Why it matters:
- Last year, more than 10,000 U.S. independent sellers on Amazon surpassed $1 million in sales.
- These businesses generated $30 billion in sales and grew 22% year-over-year, accounting for 61% of all sales in Amazon’s store.
- Million-dollar Amazon third-party sellers (3Ps) reveal the factors needed for success on the e-commerce platform.
The road to riches for many entrepreneurs who set up shop as independent third-party sellers (3Ps) on Amazon’s mammoth e-commerce marketplace is riddled with challenges, but for those with audacious goals and sound business strategies, the potential rewards outweigh the risks.
Elijah Morey, Co-founder and Chief Marketing Officer of Elijah’s Xtreme Gourmet Sauces, a 10-year-old company that makes farm-to-bottle gourmet hot sauces, can attest to that. After years of tinkering with sauce recipes in their home kitchen in Charlotte, North Carolina, Morey and his dad Bret perfected their Ghost Pepper Hot Sauce and other varieties and decided to launch a business in June 2014. They were able to land their first retail customer, Bass Pro Shops, in just two months. A year later they decided to start selling their line of products on Amazon.
Fast-forward to 2024 and the father-and-son team expect to sell 270,000 bottles of Elijah’s Xtreme Gourmet Sauces on the nation’s biggest online merchant, which will account for 30% of the company’s $14 million in annual sales. The rest are being sold through the TikTok Shop, Elijah’s Xtreme Gourmet Sauces' own website, and retailers such as Winn-Dixie and Giant Food Stores.
‘It allowed us to showcase our products to a massive number of people’
Becoming a third-party seller on Amazon was a gamechanger that helped build the brand. “It allowed us to showcase our products to a massive number of people,” said Morey.
But setting up shop on the e-commerce platform wasn’t easy. Morey had to figure out the dynamics of how to be a successful third-party seller on his own. It was a step-by-step process.
First, he trademarked and then certified his products with the FDA to meet food quality standards. Then he registered the brand on Amazon Brand Registry to protect his intellectual property. Next, he had to choose a selling plan and register a company account.
Once his account was set up, he had to create product listings, build an online storefront, and figure out a fulfillment service that would ship to customers on a timely basis. At first, he was filling orders on its own but after about six months he opted to use Fulfillment By Amazon (FBA), a program that lets you outsource order fulfillment to Amazon for two-day shipping through Prime. Although he had to pay warehouse and shipping fees, it was cheaper than alternative warehousing and shipping options and the benefits outweighed the costs. It helped his listings rank higher on product searches and helped boost sales.
Just as important, he needed to do digital marketing and track data analytics to keep a pulse reading on company sales.
Understanding the technical nuances of how to write content and listings that attract buyers and get a lot of customer reviews was the hard part.
The company’s breakthrough came in 2018 when one of his products, Xtreme Regret Hot Sauce, was chosen by the Amazon algorithm to rank high in its product category. “This was a major turning point for the company,” said Morey. “The product was a major differentiator in the market and it propelled Amazon to give our listing a top ranking on its site. That helped get the product more notice.”
Once that happened, there was a snowball effect, and Elijah’s Xtreme Gourmet Sauces’ sales tripled that year. That was the trigger that helped the company outflank its competitors on the site.
Since then, competition in the product category has exploded, said Morey, who estimates there are now 30,000 hot sauces on Amazon. As he explains, it takes a lot of work to keep up to date with technical changes, Amazon fees, and requirements for 3Ps.
To maintain a leading edge against rivals, Morey uses social media to keep a loyal and engaged customer base. He posts videos on TikTok, YouTube, Instagram, and Facebook, telling stories about how he and his dad created the company’s recipes from peppers from their garden, the challenges of growing a startup business, and how to be a successful entrepreneur. Today he has 2.25 million followers across these channels.
The company’s breakthrough came in 2018 when one of his products, Xtreme Regret Hot Sauce, was chosen by the Amazon algorithm to rank high in its product category. “This was a major turning point for the company,” said Morey.
The seller success quotient: ‘To gain an edge, third-party sellers must understand how Amazon’s search engine works’
Ian Sells, founder of Million Dollar Sellers, an organization of 700 3Ps on Amazon that have median revenues of $14.9 million annually, agrees. “The most successful third-party sellers on Amazon know the factors that optimize the online selling process,” he said. “That includes best-in-class products that get excellent customer reviews, competitive pricing, a digital marketing strategy that may include influencers, and data analytics to track marketing and sales performance.”
For those independent sellers with business savvy, the payoff can be huge. While Amazon does not keep numbers on the total number of million-dollar businesses on its platform, last year more than 10,000 U.S. independent sellers surpassed $1 million in sales, according to its Small Business Empowerment Report.
That is a microcosm of how the broader universe of 2.5 million third-party sellers is fueling the tech giant’s growth. “Today, independent sellers account for more than 60% of all sales in Amazon’s store. Most 3Ps are small- and medium-sized businesses,” according to an Amazon spokesperson. Last year, these businesses sold over 4.5 billion products — an average of 8,600 units per minute — and exported 330 million items to buyers in over 130 countries, the report reveals.
Brandon Young, who started selling electronics on Amazon in 2016, now sells $20 million worth of toys, luggage, and sports equipment on the platform yearly through his several brands and companies based out of Miami. He’s been so successful that he teaches a college-level course called “Seller Systems” online on how to sell on Amazon to over 1,000 entrepreneurs based all over the world, and he’s developed an AI software tool called Data Dive used by 2,100 brands that helps sellers gain insights on customer buying habits by gleaning data from product listings and customer reviews.
“To gain an edge, third-party sellers must understand how Amazon’s search engine works and how its algorithm ranks products against thousands of keywords,” he said. “This helps you tailor product development and write listings and ads that will be more visible and attract buyers.”
For some Amazon 3Ps like Alan Young, CEO of Armor Concepts, a company that sells door jambs and other security products, figuring out search engine optimization (SEO) on the site for sales and marketing purposes is too difficult to do on his own. Since launching on Amazon in 2012, he’s hired various Amazon-approved agencies to handle his company’s content and advertising efforts on the platform, which include videos demonstrating how his products work to secure homes.
“Our business on Amazon is growing about 20% to 25% a year, thanks to these efforts,” says Young. It now represents about a third of Armor Concept’s $3 million in annual sales. The rest comes from sales from his website and distributors such as Lowe’s, Home Depot Pro, and Menards.
Tactics to scale online sales — from brand registry tools to Fulfillment By Amazon
Former military spouse Kim Shanahan launched Gifts Fulfilled, a home-based gift basket business started on her kitchen table, on Amazon six years ago. Her mission was to create jobs for people with disabilities. As a brand-registered professional seller in the grocery and gourmet category, she followed a set of recommendations and regulations Amazon requires to get that certification.
“Amazon has high standards for sellers. They don’t want their customers to have a bad experience,” said Shanahan, noting that her business is growing 20% on Amazon and sales are expected to reach over $1 million by yearend.
What has helped Gifts Fulfilled scale on the e-commerce site are the various resources and tools Amazon provides to 3Ps that she’s used. Among them are its Amazon Ads tool, which uses sponsored ads to make products more discoverable, reach more potential customers, and increase conversion rates, its brand registry tools to protect products against copycats, and its FBA fulfillment service.
As Shanahan explains, there is a steep learning curve new 3Ps face when they get started, and keeping abreast of changes in Amazon’s digital marketplace is difficult. The company has an online Seller University with an extensive archive of information that offers educational videos on everything from inventory management, guidelines for sourcing products, and the seller payment process, to product listing optimization tactics. In addition, over 2,500 software applications that help sellers automate, manage, and grow their businesses are available from Amazon-approved vendors at its Selling Partner Appstore.
Competition on Amazon for 3Ps is getting fiercer and more complicated as thousands of brands keep launching on the platform, and as Google’s SEO search algorithm has been updated to highlight high-quality original content, according to Sells of Million Dollar Sellers. “In today’s world, you need to budget nearly 30% of your revenue on ads to grow fast and beat rivals,” he said. “That cuts into your profit margin.”
Strategies for Amazon 3Ps that counter high costs and unforeseen glitches
According to Sells, third-party sellers’ profit margins range from 8% to 25% on product sales and are being squeezed as fees keep going up. They vary according to what plans and services a seller chooses, but can include subscription fees, inventory storage fees, returns processing, Amazon ad costs, low inventory fees, and other miscellaneous fees.
For some, fees can take an even higher percentage of earnings. Morey of Elijah’s Xtreme Gourmet Sauces notes that Amazon fees now account for 55% of revenues from sales he makes on the platform.
In addition to the high costs of doing business on Amazon, 3Ps sometimes encounter unexpected glitches and technical issues on the site that can derail sales. For example, a single customer complaint can result in the removal of a top-selling product listing until the issue is resolved by the seller which can take days, weeks or longer. A technical glitch that may prevent reviews from being posted can also hurt business.
Because of the technical complexity of running a 3Ps online business, Sells and other experts recommend that business owners first practice and learn how the Amazon marketplace works. “Test your main images and focus on listing optimization and improving SEO,” he stressed. “Also use outside traffic strategies like Google ads and influencers who can drive customers to your Amazon listings to buy product.”
Another option is to hire an Amazon consulting agency that does everything — from creating your listings, content strategy and ads, to managing your platform using data analytics.
That’s the strategy Young of Armor Concepts chose when he launched his on Amazon in 2012. “The site allowed me to post videos that demonstrated how the product worked, which many other distributors and e-commerce sites didn’t allow. It really helped me build brand awareness,” he recalls.
“You can’t just show up to the party and sell and hope to be a success,” he said. “If you want to be a million-dollar seller, you have to do your homework.”
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