Can Small Businesses Survive Without Marketplaces?

To sell or not to sell on marketplaces? That’s the tough question many small and midsized businesses (SMBs) are asking themselves. Maybe it’s something you’re considering, too.

On one hand, third-party online marketplaces offer a powerful way to reach millions of potential customers. In fact, over 60 percent of sales on Amazon.com's store come from independent sellers. At the same time, rising costs are leaving SMBs wondering whether they can afford to continue selling on these platforms.

So how do you choose?

Read the Fine Print

When selling on marketplaces, you need to understand all the costs — overt and hidden — to ensure you’re not actually losing money.

First, look at the referral fees across each marketplace. For example, Amazon charges a referral fee typically ranging from 8 percent to 15 percent of the product's sale price, though it can be higher depending on the item. Etsy charges 6.5 percent plus payment processing fees. These fees can change on a whim and impact your profitability, making it difficult to predict income and compete on price.

Besides marketplace fees, you also need to factor in rising shipping costs and any inflation trends based on the types of products you sell. Things can add up fast. You should put together an overall pricing strategy and carefully consider how the different fees will impact your bottom line before committing to an online marketplace.

Gauge if the Benefits Outweigh the Costs

Marketplaces are particularly good at helping consumers find your products. Platforms like Amazon, eBay, Facebook, and Instagram have large, built-in audiences that would be virtually impossible to reach independently. However, if you already have a solid customer base, this may not be enough to justify the costs.

Some marketplaces also offer resources that help simplify the selling process, like Fulfillment by Amazon. For a fee, Amazon handles shipping, customer service and returns on behalf of sellers, which could be helpful to smaller retailers. Revisit these cost-benefit analyses annually, and especially any time marketplaces change their fees.

Don’t Put All Your Eggs in One Basket

If you already sell on marketplaces, keep in mind that relying solely on a marketplace for your online presence can be risky. To reduce this reliance, consider building your own online store.

Running an online store gives you complete control over pricing, branding and customer interactions, and you’ll own all your customer data, which opens up opportunities for personalized marketing to help build stronger customer loyalty. You can grow your online store gradually while the marketplace listings continue to generate sales. For example, to funnel a marketplace customer to your online store, include a promo code in their package for a discount on their next purchase that’s only redeemable at your online store.

There are also cost-effective tools to help streamline running both a brick-and-mortar and online store. Using a smart point-of-sale device in your retail store can connect your online and offline sales into one single dashboard. It will sync your inventory so that when someone purchases the last candle in-store, your online store will show it’s out of stock, saving you significant time managing your business across both channels.

Once your online store is generating consistent revenue, if it makes sense, you can even slowly phase out your marketplace listings.

Creating an independent online store in parallel with your online marketplace presence offers more control and potential long-term benefits. To succeed, you need to be strategic, lean on digital marketing and social media channels to attract customers, and remain open to changes that will help you get the best results. Remember, you must be willing to experiment to thrive in the competitive e-commerce world.

Alexander Avramenko is the head of commerce growth at GoDaddy, where he leads GoDaddy’s efforts to help entrepreneurs start, grow and scale their businesses.