Ecommerce experienced X years of growth in X months in 2020. While the pandemic accelerated the shift from brick-and-mortar to online retailer, this unstoppable trend has been going in the same direction for 20 years.
If you want to start a business today, selling high-quality, physical products online is a great option. Startup costs are low. The potential to scale the business to a nice six-figure lifestyle business or a billion dollar company is possible. You can run your empire from anywhere you have internet access.
But what type of ecommerce business do you start? One great option is leveraging the multi-billion dollar power of Amazon, the world’s largest online retailer. Another great option is to build your own branded website and customer experience using the most popular ecommerce software tool, Shopify.
What is Amazon FBA?
The model we most commonly teach involves creating a custom-branded, or private label, product and selling it on Amazon. We recommend using Fulfillment by Amazon, or FBA, to store and ship your inventory to customers who buy from you on Amazon. The costs are reasonable, you’re now available for fast shipping to millions of Amazon Prime members, and you create a nearly automated ecommerce business.
What is Shopify?
Amazon is a marketplace that allows you to sell your products alongside millions of others all on one website. Shopify is an ecommerce software tool. It’s like a website builder to sell products online. You create an online website for people to buy only your products. You own the full customer experience and relationship.
Why should you listen to me?
I’ve been building ecommerce businesses since 2009. I started selling on my own website with a predecessor to Shopify. I’ve done dropshipping, wholesaling, private label, and some custom product creation. In 2010 I started selling on Amazon and ended up building the most successful business building program focused on Amazon.
Today, I’m a co-owner of an ecommerce business that’s one of the top 300 fastest growing companies in America according to Inc Magazine. We sell primarily on Shopify and launched on Amazon at the end of 2020.
I’m the CEO of Amazing.com, Inc. We focus on helping people start and grow businesses on Amazon. I sell using Shopify, but we offer products mainly for people who want to sell on Amazon. We do have one program that helps Amazon sellers grow sales on Shopify. I’m telling you this upfront so you know I may be a bit biased toward Amazon, though I’ll do my best to give you fair and honest advice on which is best for you.
The Amazon FBA Opportunity
Amazon is one of the biggest companies in the world today. About 50% of all online sales in the U.S. are on Amazon. Sales grew by over $100 billion in the past year alone.
It’s biggest advantage, however, is its fulfillment network, Fulfillment by Amazon (FBA). They’ve spent decades building massive fulfillment centers around the world. Today, this gives them the unique ability to cost-effectively offer millions of shoppers free two-day and even one-day shipping. Nobody else has Amazon’s ability to get so many products to so many people as fast.
To access Amazon’s hundreds of millions of customers and its fulfillment network, you pay a reasonable 15% of sales in addition to fulfillment fees. If you sell physical products, you have to pay someone to do your fulfillment. By letting Amazon do this work for you, your business is more automated if you sell on Amazon and is highly recommended.
The process to build an Amazon FBA business
- Find a product to sell by researching on Amazon
- Create your own brand of the product (private labeling)
- Have your manufacturer ship inventory to Amazon’s FBA warehouses
- Optimize your product listing page on Amazon for keyword rankings and conversions
- Execute a product launch strategy to get your product ranking on Amazon
- Use Amazon’s advertising platform to market your product
- Add more products to your brand by repeating the steps above
Amazon takes care of a lot of the work of building and managing an ecommerce business. They are your website platform, they take care of payment processing, they process refunds and chargebacks, and they take care of all your shipping and fulfillment.
Your job is to find the right products to sell, choose the right keywords, and continually market your products using Amazon’s tools. Most importantly, to succeed on Amazon, you need to be diligent at researching. You need to research to:
- Find the right products to sell
- Find good suppliers
- Calculate accurate profit numbers before you commit to a product
- Choose the right keywords to target
- Analyze your Amazon advertising campaigns to improve performance
You don’t need a ton of marketing experience. If you find the right products and get them ranked for keywords, you can make sales. Unlike with Shopify, you don’t have to convince people to trust buying from you on Amazon.
A good startup budget to sell a private label product on Amazon is $2,000 to $5,000, including inventory and marketing costs.
Who is Amazon FBA best for?
- You want a simple way to build a profitable ecommerce business
- You want to start making money and aren’t stuck on selling a specific product you want to develop
- You want a low-maintenance business
- You don’t want to have to worry about a lot of operations such as website design and development, customer service, payment processing, and shipping
The Shopify Opportunity
The total volume of sales on all Shopify stores, also known as Gross Merchandise Volume (GMV), is XX. If you want to sell products on your own website, Shopify is the undisputed software to use. Some of the biggest ecommerce brands in the world use Shopify such as X, X, and X. But it’s not just for big brands, entry level plans to use the software start at only $X per month.
When you sell on Amazon, you don’t have a direct relationship with the people who buy from you. Amazon wants to own the customer relationship. It’s like selling your products in a Walmart store, those are Walmart’s customers, not yours. Shopify allows you to sell directly to consumers, also known as DTC. When someone buys from you on your Shopify store, they’re your customer. You control the full purchase experience. You get to follow up with them after they buy to get them to buy more from you.
Because of this direct relationship with customers, the valuation multiples for DTC businesses are higher than Amazon-only brands. With a DTC business using the Shopify platform, the valuation might be as high as one to two times revenue. With an Amazon-only brand, the valuation is more likely three to five times profit. To give you an example of the difference this can make, let’s say an ecommerce brand sells $10 million per year with a 15% net profit, or $1.5 million. A pure DTC brand with these numbers could be worth $10 million to $20 million. A pure Amazon-focused brand would be worth $4.5 million to $7.5 million.
The process to build a business with Shopify
- Pick a niche/market
- Pick a first product to sell
- Find a supplier
- Find a third party logistics (3PL) provider to store and ship your inventory
- Build out your Shopify store
- Figure out how to get customers with at least one marketing channel
- Grow your marketing channels and product catalog
The hardest part, by far, of succeeding on Shopify is figuring out how to get customers. Finding a product to sell and getting it created is straightforward. Figuring out how to find and convince customers to buy that product is the hard part. Unlike Amazon, you don’t have a built in base of hundreds of millions of people looking for products to buy. With your Shopify store, nobody knows it exists until you start marketing.
Fortunately, you have a lot of different marketing options successfully used by brands. A few of these options include content marketing, influencer marketing, paid advertising, and social media. Typically, a successful brand will master one of these channels to grow their customer base and sales. With my ecommerce brand, 60-70% of new customers find out about us through one channel, Facebook ads.
You also need to get good at operating an ecommerce business or hire someone to do this for you. With Shopify, you’re on your own. You have to manage your website, do all customer support, process refunds and chargebacks, and make sure the right products get to the right customers on-time. Operations can make or break an ecommerce brand on Shopify.
A startup budget of $500 to $10,000 should be enough to purchase inventory and start marketing with Shopify for most products.
Who is Shopify best for?
- You have a unique product you want to sell
- You want to build a brand and own the full customer experience
- You’re willing to work hard to master at least one marketing channel
- You’re OK with being fully responsible for all operations and customer service
Conclusion: Do both, but start with one
So which one do you do, Amazon FBA or Shopify? This is a bit of a trick question because I recommend you do both, eventually.
Start with Amazon FBA if you’re new to ecommerce. If you want a simpler and easier way to make money in ecommerce, Amazon is a great choice. The costs are low and your job is simple: choose the right products and rank for keywords. You don’t need to be a marketing or branding expert to succeed with this model.
Start with Shopify if you have a unique product idea or are an experienced marketer. Shopify is much better suited to selling unique products because you have the room to tell the full story of why someone should buy it. You need the skills to tell a convincing story and to attract the right customers to succeed on Shopify. If you believe you can do it, then go for it!
Either way, eventually you’ll likely want to sell on both platforms. If you start with Amazon, you may later want to sell on Shopify to supplement your Amazon sales and own the customer relationship. If you start with Shopify and succeed, people will want to buy from you on Amazon. We sold on Shopify exclusively for more than 18 months and then expanded onto Amazon.
Ecommerce will only continue to grow. Amazon and Shopify are completely different ways to profit from the opportunity. Choose the model which best fits your situation. I can’t wait to hear about your success!
Matt Clark is the Chairman and Co-Founder of Amazing.com, a serial entrepreneur, and investor. He’s been featured on Forbes, CNBC, and Entrepreneur.com.