Early Stage Growth Tips
Feb 3, 2023
TLDR
Deciding between Amazon and Shopify for your online business involves considering factors like your target audience, fee structures, brand goals, marketing investments, and overall business objectives. Amazon offers access to a vast customer base but may limit brand control and differentiation. Shopify allows greater customization but demands more effort and investment. Understanding your audience, budget, and long-term vision will guide the choice between these platforms.
Launching an online store has never been easier. But building an online business has never been tougher. If you're a new seller trying to decide whether to sell on Amazon or build your own Shopify store, there are several factors to consider. Shopify is one of the largest specialized ecommerce platforms in the today, with over 2 million online stores active on the platform globally. While that may sound like a lot, Amazon has 1.1 million active sellers in the United States alone.
To ensure that you choose the specialized ecommerce platform that is the best fit for your business, you should focus on the five key factors that we'll explore in the framework below. I will use Amazon as a proxy for all marketplaces, but the same framework should work even if you're considering selling on a different online marketplace.
What does your target audience want?
Which fee structure works best for your volume of transactions?
What type of long-term brand do you intend to build?
What marketing investments are you willing to make?
What is your goal for the business?
What does your target audience want?
Who is your target audience? Are they more likely to buy from Amazon or a standalone store? If your target audience is less likely to search for brands online and is more comfortable searching for products on a reputed marketplace, then selling on Amazon might be the better option for you.
The target audience to sell online to is a crucial factor to consider when deciding between selling on the Amazon marketplace and building your own Shopify store. Understanding who your target audience is and their buying behavior is essential to determine where to sell your products.
A good concept to understand here is the Diffusion of Innovation theory which breaks down the market into several customer segments.
Online customers on Amazon are likely to be toward the middle of the curve. Image courtesy: Rapid Response Revival
If your target audience doesn’t comprise early adopters, then Amazon might be a better bet for you. Such audiences:
Aren’t searching for new brands online
Want to see your brand next to more reputed brands before they will consider you
Want to have the easy shipping and returns experience of a reputed marketplace
Tend to stick with the tried and tested
Amazon has over 300 million active users worldwide, and many people use the Amazon marketplace as their go-to platform to search for and purchase products. If your products align with what Amazon shoppers are looking for, then selling on Amazon can expose your products to a vast customer base.
Brands on Amazon tend to be undifferentiated and often compete against Amazon’s own brands.
On the other hand, if your target audience does comprise early adopters, or people looking for a unique experience, you may be better poised to launch your own brand and start selling it on Shopify. Such audiences:
Look for unique experiences or niche products
Are willing to try out a new and exclusive store
Look for a personalized buying experience
Companies like Dixxon that do limited edition exclusive drops tend not to sell on Amazon.
It's important to note that your target audience may use both platforms to shop. In this case, you can consider selling on both Amazon and Shopify, but you'll need to evaluate the cost and effort of managing both channels and ensure that you're not cannibalizing your sales or diluting your brand. Companies like Alo Yoga sell on both Amazon and their own Shopify store, using Amazon as a way to acquire customers who will eventually move to their own ecommerce platform and website.
Which fee structure works best for the volume of transactions on your online store?
Amazon charges a referral fee—ranging from 6% to 45%—for every sale made on its platform. Shopify, on the other hand, charges a monthly fee plus a small transaction fee for each sale.
Selling fees and monthly subscription fees are a critical factor to consider when deciding between selling on Amazon and building your own Shopify store. Both platforms have their own fee structure, and understanding the costs involved in selling on each platform is essential to determine which one is more cost-effective for your business.
Amazon charges referral fees for every sale made on its platform. This fee can range from 6% to 45%, depending on the product category. If you opt to use Amazon's fulfillment service, Fulfillment by Amazon (FBA), you'll also need to pay additional fees for storage, packing, and shipping. Sometimes, merchants find Amazon's selling fees quite convoluted—so you should research the different ways your fees might be calculated.
Shopify, on the other hand, charges a monthly fee plus a transaction fee for each sale. The monthly fee varies depending on the plan you choose, while the transaction fees range from 2.4% to 2.9% plus 30 cents per transaction. If you use a third-party payment gateway, such as PayPal or Stripe, you'll also need to pay additional fees charged by these providers.
To determine which platform is more cost-effective for your business, you'll need to calculate the cost of each option based on your sales volume and other factors unique to your business. Keep in mind that the fee structure may vary depending on the product category, sales volume, and other factors, so it's essential to do a thorough analysis before making your decision.
For instance, let’s look at the costs associated with the sale of a $100 product on Amazon and on your own online store:
Amazon:
Amazon referral fee (assuming a 15% fee for the product category): $15.00
Amazon fulfillment fee (assuming the product is eligible for FBA and costs $3.50 to store and fulfill): $3.50
Total Amazon fees: $18.50
Shopify:
Transaction fee (assuming a 2.9% fee plus 30 cents per transaction): $3.20
Shopify's monthly subscription fee. Assuming you subscribe to the Basic Shopify plan at $29/mo and you sell 100 products a month, then the cost of each sale allocated to this subscription fee is $2.90.
Fulfillment fees (assuming a non-bulky item is shipped domestically): $5.00
Total Shopify fees: $11.10
Typically, the fulfilment fees with online marketplaces like Amazon are lower than the fulfillment fees you would pay yourself if you ran your own online store. For bulky or expensive items requiring insurance, these costs could be prohibitively high.
How important is it to understand your customer behavior?
With a standalone store, you have complete control over your branding and customer experience. With Amazon, you have limited control over how your products are displayed, and it can be difficult to differentiate yourself from other sellers.
Amazon provides a standardized platform that allows sellers to list their products and fulfill orders, but the level of customization and control is limited. For example, sellers can only customize their product listings to a limited extent, using Amazon's templates and formatting guidelines. Amazon also does not provide detailed customer behavior information, other than what's available in the orders in your Amazon Seller Central account.
In contrast, Shopify offers a high level of customization and control, allowing sellers to create a unique brand and customer experience. With Shopify, sellers can fully customize their website design, choose their own payment gateways, and have more control over their product listings and pricing. Additionally, Shopify offers a wide range of third party apps and ecommerce tools through the Shopify App Store that allows sellers to add features and functionality to their store. With Shopify, you also own the customer data and relationship—you can review which other products the customer browsed, try to win back customers who are at risk of churn, and provide a more personalized experience to your customers. Check out our directory of apps and ecommerce tools available on the Shopify App Store to improve your understanding of customers.
Further, building your own Shopify store requires more time, effort, and technical expertise than selling on Amazon. You'll need to own website design, inventory management, customer service, and fulfillment. This can be challenging, especially for new sellers who are just starting out.
What marketing and brand investments are you willing to make?
Amazon's large audience increases the likelihood of your products being discovered, but you will face competition from other sellers. A standalone store requires investment in marketing to drive traffic and build brand awareness.
Marketing and advertising are important factors to consider when deciding between selling on Amazon and building an ecommerce business on your own Shopify store. Both platforms offer different options for marketing and advertising, which can impact your ability to reach potential customers and drive sales.
Amazon offers several advertising options, including Sponsored Products, Sponsored Brands, and Sponsored Display. These advertising options allow sellers to promote their products and reach customers who are searching for similar products on Amazon. Amazon also has a large customer base, which means that sellers can potentially reach a large audience without spending a lot of money on advertising. Marketing tools on Amazon target ads only on the Amazon portal and, as a merchant, you will be able to view limited analytics to help you make better customer-targeting decisions. You may be able to use third-party ecommerce tools to get more information from your Amazon professional seller account.
On Amazon, your $100 product will be next to another merchant selling a similar for $30. Like it or not, that affects the way your brand is perceived. If you are looking to build a (say) premium brand, being on Amazon may limit your ability to do so. The Amazon seller central portal doesn't provide you with too much information on the customer—while it is easier to garner a sale, you rarely learn anything about the customer to make your next sale.
You can promote a specific product or your entire brand on Amazon. The downside?—your $128 yoga mat may feature next to a $19 generic product.
While Shopify offers several advertising integrations, including Facebook Ads, Google Ads, and Instagram Ads, you will still need to create and run your own ads on those platforms. Depending on how well you optimize your brand, community, and pricing, these costs can be prohibitive for new sellers.
Shopify also has a range of marketing and sales tools, such as email marketing, abandoned cart recovery, and customer segmentation, which can help sellers build their brand and drive sales.
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What is your goal for the business?
If you are looking to build a brand and establish a long-term business, then building a standalone store might be the better option. With Amazon, you are essentially renting space on their platform and are subject to their rules and policies.
Amazon offers a large customer base and a built-in audience, which means that sellers can potentially reach a large audience without spending a lot of money on marketing and advertising. However, Amazon also has a highly competitive marketplace, which can make it difficult for new sellers to stand out and gain traction. Additionally, Amazon has strict rules that sellers must follow, which can limit their ability to build their brand and provide a unique customer experience.
In contrast, Shopify offers a range of tools and resources that can help sellers build their brand and grow their business over time. With Shopify, sellers have full control over their website design, product listings, and customer experience, which means that they can create a unique brand and stand out in a crowded marketplace. Additionally, Shopify has a range of apps and integrations that can help your online store streamline its operations and increase sales.
Building your own online store on requires more time, effort, and investment than selling on Amazon. You'll need to invest in marketing and advertising, handle customer support and fulfillment, and manage your inventory and operations. This can be challenging, especially for new sellers who are just starting out.
If you are just starting your Shopify journey, reach out to us to learn more about out startup plan—you could get free access to our Team Plan for a limited period. Airboxr will help you assess the health of your business and provide insights on your customers as you embark on this multi-year brand-building journey.
