The Multichannel Handbook: A Retailer’s Guide to Growing Your Business, Part 4.1: Marketplaces

(This is a continuation of the Multichannel Handbook series)

Part 4: Marketplaces

Most Internet retailers are familiar with the concept of marketplaces online: web destinations which bring buyers and sellers together to foster more sales for merchants and more great places to buy products for customers.  Taken together, marketplaces represent an enormous opportunity to add meaningful top-line growth for any retailer.

Any marketplace brings a simple value proposition to a retailer: the marketplace has customers, you have stuff to sell.  Retailers leverage the marketplace’s traffic for a share of revenue.  So long as your margins can accept the commission costs, each marketplace represents a source of potential growth.  Therefore, marketplaces are a must-have in any retailer’s game plan for both the short and long term.

The Big Three

In today’s installment of the Multchannel Handbook, we’ll take a look at what I like to call The Big Three marketplaces: eBay, Amazon, and Buy.com.

The Big Three are considered by many to be the most well-established marketplaces.  It should be noted, however, that only eBay is a true market maker, while Amazon and Buy (and most other marketplaces) also offer their own goods for sale, and many times directly compete with the retailers also selling on the site.

Additionally, we should note that, in terms of pure traffic, Buy.com doesn’t outrank some relative newcomers to the marketplace, including Newegg and Sears.  Nonetheless, Buy’s longer tenure and its integration with inventory management services warrants its inclusion in the discussion.

Considerations when Adding a Marketplace

When we compare marketplaces, there are many factors to consider before adding a marketplace as a sales channel. These factors include:

• How easy will it be to upload your product data?
• How easy is it to manage back-end processes, such as fulfillment and customer service?
• How complex are the seller guidelines?
• How well does the marketplace’s typical buyer base fit with our own target audience?
• What changes will you have to make to your internal processes to accommodate this new channel?
• How will your business integrate the marketplace into your overall strategy?
• But perhaps most importantly, what does it cost?

Each of these questions has to be addressed before your company dives in to a marketplace, including with each of The Big Three.  Because every business is different, blanket answers to the questions above won’t necessarily suffice.  For example, where one business might find integration with any of The Big Three to be easy, another business may face big hurdles just getting their product data into a standardized format that can be used to list products on the site.

However, that last question – What does it cost? – is more simple to answer.  So let’s take a look at the costs of selling on eBay, Amazon, and Buy.com.

Cost Comparison: eBay, Amazon, Buy.com

Let’s take a look at a screenshot of the fees for each of the marketplaces.

eBay Fees

eBay

As you can see to the right, eBay’s fees are…well…complicated.  eBay charges fees to list a product for sale.  Well, most of the time.  And these fees depend on the way that you list your product for sale (auction versus fixed price).  eBay also charges a commission on the sale price of your item; typically speaking, you’ll pay anywhere from 8% to 15% of the selling price in commissions to eBay – again, these fees depend on a host of factors.  eBay also charges fees if you use certain optional features.  And other fees if you upgrade your listings.

The bottom line is that eBay’s fee structure is so complex that they require 12 different links just to outline all the possible fees that you might encounter when selling on eBay.

Amazon Fees

But there is good news: eBay is still a viable site, where millions of shoppers buy literally billions of dollars worth of merchandise every year.  eBay’s hugely (and unnecessarily) complex fee structure aside, eBay is a marketplace worth testing for your company.

Amazon

Amazon’s fee structure gets quite a bit more simple.  For your business to sell on the site, you’ll pay $39.95 per month plus a commission based on the total sale (price + shipping).  (Ignore the “Individuals” column in the screenshot at right.)  Like eBay, your commission rate will vary based on the category of your product.  But overall, you’ll typically be paying between 8% and 15% to sell on the site.

Buy.com

Buy.com Fees

Buy.com is very similar to Amazon’s fee structure; on Buy, you’ll pay that same 8% to 15% range of commissions based on your category.  However, you will also pay $0.99 per item in addition to the commission; this can add a huge amount for high-volume sellers (move 20,000 items on Buy?

You’ll pay an extra $19,800 compared to Amazon).    Nonetheless, Buy offers another straightforward, easy-to-understand fee structure.

The Bottom Line on The Big Three

The bottom line here is that each of The Big Three marketplaces offers a big opportunity for your business to inject meaningful growth into your company’s sales.  While costs and execution will vary depending on which marketplace you add to your portfolio of channels, each site offers the ability to grab more customers and grow your sales.

Next week we’ll take a look at a few of the newer marketplaces, and see how they might fit into your marketplace strategy as well.  Until then, good luck.