspension

One is your listing gets suspended because you’ve got some words in it that you shouldn’t have. Maybe these days, weirdly can be even put in place by the Amazon artificial intelligence engine at Amazon. One half of Amazon does that. And then the other half of Amazon that monitors things like what you’re allowed to say in your listing will shut your listing down, which is insane, but entirely consistent with how Amazon operates, the right hand doesn’t know what the left hand is doing.

Obviously you could put something yourself in there naively, and that can suspend a listing for months at the worst.

Check TOS

So first of all. Checked terms of service and do not assume that one half of Amazon isn’t doing stupid things. Check your listings very, very regularly. Particularly there’s kind of hero product.

If you’ve got a small set of products, 10 products of which one is doing half your sales, then you watch that like a hawk. Okay. And the other one is of course, to not just depend on one hero product. So not an easy one to mitigate. But luckily most of the time that doesn’t happen. such that it’s permanently suspended but you’ve got to account for the fact that it could be suspended.

Keep enough cash to survive hero product listing suspension

That’s another reason, by the way, we’ll talk about cash, but that’s another reason why you’ve got to have enough cash in the bank so that if things go wrong you can still pay your bills.

Amazon account suspension

Now the next one is account suspension. That’s really ugly. I would say There are three things that you need to have in place.

Check terms of service – esp around reviews

First of all, check the terms of service. Be very, very, very mindful about what you’re doing, particularly very careful in the wording of and the timing of how you ask for reviews. Getting suspended for policy manipulation like review manipulation is the classic one. It’s easily done and it will get your account suspended.

If suspended, get in the pros

If your account to get suspended. The second one is thing is do not DIY. Do not do an amateur appeal contact a suspension expert. They are quite expensive people.

Some of them less expensive than others. I could mention CJ Rosenbaum over at Amazon seller’s lawyer. Probably one of the pricier options out there, but they’re very very reliable. They’ve had my clients out a couple of times and there are many others as well. And by the way, I don’t get paid anything for mentioning CJ.

Lawyers in America aren’t allowed to pay referral fees. So just to be clear, I’m saying it because I think they’re effective. There are other people out there, but have a suspension expert. Don’t do it yourself.

Develop alternative sales channels

mitigation is Over time, the, you know, the, the golden city on the hill that all Amazon sellers dream of, which is to have an alternative sales channel that actually works.

So if you’ve got your own Shopify or WooCommerce based direct to consumer site, that’s an obvious option. Not going to go any deeper into that. Not an easy one to do, but important over time. So that’s the sales channel risks. Can you even access the market?

Marketing Channel risk

Second one, very closely related to that because Amazon Seductively offers everything in one package.

It means there’s a lot of risks tied up in one place. Marketing channel risks. Amazon is for many of us the sales channel and the marketing channel and the fulfillment channel. We’ll talk about fulfillment channel in a second, but the Amazon risks obviously if you get delisted, if your listing is suspended or your account suspended, then not only can you not sell anywhere, but you can’t market anywhere either.

So even not on Amazon. Facebook ads accounts get shut down all the time. So if using Facebook ads, that’s a risk. I don’t really know the statistics around TikTok ads, but I imagine they get shut down and same with Google, you know, Google, the Google slap, if you’re using Google SEO to drive things quite often, they’ll suddenly change their minds about how they rank things and so on and so forth.

Create other marketing channels

The answer is if you have Amazon as your sole marketing channel, then you need to get working on having others. I would say the number one thing you should have is as an mitigation is simple. It’s an email list, not simple to build up.

If you sell on Amazon, there are ways around it. Such as putting a QR code on your packaging and doing everything you can to get people to sign up for an email and then stay in touch with them, make offers, make it an active relationship.

Titkok ads

TikTok ads seem to be working really well for a lot of ad Now, of course, face tick tock has a bit of a sort of Damocles hanging over it based on what’s been going on in Congress recently.

But for the moment, it’s a good second marketing channel to have.

Fulfilment risk

Let’s talk about fulfillment. So if you sell on Amazon and you market your stuff only on Amazon and you fulfill on Amazon, you have the ultimate concentration risk as it’s called. So fulfillment risks, so FBA, you know, there are lots of things you can do.

It can be too busy in Q4 to process your goods until Q1 turns up. And then of course you’ve got a bunch of stock that you wanted to sell at Christmas. That’s suddenly available in January when nobody wants to buy that happens quite easily. And, you know, so get ahead of the game. Know, book stock in.

early. It sounds obvious, but it’s the only way to really get around it.

Storage costs

Storage costs, particularly in Q4. The solution to that is to have a 3PL or your own kind of system. Now there is a system within Amazon now where you can actually use Amazon for all of your logistics and they will store things within their own sort of effectively warehouse system, not the fulfillment centers.

You know, there’s more concentration risk there, but it could, it could reduce the financial risk there.

Fulfilment by Merchant

And then the sort of extra costs that happen. I mean, so one of the obvious things is to have at least the option of fulfillment by merchant. That is hard work. It’s a lot of cost. You are probably looking at using a third party logistics center.

So there is no magical solution, but having an alternative to FBA has at various times proved to be essential for business survival. Such as for example, during COVID when a lot of, particularly in the UK and EU. A lot of the non essential type stuff was just simply not being received by Amazon warehouses at all.

And then you had to fulfill yourself if you’re going to have any kind of chance. So that’s a gnarly, difficult one to solve, but it can be solved and over time, I think that The, the cost of the FBA system is going to go up and we’re going to have to protect against that as well. So again, something to really put time and energy into.

Legal risks

Let’s talk about legal risks next. I mean, in a way, although it’s least comfort zone for an operations focused business owner, this is probably the easiest to sort out because you just need to hire a specialist. And get their view and then do what you need to do. So intellectual property theft, somebody stealing your trademark, your images.

You need to do the right things, hire a lawyer just, just register all your intellectual property that you can. So copyright can be registered in the U S; everywhere else in the world, you need to document more complex, register your trademark, get patents if needed.

IP Infringement allegations

And then of course, the flip side of that is people alleging that you have infringed their copyright or intellectual property of some kind, trademarks.

Patents again, lawyers will sort that out and then lawsuits and liability. Generally, you need to get insurance and then talk to a lawyer and they assess the risks. So using lawyers is honestly, you know, it’s complex stuff, but there are specialists who’ve been doing this stuff forever. In a way that stuff’s simple.

So we’ll be talking more about that as a specialist conversation with Anita Mar of Trademark Angel. So I’m not going to dwell too much on legal risks, but just know that you need to deal with the reality. They exist, hire a professional, get the job done, and then move on with your life, but do not let it drift.

Financial Risks

Number five, financial risks. This is obviously really, really key. The number one danger is you’re going to run out of cash. You can have a perfect Amazon account with the account health. The listings are great and not, not threatened by Amazon, lots of stock and making sales and still die. How? Because you ran out of cash.

Plan your cashflow

So plan your cash flow, have a cash flow forecast. If you don’t know how to do that, there’s another finance you should be talking to, which is. Your accountant, right? Talk to your accountant, make sure you’ve got one, and make sure they’re a specialist in, in e commerce and preferably Amazon, because there are certain sort of do’s and don’ts that for them will be everyday, but for an ordinary small business accountant, it will be just rocket science

Going out of stock/missed sales

the other financial risks are going out of stock and missing out on sales. Now, in a sense, that’s less of a risk to your business, but it is a you know, a, an opportunity cost. And the only way to do that is to really plan your inventory and understand that if you’re going to have a lot of inventory and you don’t want to run out of cash to square that circle, you’re going to have to possibly borrow or invest more money.

In order to have enough stock and enough cash so that you don’t run out of stock and miss out on sales and you don’t run out of cash and bankrupt the business. So I’m afraid that, you know, you’re going to have to do something you don’t want to do. Borrowing or investing enough to have enough cash and enough inventory may be the solution.

Amazon fee increases and ad cost s

Other couple of financial risks are really around the Amazon platform. The Amazon fee increases in the Amazon ad increases. Amazon is squeezing third party sellers till the pip squeak. And that, that’s very clear from Amazon’s recent corporate reports and expect that to increase. And I think all you can do is, you know, factor that in.

You need to obviously manage it very. Monitor like crazy and you know, manage efficiently and you will not manage everything to be the same now as it was five years ago, or in five years time to be as good as it is now. In my opinion, but you need to be as efficient as possible and you need to monitor the fees.

I mean, you can often end up getting shoved into the wrong category of fees, which takes another couple of percentage of your revenue off. And actually if you’ve got. A 10% operating margin, then 2% of your revenue is actually, you know, 20% of your operating margin. In other words, if they charge you 15% or 13%, it makes a big difference.

So keep on top of that. You may need to get specialist help to do that.

Price Wars

Okay, couple more risks. Competition, risk competition, lowering the prices. We all know that this is not just a risk, it’s almost a certainty, isn’t it? So you have to build in strong margin.

Renegotiate with suppliers in China

The good news is for once in our lives that we have.

Really good news as people who sell in the West, so in America North America or Europe and UK, and that is this, the Chinese suppliers are lowering their prices quite a lot. China’s actually going through deflation at the moment, as I understand it, whilst UK, US, Europe going through inflation. So that means that broadly, whilst competition tends to push down on the selling price, you should be in a position to renegotiate because you’re The buying price, are you, what you pay for your goods downwards.

So really important to negotiate with suppliers.

Protect your price with brand building

The other thing of course, is to keep your price as high as you can relative to the market averages in your category is to build brand that is not an overnight thing, but that sort of decreases the risk of you being price shopped.

Losing visibility in Amazon search results

The other competition risk is a little bit. Different, which is, it’s harder to get visibility in the first place. There’s not so much that people will, try and buy your product for less money, but they won’t see it in the first place. And that really means you’ve got to just create and expand an ever greater marketing mode, work on your Amazon SEO and Amazon ads, of course.

But you need to think about TikTok ads, external traffic of all kinds and email, which is a wonderful thing. If you can build a really great email list and keep sending them particularly for launches to Amazon, that really, really helps mitigate the risk of your competition, just, just pushing your listing down the rankings.

Overfocussing on a country with a limited future

Two other things to talk about. Firstly, country overfocus. I think there’s a great danger particularly see this amongst UK sellers because the UK Amazon is one of the biggest marketplaces in the world. You can grow a business solely on the UK marketplace, but I think that is a big country concentration risk.

And it’s not really according to the demographic indicators and, and, and economics about the UK. In my view, as somebody who lives here. A percentage of retail is very high. So there isn’t that much growth to go.

UK – limited growth?

The UK economy as a whole, I don’t think it’s poised for great growth. In an act of economic self harm, whatever your political views is, that Brexit continues to slam British exporters and make it hard to import things that we need. And so I’m not too bullish on the UK. So I’m not saying you can’t make money in the UK over the next 5 10 years, but I certainly think it is wise to at least consider other options.

Germany – limited growth but a richer market

Germany is going to be subject to the same brutal demographics, trends and problems with getting affordable energy now that As we say, we’re not a war with Russia officially, but Russia is being sanctioned by the European Union countries. But Germany is a bigger and richer market in the UK. So there may still be for your particular business, a, an opportunity there.

USA – huge consumer market, huge upside, but big costs and competion

And then the U S of course, consider the fact that, you know, market opportunity, but also You know, big competition, hyper competition by European and UK standards and the cost of market entry. If you’re going to go into us, you need to have everything dialed in. You have to have plenty of capital. But.

Think over focusing on the UK only is, is one of the biggest risks to your business. They say a rising tide floats all ships and the opposite is true as well.

Are you a 3rd party frog in Boiling Amazon water?

Now the final one I’m going to call a frog in boiler water risk, right? The e commerce as a whole and Amazon. Let’s talk about Amazon first.

I think you need to keep abreast of. Trends of Amazon, not just as a narrow third party day to day experience that they’re adding this fee and adding that fee and you’re finding your ad costs go up over time. Yes, of course you should stay on top of that, but you’re probably going to be conscious of that if you’re an Amazon operator anyway.

Understand where Amazon as a company is going

But I think you need to take a step back and look at things like the Amazon quarterly reports as a, as a company, as a whole, as a sort of stock market entity and understand what their corporate strategy is. And I have to say that from what I could see I’ll talk about this separately, but the Amazon is basically taking money off the third party sellers and. Insofar as it’s not using it as profits. It is reinvesting that not in the FBA as in fulfillment network, which has been their big, big capital focus for so long, because it’s very expensive and hard to build,

AWS is the new focus for Amazon as a company

but they’re now focusing on building out AWS Amazon web services, which is 65 percent of their operating profit. And they wanted to double down on it, which makes sense for Amazon as a company.

Expect less FBA capacity and higher costs

But as third party sellers, what does that mean? Well, it means I would anticipate two simple outcomes of What I’ve just said, number one, the fulfillment network is not going to get the same level of investment, so expect it to get more expensive and harder to use.

And then number two, expect the ad costs and fees to keep going up because we are the cash cow that is helping Amazon build out its profitable wing, the AWS or its most profitable wing. So expect costs to go up.

Keep assessing if Amazon makes sense for you

And at some point it may no longer sense, make sense to sell. On Amazon as your primary sales channel, and so that’s always kind of theoretically been the case, but it’s getting harder and harder and because it happens incrementally, you can end up in the frog in the boiling water, by the way, apparently it’s not true.

If you put a frog in water and you keep heating it up at some point, it gets uncomfortable and jumps out. I think maybe frogs have got more common sense in human beings in that way, so keep an eye on it and make a realistic, brutal decision. You may say, you know what, this Amazon game is no longer going to work.

I’m not saying that’s the case now for all businesses. I don’t think it is, but at some point it could become that. So keep an eye on that.

Develop alternatives

And obviously implication is, you know apart from keeping abreast of trends, do something about it, you know, develop alternatives. I mean, particularly Shopify and everyone gets very partisan about Shopify versus WooCommerce, but it’s gotta be said that Shopify is, is becoming an interesting competitor and there’s always Walmart and TikTok shop, which is interesting. If Toktik survives.

Is e-commmerce going to be a growth industry going forward?

And then finally, e commerce trends, the frog in boiling water, is it in fact going to be growth industry?

UK E-commerce growth

I think that’s going to depend on location. I think in the UK it will probably continue to take a percentage of retail as a whole, but that growth is probably going to get more slowly simply because e commerce adoption in the UK is now fairly mainstream.

US E-comerce growth

And if you compare it to the U S where you’ve got large swathes of the countries that still don’t really shop a lot online, there is probably more future growth potential, but assuming that because it’s been a great story for the last 20 years, it’s going to continue to be a great story. It’s a huge error.

Keep abreast of trends – in retail, ecommerce and your sector

And I think you need to just keep abreast of the overall trends. E commerce is a percentage of retail, overall retail growth and consumer product spending in your economy. And then within that, within your particular category, I mean, it could be that, you know, health and beauty has been saturated and everyone’s buying it online.

And therefore it’s going to be hard to grow a business in that, that area. I’m not saying that’s the case, but that’s, that’s arguable. Or you might see, for example, that most dog owners don’t shop online. And so that’s, that’s a big growth opportunity. So it can be market specific. You get the idea, but we really talk about risks and protection.

The ultimate risks: ignorance and inaction

Ignorance is the, the ultimate Risk we’re discussing here, really, if you think about all of this stuff, it’s like, if you don’t inform yourself and take action on the back of it. So ignorance and indolence, if you wish to put it bluntly, and the solution is knowledge and action.

Action steps to take

So I would really encourage you to do a couple of things.

Stay up to date with your peers

I mean, first of all. Let me get this, the bias bit out of the way. I think having a set of friends and colleagues in the same space as you is an amazing place to get really truthful, up to date and honest and granular Feel for what the heck’s going on in the Amazon marketplace. So hang out with other third party sellers or specifically the mastermind that I run, which is why I’m biased.

If you want to check that out, go to the amazonmastermind. com. That’s for people who can get to or based in, in UK. And we meet in London about five, six times a year. And then we meet online with experts in between. And that’s for people with at least half a million dollars or pounds worth of revenue a year.

So not for everyone, but that’s super helpful.

Use experts – especially in finance and law

And apart from that just use experts. People don’t do enough of this. I think when they get to a certain point, financial advisors and accountants and legal experts. are really, really important and those are very solvable problems if you get expert advice and super hard to do on your own, which is why we brought in a legal expert in this particular week.

Open your eyes – and take action!

So thank you so much for listening. Sorry it’s not a very exciting podcast. I, I I’m trying to get things more engaging, but I do feel that this could be a useful hit list for you to go through. Okay, where are our risks? Go and assess the risks and then do something about it. over time protect that wonderful thing that you built if you built a cash flowing asset so that when the Barbarians come to the gates you can drive them back.

Don’t be like the Romans in war 10 AD. Thanks for listening

Market Evaluation How to book an audit

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 2 Perspectives on the businessAcquisition Audit

If you are considering acquiring an e-commerce business and you are not so familiar with the e-commerce markets, you could get some help from me as I’ve done for a couple of my clients recently. It’s quite a growing part of my consulting business,

which is that I can have a look at an e-commerce business from you from really two perspectives. And see if it would make sense for you to buy the thing before you get to the point of even putting in a, an LOI or letter of intent, or, a Heads of Terms, depending which side of The Pond you’re on.

And really that would be the commercial due diligence and some basic financial areas.

Now that the legal side, I don’t cover myself and I’m not an accountant nor do I play one on the internet, but the basic financials of it nevertheless, still tell you a bit of a tale, as I hope today illustrates.

And then what I can also do is look at the market you’re considering going into look at the demand, look at the competition and evaluate really, is this a growing market? Is this competition manageable? Does the business have a solid grasp on the market, even a dominance of the market that would make it a more attractive proposition?

So if you want some help with that, just go to myamazonaudit.com and I will be happy to give you half an hour of my time for free to look at that.

And if you send me some documents, I’ll even. put in bit of time having a quick look at the financials. And a quick look at the market on Amazon as well, to give you a good early steer of whether you should consider buying the business or not.

 Obviously, if you own a business of your own already on Amazon, I can give you similar feedback as well.

It may be with a view to selling it potentially. I tend to act on the behalf of people buying, not buying those selling, but the same insights apply in best cases. . Thank you so much for listening. And speak to you soon.

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Michael Veazey


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