Sell online?
Chances are at least some of your business runs through an online retail platform of some sort. Amazon. Etsy. eBay. TikTok. Meta (Instagram or Facebook).
These platforms make life easier for people who want to sell on the Internet. And it’s worth it for them; they make a lot of money. But is it worth it for you?
Using one of these platforms connects you to a ready audience, and it makes it easier to open a store. But there are downsides. Know the costs of an online store you don’t own.
The Hidden Costs of Online Retail
Money
There are several costs common to most online retail platforms. Here are the current platform fees as of the writing of this article — as best I could determine. Some of these are easier to find than others; there’s conflicting information floating around on the Internet, and not all fees are clearly posted on the site.
- Amazon: Amazon costs can get complicated (especially if you’re using the Fulfilled by Amazon service). There is a referral fee for most products of 15% or 30 cents, whichever is higher. And you have to pay a flat 99 cent fee for listings (although you can get a $39.99 seller membership that covers these costs).
- Etsy: Etsy charges a 6.5% transaction fee and a 20 cent listing fee. There may be payment processing fees involved, as well, depending on how you process payments.
- eBay: eBay charges a 13.25% “final value fee” for most items, plus a per order fee of 30 to 40 cents. For items over $7,500, there may be an additional fee of roughly 2% of the value over $7,500. There is also an “insertion fee” for listings; each month, a seller gets 250 free (more if they have an eBay store); it is 25 cents for each listing after.
- TikTok: TikTok’s referral fees were incredibly low at 2% at the beginning of 2024. Over the past few months they’ve been hiked from 2 to 6%, and in July they will reach 8%.
- Instagram: Instagram currently charges a 2.9% processing fee for sales made through their platform.
On some of these platforms, by the time you’ve finished listing, marketing and selling your item, your margin might just be gone.
Sure, you can build the margin into your costs, but then you’re not able to compete on pricing with larger sellers who can afford to buy in bulk. The big eCommerce platforms aren’t hosting your products out of the goodness of their hearts. They’re there to make money, just like you. And they will maximize profit as much as they can while still keeping people on the platform.
Reputation
My boss Ed’s been busy the last month or so cutting up branches from a storm that hit his neighborhood in Texas. When we were talking about it, he mentioned a story that illustrates a second hidden cost.
His wife had a cheap knockoff brand chainsaw for small limbs that she found online. It broke down, so he looked online for parts. The saw wasn’t worth fixing; he stopped looking and just used his other chainsaw.
But a month later, he’s still getting chainsaw ads.
The need is past. Ed isn’t looking anymore; in fact, he’s more than a little annoyed that he’s getting chainsaw ads still. The algorithm has no way of knowing that, and it doesn’t care.
So when Ed clicks “don’t show me this ad,” the platform doesn’t say “oh, he doesn’t want to see chainsaw ads.” It thinks “He doesn’t want to see this seller’s ads.” And now, as a seller, your other products are blocked from Ed too.
This is the platform’s fault, but it’s your problem.
When you sell through a big online eCommerce platform, you’re giving up some control over where your products are seen, when they’ll be shown, and who will see them. The algorithm might start showing your items to someone who’s completely uninterested, especially on platforms like Instagram and TikTok.
Even on non-social media platforms like Amazon and eBay, reputation can be an issue. Problems with the platform aren’t the fault of Amazon — to the end user, they’re your fault. You don’t control order timing and packaging (if using Fulfilled by Amazon), and at least some of the communication runs through the platform instead of you, so you don’t have any control over messaging. Responses to complaints, reviews and compliments all have to go through a middleman, but the middleman isn’t going to be the one blamed in the review. Your reputation is the one that takes the hit.
Competition
There’s one more major cost to consider when you’re using an online retail platform.
You’re competing with a huge and aggressive market.
If you’re trying to sell on price alone, you’re going to have a bad time. Bigger companies will always have an advantage on price because of economies of scale, and price-only competition is a race to the bottom.
I actually worked for an electronics distributor for a while. The department that worked with Amazon sellers was perpetually stressed. Sellers were constantly trying to eke out another fraction of a percent of margin on their orders. They would turn around and ask us to take back a shipment of items we’d just sent them because they couldn’t make a profit on it anymore. It drove everyone nuts. But it was that way because of just how cutthroat that market was.
Those sellers had a ton of competition, and the market for their items turned over rapidly. And they weren’t just competing with other Amazon sellers. If their products did too well, Amazon itself would buy up the product and sell it lower, driving others out of the market and then putting the price back up. Or if the product was doing a lot of volume, Amazon would manufacture its own version and sell it cheap.
The sellers we were dealing with made money, but I imagine they spent a lot of it on heart medicine. They were chasing small margins on big volume and hustling like crazy to survive.
It’s not enough that you’re dealing with competition from other brands. Often, like the Amazon example above, the platform itself is putting a thumb on the scale. 64% of clicks on Amazon go to the top three search results; 70% of customers never go past the results on the first page. Go search for a high-volume product and see how quickly you come across a listing from Amazon itself … and where it’s displayed. You won’t have to go far.
You can’t compete on price. You have to compete on something else — relationship, uniqueness or accessibility. And that doesn’t come through the big online retail platforms.
Success Beyond the Platform
There’s nothing wrong with selling on the major platforms; if it didn’t work, nobody would do it. People are making money. But you have to walk into it with your eyes open. If you want to have long-term success, you need more than just an eBay store or an Instagram page.
Find ways to turn buyers into an audience you control. Don’t just think of customers on those platforms as “customers.” Take them on a journey — from lead to prospect to buyer to advocate to evangelist. That means building a relationship.
There are several ways you can do that:
- Link to your own website. Got a web store on your own site? Link out from the platform, if they allow it. Mention that you can offer a lower price through your own store because you don’t have to pay platform fees. (Bear in mind, not all platforms allow this, and some will penalize you if you’re too overt. Be careful.)
- Insert something in the packaging. If you’re fulfilling your own products, drop in an insert with the URL of your site where they can engage with you.
- Give them incentives to buy with you directly. Discounts, premium products, exclusives, early notifications … any of these options will give people a reason to engage on your site instead of sticking with Amazon.
- Get them to sign up for your mailing list. Instead of your buyers thinking of Etsy or TikTok as the source for your products, you want them to think of you. A regular mailing list helps you build that relationship. I’ve been trying to dress better lately, and online curators like Blackbird Spyplane or Put This On are great examples of this in action — despite having a presence on other platforms, their backbone is their own brand.
Online ecommerce platforms can help you build an audience and start selling, but you need to understand the hidden costs. Don’t just rent space in someone else’s shop — build relationships that go beyond the transaction and own your audience. And if you need a hand, we’re here to help. Just drop us a line, anytime.
Best Regards,
David Brandon
Copywriter
Rainmaker Digital Services