In 2023 alone, US-based Amazon sellers sold over 4.5 billion items, averaging 8,600 sales per minute. Approximately 60% of small and medium sized businesses (SMBs) that sell products online reported that a majority of their overall sales can be attributed to Amazon's e-commerce marketplace.*
Given the number of SMBs that rely on Amazon for the overall success of their business, having an Amazon Seller Central account in good standing is crucial.
In this article, we'll explore six essential risk management tips to help you navigate the complexities of selling on Amazon. From understanding policies to promoting product safety, these strategies will help you proactively protect yourself and your growing Amazon business.
1. Review Amazon’s policies and seller code of conduct
Before you list your first product on Amazon.com, take some time to familiarize yourself with Amazon’s seller policies and code of conduct. Understanding these guidelines will help you adhere to the rules and requirements set by Amazon, helping ensure a fair and trustworthy shopping experience for customers.
Amazon's seller policies include guidance in the following areas:
- Accurate product listings: You are required to provide accurate and detailed descriptions of your products, including high-quality images, correct pricing, and relevant keywords. Misleading information can lead to customer dissatisfaction and potential penalties.
- Exceptional customer service: You must respond promptly to customer inquiries and handle returns efficiently. Amazon expects you to provide a positive shopping experience.
- Prompt shipping and fulfillment: You are responsible for ensuring that products are shipped promptly and securely. Utilizing the Fulfillment by Amazon (FBA) service can help streamline this process, as Amazon handles storage, packaging, and shipping on your behalf.
Violating the code of conduct or any other Amazon policies can negatively impact your account standing, and result in cancellation of listings, suspension or forfeiture of payments, and removal of selling privileges.
2. Monitor your Amazon account health rating
The Amazon Account Health Rating (AHR) is a score from 0 to 1,000. All new sellers start with a score of 200 and over time, will see a score that reflects their account health based on policy adherence and selling activities over the last 180 days. This score will fall into one of three color-coded zones:
- Green ("Healthy," based on a score of 200–1,000): your account is not at risk of deactivation.
- Yellow ("At Risk," based on a score of 100–199): your account is at risk of deactivation.
- Red ("Unhealthy," based on a score of 99 or lower): your account is either eligible for deactivation or has already been deactivated.
Listing violations can affect the AHR score in different ways. They fall into one of five categories of AHR impact: critical, high, medium, low, and no impact. The exact number of points deducted from your score for each violation will vary; however, with critical violations, the score may drop all the way to zero. This could result in account deactivation until the critical issue is resolved.
The AHR evaluates three key attributes: order defect rate, shipping performance, and pre-fulfillment cancellation rate. Make it a habit to regularly check your AHR in Amazon Seller Central and take any necessary actions to maintain or improve your rating for continued access to the platform.
3. Ensure clear product labeling and warnings
Clear product labeling is vital for ensuring customer safety and compliance with legal requirements. Proper labeling not only informs consumers about how to use a product safely but also builds trust and credibility for your brand.
A well-designed product label typically includes the following elements:
- Product name: Clearly states what the product is.
- Usage instructions: Provides clear instructions on how to use the product safely and effectively.
- Safety warnings: Includes any necessary warnings about potential hazards associated with the product.
- Ingredients or materials: Lists all ingredients or materials used in the product, especially for food, cosmetics, or health-related items.
- Manufacturer information: Includes the name and contact information of the manufacturer or distributor.
Compliance with labeling regulations is crucial for avoiding legal issues. For instance, most food products must adhere to the Food and Drug Administration (FDA) guidelines, which require specific nutritional information and allergen disclosures. Similarly, many cosmetics must comply with the Fair Packaging and Labeling Act (FPLA). Familiarize yourself with the regulations that apply to your product category to ensure compliance.
Using clear and accessible language on product labels is essential for reaching a diverse customer base. Consider providing translations in languages commonly spoken by your target audience. Additionally, avoid technical jargon that may confuse consumers.
The visual design of your product label also plays a significant role in its effectiveness. Choose an easy-to-read font size and high-contrast colors to enhance visibility. A clean and organized layout will help consumers quickly find the information they need.
Stay informed about changes in regulations that may affect labeling requirements and be proactive in updating your labels to reflect any changes in product formulations or customer feedback.
4. Understand product safety regulations
Product safety regulations are designed to protect consumers from potential hazards associated with the products they purchase. Understanding and adhering to these regulations is essential not only for customer safety but also for avoiding Amazon account suspension, costly legal actions, and irreparable damage to your brand’s reputation.
Different product categories have unique safety regulations. For instance, toys sold in the United States must comply with the Consumer Product Safety Commission (CPSC) standards, which include requirements for choking hazards and toxic materials. Similarly, electronics may need to meet Federal Communications Commission (FCC) regulations regarding electromagnetic interference.
Here are some other key regulations that may apply to your products:
- Consumer Product Safety Act (CPSA): Establishes safety standards for consumer products to prevent injuries.
- Federal Hazardous Substances Act (FHSA): Requires proper labeling and safety measures for hazardous substances to inform consumers of potential risks.
- Food and Drug Administration (FDA): Essential for sellers of food, dietary supplements, and cosmetics, ensuring that products meet safety and labeling standards.
5. Establish supplier quality assurance
Supplier quality assurance directly impacts product quality, compliance with regulations, and customer satisfaction. Maintaining strong relationships with reliable suppliers can help mitigate risks associated with product defects and business interruption. When suppliers understand your business needs and quality expectations, they are more likely to prioritize your orders and provide consistently high-quality goods.
When selecting suppliers, consider the following criteria:
- Reputation: Research the supplier’s history and customer reviews to gauge their reliability.
- Experience: Look for suppliers with experience in your product category, as they are more likely to understand industry standards and regulations.
- Compliance: Ensure that the supplier complies with relevant safety and quality regulations.
- Quality control processes: Inquire about the supplier’s quality control measures to ensure they maintain high standards.
Clear communication with suppliers is crucial for establishing quality assurance. Set expectations regarding product specifications, quality standards, and delivery timelines. Regularly check in with suppliers to address any concerns and ensure that they are meeting your quality requirements.
6. Monitor customer feedback
It is vital to regularly review customer feedback and adjust accordingly. For instance, you may find that customers are confused about the instructions provided for your product and end up using the product incorrectly. Or perhaps customers are pointing out a flaw with your product design that should be addressed as soon as possible.
Once you’ve identified areas for improvement, implement changes to enhance product quality. This could involve adjusting manufacturing processes, improving materials, or updating product designs.
Note that when responding to customer reviews, you must follow Amazon’s community and communication guidelines. For example, do not attempt to influence customer ratings, feedback, and reviews, or make requests for customers to remove negative reviews or post positive reviews.
Augment your risk management strategy with product liability insurance
Even when taking care to follow all the tips mentioned above, it is possible that a product you sold may cause harm. That is why product liability insurance can serve as an important safety net.
Product liability insurance protects your business by helping to cover the costs of claims and legal fees if a customer alleges that a product you sold is defective and has caused bodily harm or property damage. Knowing that you are adequately insured and that your small business is well-poised to handle unexpected legal fees and expenses provides peace of mind.
Further, having product liability insurance is a requirement for all third-party sellers on Amazon.com after reaching $10,000 in sales in one month. Without this coverage, your ability to sell products on the platform may be suspended or revoked.
Conclusion
By implementing these risk management tips and purchasing a comprehensive product liability insurance policy, Amazon sellers can navigate the complexities of the marketplace more effectively and confidently. Proactively understanding policies, ensuring product safety, and maintaining quality will protect your business and enhance your reputation among customers.
Remember, effective risk management is an ongoing process that requires vigilance and adaptability. With the right strategies in place, you can focus on growing your business and achieving success on Amazon.
*https://sell.amazon.com/blog/amazon-stats
