Marketplace strategy looks simple from the outside: list your products on Amazon, Lazada, or Walmart Marketplace, and let the traffic do the work. But most e-commerce brands eventually discover that selling on marketplaces and building a business through marketplaces are two very different things — and confusing the two is one of the most expensive mistakes a growing SMB can make.

Key Takeaways

  • Marketplaces drive volume but rarely build brand equity, customer loyalty, or pricing power.
  • Most SMBs underestimate how much margin compression marketplaces impose over time.
  • Over-reliance on a single marketplace creates platform dependency that is difficult and costly to reverse.
  • The brands that scale sustainably treat marketplaces as one acquisition channel, not their entire growth strategy.
  • A direct-to-consumer presence built in parallel is what separates brands that grow from brands that get displaced.

Why Marketplaces Feel Like a Growth Strategy — But Often Aren't

The appeal is real. Amazon alone accounts for around 37–40% of all US e-commerce sales. Etsy, Walmart Marketplace, and Australia's MyDeal give SMBs immediate access to millions of active buyers without the cost of building an audience from scratch.

That access, though, comes with a structural problem: you are renting someone else's customer.

When a buyer purchases from your Amazon listing, they become Amazon's customer — not yours. You receive no email address, no behavioural data, no meaningful ability to retarget or retain that person. The transactional relationship belongs to the platform, and the platform knows it.

Research from Jungle Scout's 2024 State of the Amazon Seller report found that over 60% of Amazon third-party sellers report increasing fee pressure year-over-year, with fulfilment, referral, and advertising costs eating into margins that once justified the channel. Many brands find themselves spending more on Amazon Sponsored Products just to maintain the organic ranking they once held for free.

What Does Margin Compression Actually Look Like at Scale?

In the early stages, marketplace economics look favourable. Lower customer acquisition costs, no paid media required, and a frictionless checkout all make the first 12–18 months feel sustainable.

Then the numbers shift.

A typical Amazon seller in a competitive category faces:

  • 8–15% referral fees depending on category
  • FBA fulfilment costs ranging from $3–$7 per unit for standard items
  • Advertising spend of 15–25% of revenue just to maintain visibility in saturated niches
  • Periodic storage fees, return processing costs, and policy-related deductions

Combined, it is common for brands to realise they are netting 10–20% gross margin on marketplace sales — a number that leaves almost no room for product improvement, brand investment, or team growth.

For a brand doing $1M AUD in annual marketplace revenue, that margin gap compared to a healthy DTC gross margin of 45–60% can represent $250,000–$400,000 in foregone profit per year.

When Does Platform Dependency Become a Crisis?

Platform dependency is not just a margin problem. It is a risk exposure problem.

Brands that derive more than 70% of their revenue from a single marketplace are, operationally speaking, one policy change away from a serious business disruption. Amazon, Shopee, and similar platforms have well-documented histories of:

  • Suspending high-performing seller accounts with minimal notice
  • Launching competing private-label products in categories that third-party sellers proved viable
  • Changing search algorithms in ways that dramatically reduce organic visibility overnight
  • Increasing fee structures with 30–60 days notice, giving sellers little time to reprice or exit

In Singapore and Australia, where e-commerce adoption has accelerated sharply since 2021, many SMBs built their entire digital commerce presence on Lazada, Shopee, or Amazon AU — and now find themselves structurally unable to diversify without significant technical and marketing investment.

The exit cost is real. Building a DTC channel, an email list, and a brand identity from scratch after years of marketplace reliance requires resources that margin-compressed businesses often no longer have.

What Brands in Canada and the US Understand That Others Don't

The most sophisticated North American e-commerce brands — including mid-market DTC companies in categories like skincare, homewares, and supplements — have largely adopted what could be called a marketplace-as-acquisition, DTC-as-retention model.

The logic is straightforward:

  • Use marketplaces to reach new buyers who would never find you organically
  • Invest in packaging inserts, QR codes, and post-purchase sequences to migrate buyers to your own ecosystem
  • Reserve your highest-margin SKUs, bundles, and subscription offers exclusively for your DTC store
  • Build your email list, loyalty programme, and brand narrative through channels you control

This approach accepts that marketplaces have a genuine role — but defines that role narrowly. They are acquisition infrastructure, not a brand-building platform.

Glossier, despite being a native DTC brand, used this principle in reverse — building brand equity entirely through owned channels before selectively entering retail and third-party platforms. The brand came in from a position of strength, not dependency.

What Most SMBs Miss About the Branding Dimension

Beyond margin and dependency, there is a brand problem that is harder to quantify but just as damaging.

Marketplace environments are designed to commoditise. The visual language — uniform product tiles, price-comparison sorting, sponsored badges — strips away everything that differentiates a brand except price and review count. Competing in that environment trains both buyers and the algorithm to evaluate you on cost efficiency alone.

That is a strategic ceiling that is very difficult to break through. Brands that spend years competing on price in marketplace environments often find that their perceived value has eroded — even among customers who would otherwise pay a premium for quality, story, or experience.

If your brand is at the point where you're unsure whether your market positioning is working for or against you, it's worth taking a step back to assess where things actually stand. A tool like the free Brand Health Score assessment from Lenka Studio can surface the gaps that marketplace performance data won't show you.

Is There a Right Time to Go All-In on Marketplaces?

Yes — but the circumstances are more specific than most brands realise.

Marketplace-first strategies make genuine sense when:

  • You are validating product-market fit before investing in a DTC channel
  • Your product category has low differentiation and price competition is unavoidable regardless of channel
  • You have a high-volume, low-margin commodity product where the incremental cost of building brand equity exceeds the return
  • You are entering a new geographic market where you have no organic presence and need fast distribution data

Outside these scenarios, treating a marketplace as a primary growth strategy rather than a secondary acquisition channel is a decision that typically looks correct in year one and damaging by year three.

What a Healthier Marketplace Posture Looks Like

Brands that navigate this well tend to share a few common habits:

They set a revenue ceiling for marketplace dependency. A common internal benchmark among sophisticated operators is keeping any single external platform below 30–40% of total revenue — not because that number is magic, but because it preserves negotiating leverage and business continuity.

They invest in owned infrastructure in parallel. Even while marketplace revenue is growing, they are building their Shopify store, growing their email list, and developing the content and community assets that marketplaces cannot provide.

They treat marketplace data as market research. Which SKUs convert best, which price points hold, which search terms drive discovery — all of this feeds their DTC product and marketing strategy.

They protect margin by design. High-margin bundles, subscription models, and exclusive colourways or configurations are reserved for DTC, giving buyers a reason to move off-platform over time.

At Lenka Studio, when we work with e-commerce clients across Australia, Singapore, Canada, and the US, one of the earliest conversations is always about channel architecture — specifically, whether the current revenue mix creates vulnerability or resilience. The answer shapes everything that follows, from the tech stack to the content strategy.

Frequently Asked Questions

Should e-commerce brands avoid marketplaces entirely?

Not at all. Marketplaces are a legitimate and often valuable acquisition channel. The problem is treating them as a primary growth strategy rather than one channel within a diversified approach. Most successful brands use marketplaces to reach new buyers while investing separately in owned channels.

What percentage of revenue should come from marketplaces?

A commonly cited internal benchmark among experienced e-commerce operators is keeping marketplace revenue below 30–40% of total sales. This preserves business continuity, protects margin, and ensures the brand is not entirely subject to platform policy changes.

How do marketplace fees affect profitability for SMBs?

For many SMBs in competitive categories, combined marketplace costs — referral fees, fulfilment, and advertising — can consume 40–60% of revenue, leaving gross margins well below what a DTC channel would produce. This compression often worsens over time as categories become more competitive.

Can a small brand build customer loyalty through Amazon or Lazada?

It is extremely difficult. Marketplaces restrict access to buyer data, prohibit direct outreach in most cases, and create an environment where the platform — not the brand — holds the customer relationship. Loyalty-building almost always requires owned channels like email, SMS, or a brand's own website.

When is the right time to build a DTC channel alongside marketplaces?

The right time is earlier than most brands expect — ideally before marketplace revenue starts to feel comfortable. Once a brand is deeply reliant on a single platform, the cost and effort of building a DTC presence increases significantly, while the available margin to fund that investment shrinks.

If you're rethinking your channel strategy or trying to reduce marketplace dependency without disrupting existing revenue, the team at Lenka Studio works with SMBs across Australia, Singapore, Canada, and the US to build e-commerce foundations that are built to last — not just built to convert today. Get in touch and let's talk through where your business actually stands.