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An Overview of Diversifying your Amazon Business: Establishing a Direct to Consumer (DTC) Sales Channel

Introduction

Brands that establish themselves first on Amazon and are successful wonder if they should expand outside of Amazon. The ability to reach customers more directly while controlling detailed aspects of the UX becomes irresistible.

This document will review who, when, and how you should decide to diversify your product sales off of Amazon. Amazon is a complex ecosystem, but for businesses that adopted it to reach customers quickly, either through FBA or built-in marketing, starting your e-commerce store is as or more daunting.

Should You Build a Website and Sell Directly to Your Customers?

If you successfully sell on Amazon, you can be successful selling off of Amazon. “Successful” is subjective, and to give a simple guideline on whether you should consider launching your site, answer these 3 questions:

  1. Does your brand do more than $500,000 in sales?
  2. Are you profitable?
  3. Do you have a similar capacity to invest in DTC as in Amazon, or can you hire someone on your team to help?

If the answer to three of these questions is yes, then you should consider selling DTC. Amazon will account for roughly 40% of e-commerce sales in 2022, and by going direct, you open a direct avenue to your customers.

There is plenty of opportunity outside of Amazon, and if you can compete inside the Amazon ecosystem, you can compete outside with the correct investments.

Operation & Fulfillment Models

Operations to diversify off Amazon can be summed up with 2 questions:

  1. How do you get & hold goods?
  2. How do you get those goods into the customer’s hands with retail packaging?

As Amazon brands know, you can outsource logistics like fulfillment to a 3rd party logistics provider, even Amazon themselves in FBA. You may already be doing your logistics for Amazon, if that is the case you are likely ready to start supporting DTC.

If you leverage FBA or 3rd party logistics, you must know where you will import goods for your DTC site and how to fulfill them. Initially, fulfilling out of FBA stock may be viable, but this can create problems at small and large scales.

At some point, if a DTC business grows large enough, FBA for your site won’t make sense with the current cost structure. The storage and service costs with the FBA program are too high for more than market testing.

Don’t be afraid to start with Amazon as a fulfillment or import partner, but keep an eye on how you bring these logistics in-house or find a better-suited partner (lower costs, more custom) for growing your DTC business.

Basic Setup: What You Need to Get Right for a Viable E-commerce store

Every e-commerce store must pay for the software, payment processors, and shipping to get their goods to customers.

A word about shipping

Shipping and logistics costs scale down with UPS, and FedEx as your account grows, but USPS stays the same regardless of volume. As a smaller business, USPS can give you an edge, and you have to rely on Amazon or partner shipping to get the best rates out of UPS. Shipping costs are crazy high, and shipping promises to customers themselves are challenging to get right.

E-commerce platform                               

Shopify is currently leading the pack of e-commerce platform providers, especially for sellers coming from Amazon. This is because they are (relatively) cheap, and migrating even large numbers of products onto the platform from Amazon is more straightforward than its competitors, WooCommerce or Magento.

Development & design

Regardless of the platform you choose, the monthly maintenance cost is only the tip of the iceberg; all these platforms have what amounts to required add-ons that cost money. On top of that, the design and marketing for the website itself can be an intensive process, especially for more extensive product catalogs.

Strategic Marketing Channels for DTC E-commerce Startups

If you go through the effort of launching a website, not only should you budget some marketing to tell customers, but you should quickly move on these high return channels and initial tests:

  1. Branded search ads in Google – they are cheap and let you customize marketing messages to your customers
  2. Retargeting display advertising – is one of the most profitable e-commerce marketing channels.
  3. Take an educated guess about where your customers hang out and design a test for your first marketing funnel DTC that is not brand-based or remarketing to existing customers. Social media, search, and display are all pretty typical channels. Email is less so for e-commerce, but with the rise in popularity of automation tools like Klavio, it should not be overlooked.

Working with Agencies, Consultants, and Outsourcing

Think of marketing agencies like any specialized service providers:

  1. Professional agencies should be willing to do work first and receive payment on terms like within 30 days.
  2. Agencies should track services or hours on your bill. Agencies that charge a retainer are red flags; even if service is good at one point, there is no built-in mechanism to ensure you are getting value.
  3. Not channels are equal for new DTC sites; you may not want to hire an SEO or PPC agency if you are not sure there are profitable campaigns. Don’t expect marketing agencies to ensure your profitability; be upfront with your return on ad spend expectations.