Here’s How Amazon is Killing Its Platform for Sellers

Amazon is making it increasingly difficult for third-party sellers to succeed through rising fees that erode margins, private-label products that compete with seller data advantages, frequent policy changes with little notice, and a pay-to-play advertising model that punishes smaller brands. Despite controlling over 37% of U.S. eCommerce, Amazon’s seller-hostile practices are pushing many businesses to diversify or exit the platform entirely. At Marketplace Valet, we manage Amazon operations for brands doing seven and eight figures on the platform, and we see these pressures compounding year over year across every product category.

Why Are Amazon’s Fees Squeezing Seller Margins?

The cost of selling on Amazon has climbed relentlessly. In our experience managing 8-figure Amazon brands, the total fee load for an average FBA seller now consumes 40-50% of revenue before accounting for cost of goods. Here’s where the money goes:

• Referral fees — Amazon takes 6% to 45% of each sale depending on category, with most categories falling in the 8-15% range
• FBA fees — Fulfillment, storage, and handling costs have risen significantly, with peak-season storage surcharges adding another layer of expense
• Advertising costs — Average cost-per-click has increased 30-50% over the past three years across most categories as competition intensifies
• Inbound placement fees — Newer fees for splitting shipments across fulfillment centers add cost that didn’t exist even two years ago

Small and mid-sized sellers are hit hardest. With less capital to absorb these increases, many are forced to raise prices (making them less competitive) or accept razor-thin margins that one bad quarter can wipe out. We see this across our client accounts — brands that were highly profitable three years ago are now fighting to maintain the same margin percentage despite growing revenue.

How Do Amazon’s Private-Label Products Undercut Third-Party Sellers?

Amazon uses its marketplace data to identify high-demand products with low competition, then launches private-label versions under brands like AmazonBasics and Amazon Essentials. These products enjoy advantages that third-party sellers cannot match:

• Premium search placement — Amazon frequently positions its own brands in top ad slots and prominent search positions
• Pricing power — With lower overhead and no referral fees on its own sales, Amazon can undercut sellers while remaining profitable
• Access to seller data — Sellers have long alleged that Amazon mines marketplace data to inform its private-label strategy, a claim that has driven antitrust investigations in both the U.S. and EU

At Marketplace Valet, we’ve watched clients invest months building a product category only to see Amazon launch a competing private-label product that immediately takes the top organic position. Competing against a platform that is also your competitor creates an inherent conflict of interest.

What Policy Changes Are Hurting Sellers the Most?

Amazon updates its policies frequently, often with minimal advance notice. While these changes are framed as improvements to customer experience, the impact on sellers can be severe:

• New packaging and labeling requirements that force sellers to rework inventory already in transit
• Stricter account suspension triggers that can deactivate sellers without clear explanation or recourse
• Shifting review guidelines that make it harder for legitimate sellers to build social proof
• Vague enforcement communications — sellers regularly receive warnings or suspensions with boilerplate language that doesn’t explain the actual violation

We see this firsthand at Marketplace Valet. A client can be in full compliance on Monday and unknowingly violating a new policy by Wednesday because the change was buried in a Seller Central notification that most people miss. This unpredictability makes long-term planning nearly impossible for sellers who don’t have a team monitoring policy updates daily.

Is Amazon’s Marketplace Becoming Too Saturated?

The low barrier to entry on Amazon has flooded the marketplace with sellers, many from overseas. While competition is healthy in theory, the reality on the ground is more complicated:

• Race to the bottom on pricing — New entrants undercut established sellers, driving prices below sustainable levels
• Counterfeit and low-quality products — Despite Amazon’s efforts, knockoff products continue to undercut legitimate sellers and erode customer trust
• Listing hijacking — Bad actors attach to established listings with inferior products, damaging the original seller’s reviews and reputation

Legitimate sellers face a double bind: they must compete on both price and quality while dealing with counterfeiters who face few real consequences.

Why Has Advertising Become Mandatory to Survive on Amazon?

Organic visibility on Amazon has declined dramatically. The first page of search results is now dominated by sponsored placements, and even established products with strong review profiles struggle to maintain visibility without ad spend.

The result is a pay-to-play environment where advertising is no longer optional — it’s table stakes. In our experience managing Amazon advertising across dozens of brands, we’ve watched average CPCs climb year after year while conversion rates on ad traffic remain flat or decline. Larger sellers can absorb these costs, but smaller brands find themselves in a losing battle for visibility.

How Do Customer-Centric Policies Hurt Sellers?

Amazon’s generous return and refund policies boost customer satisfaction but create real financial pain for sellers:

• Return abuse — Customers use products and return them for full refunds, essentially treating Amazon as a free rental service
• A-to-Z Guarantee claims — Buyers can file claims that result in chargebacks even when the seller fulfilled the order correctly
• Returnless refunds — Amazon sometimes refunds customers without requiring a return, leaving sellers with no recourse to recover their inventory

We track return rates and A-to-Z claims closely across our Marketplace Valet client accounts, and the financial impact of return abuse alone can run into tens of thousands of dollars annually for mid-sized sellers.

What Can Sellers Do to Adapt and Stay Profitable?

Despite these challenges, Amazon remains the largest eCommerce marketplace and abandoning it entirely is rarely the right move. Here are the strategies we implement with our clients at Marketplace Valet:

Invest in brand building. Build a brand that customers seek out by name. Use A+ Content and Amazon Stores to differentiate yourself from private-label competitors and commodity sellers. A strong brand creates loyalty that survives algorithm changes.

Diversify your sales channels. Don’t put all your revenue on Amazon. Expand to Shopify, Walmart Marketplace, TikTok Shop, and your own DTC website. We recommend our clients aim for no more than 60-70% of total revenue from Amazon.

Optimize relentlessly. Update product titles, bullet points, and images regularly to match current search trends. Test pricing strategies. Audit your advertising spend weekly to kill underperforming campaigns and scale winners.

Control costs aggressively. Streamline your supply chain, negotiate better rates with suppliers, and use inventory planning tools to avoid long-term storage fees. Every dollar saved on operations is a dollar of margin recaptured.

Stay ahead of policy changes. Monitor Seller Central announcements, join seller communities, and work with an agency like Marketplace Valet that tracks Amazon policy updates across all categories daily.

Build direct customer relationships. Use Amazon’s “Request a Review” feature, build an email list through insert cards (within Amazon’s terms of service), and provide exceptional customer service to earn repeat business and organic reviews.

Frequently Asked Questions

Is Amazon still worth selling on in 2025?

Yes, but with caveats. Amazon still offers unmatched access to over 300 million active customers and handles fulfillment logistics that most brands cannot replicate. However, sellers need tighter margins management, stronger brand differentiation, and ideally a multi-channel strategy to remain profitable long-term.

How much do Amazon fees typically cost sellers as a percentage of revenue?

For a typical FBA seller, total Amazon fees (referral, fulfillment, storage, and advertising) consume 40-50% of gross revenue. This varies by category — lightweight items in high-referral categories can see total fees closer to 55%, while heavier items with lower referral percentages might land around 35-40%.

Can small sellers still compete against Amazon’s private-label brands?

Small sellers can compete by focusing on niches too small for Amazon to target, building strong brand identity with loyal customer bases, and offering differentiated products with unique features that generic private-label versions cannot replicate. Brand Registry and A+ Content are essential tools for this strategy.

What are the best alternatives to selling on Amazon?

Walmart Marketplace, Shopify (for DTC), TikTok Shop, and Target Plus are the most viable alternatives depending on your product category. Many successful brands use a combination of channels rather than relying on a single platform. The key is testing channels where your target customer already shops.

How can I protect my listings from counterfeit sellers?

Enroll in Amazon Brand Registry, use Amazon Transparency codes on your products, file IP violation reports against counterfeiters promptly, and monitor your listings daily for unauthorized sellers. Working with an Amazon management agency that provides active listing monitoring can catch hijackers before they damage your reviews and sales velocity.