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Archive | March, 2016

The economics of small business: quality, feedback, and ratings


In today’s climate of ratings and feedback, small businesses like ours can often suffer at the hands of customers who don’t understand the realities and economics of small businesses, or are simply too lackadaisical to go through the trouble of contacting a seller before they go negative on us.

Take, for example,  I often order books from third party sellers, and see that most of the time sellers are rated in the low 90’s or high 80’s in terms of overall satisfaction.  On eBay, where I’ve been a buyer and seller for almost 20 years, and have a 100% rating across thousands of transactions, buying from someone with such a low rating seems dangerous.  If someone is rated at 90% satisfaction, does that mean I have a one in ten change of having an issue?  On eBay, where the company forces a resolution process on buyers and sellers, this is often the case.  On eBay, if you want a refund, you have no choice but to go through this process to get your money back.  One person’s bad experience can often be indicative of your likelihood of having a problem.

But on sites like Amazon, where we now do quite a bit of our selling, things are very different, and this leads to a very different quality to their ratings.  Consider the following:

Process: has no process whatsoever that helps buyers and sellers resolve issues.  Have a problem and want your money back?  Sure, no problem, just a few clicks and you are there.  The downside of this is that sellers are often not aware that there is a problem at all.  Looking at returns, there is no way for us to tell that someone returned a part for quality reasons, or simply because they didn’t read the detail and ordered the wrong part.

Quantity vs quality of ratings:  On eBay, which is treated by both buyers and sellers more like a community, people are motivated just as much to leave positive feedback when there is a satisfying experience, as they are to leave negative feedback when there is a bad experience.  On, a very very small percentage of buyers actually leave feedback.  This means that an out-sized percentage of people that leave feedback do so because of a problem (and often a problem they never tried to contact the seller about), which almost guarantees that as a seller, you will find it impossible to have a near 100% positive rating.

Shoot first, ask questions later:  This in my opinion is the single biggest problem with feedback and ratings on  People simply don’t bother to contact the seller when there is a problem.  Perhaps the norm these days for sellers is that they simply don’t take care of their buyers, and buyers expect poor service.  But for our business, this is anything but the case.  We go to great trouble to try and insure our customers get a good product and have a good experience, and when there are problems, we will do what ever we can to resolve it.  Got a defective part, no problem, we’ll ship you a new one.  Part broke for no good reason a year after you bought it, no problem, we’ll replace it.

That is, we’ll do all that, given the chance.  Most of the time, buyers on will simply return a defective part, leave a negative review, and never ask us for help.

People don’t understand how Fulfillment by Amazon works:  People often leave negative feedback for problems with shipping.  When you order something with Amazon Prime shipping, that means it is fulfilled by Amazon.  People don’t seem to realize that in cases like this, the onus for a good shipping experience is on Amazon, not us; we have no control over shipping.  But we get the negative feedback from shipping issues anyways.

All this mean that it is very very hard for a small seller like us to maintain a good seller rating on  For example, if 300 people buy something from us on in a month, but only 15 leave feedback:

# negative ratings Seller rating
0 100%
1 93%
2 87%

As you can see, just one or two (undeserved) negative ratings can make us look really bad.  If all of our customers left feedback:

# negative ratings Seller rating
0 100%
1 100%
2 99%

Being a small business means that we can’t provide the kind of product quality that large businesses can offer.  While a large business might have the resources or technology to achieve defect rates like .1% or .05%, we measure ours in the 1-3% range depending on product.  So sometimes a part is simply defective and we don’t catch it before it ships.  But what we lack in big business resources, like many small business, we make up for with great customer service.  We’ll do whatever it takes to fix the problem.

So, I beg of you, when you buy from the marketplace on, give the sellers the benefit of the doubt.  If you have a problem with the product or experience, ask the seller for help.  Give them a chance.  Consider leaving negative feedback only when you’ve exhausted your options and the seller clearly deserves it.


The economics of small business: shipping costs


Having been an Amazon Prime customer for quite some time, I am used to free shipping on most of what I order online, and find myself a bit annoyed when I order something where shipping is not free.  However, I also am very aware of what it costs a business to ship orders, both in postage and in handling, so I understand that these costs are real.

Large businesses like Amazon often make up for free shipping by charging more for the item; while it looks like a good deal, the customer is paying for some of it in higher prices.  Large shippers also have the benefit of being able to ship multiple orders to the same customer in a single box, so the cost of free shipping is spread out among the profit margin on many orders.  And often times, free shipping lures customers to buy more, so they can spread the cost of free shipping among the profit margin for the additional items they sell.

On the other hand, consider small businesses.  We occasionally get a comment from a customer complaining about our high shipping costs; for example, $4.25 in shipping on an order for a part that costs $2.99.

The bottom line is that for a business like ours, shipping an order for our cheapest part is the least economically viable thing we do.  It costs a certain amount for us to have an order of any size shipped; this is something we pay our fulfillment center and it doesn’t matter to them whether pick a single $2.99 item for an order or 5 items that cost $9.99; in each case, we pay the same handling fee.

Postage works similarly.  The cheapest USPS First Class Mail rate, for a 1 oz package is $2.54 (say for the aforementioned $2.99 part), and yet the cost to ship a 13 oz package (which might hold $30 worth of parts) is only $4.54, less than twice as much.  If you compare the two:

Order size Postage cost Order weight Cost per oz Cost per $
$2.99 $2.54 1 0z $2.54 $0.85
$30.00 $4.54 13 oz $0.35 $0.15

As you can see, with very small orders, the cost of postage is extremely high no matter how you measure it.

As you might also guess, there is no feasible way for us to offer free shipping on small orders (and most of our orders are for a single item); we would lose money on every order. At a certain order size, we are able to offer free shipping, and we do.  For us, this makes sense economically, right around $30, above which we offer free shipping.

So, when you consider our shipping costs, try to see the economics from our point of view.

Or, order our parts from and take advantage free Amazon prime shipping.  We sell almost all of our parts there too, and when we do, we also benefit from Amazon’s economies of scale.

Or, consider what other parts you might need and order more than one part at a time.  Shipping on additional parts you order will be much less relative to the overall shipping cost for the order (or free if you order more than $30 of parts).


The economics of small business: why does that part cost so much?

We occasionally get a complaint from a customer about the cost of some of our parts.  A great example is the hardware set for our single screw handle.

Pan/skillet 1-screw handle hardware set (all sizes)

We charge $2.99 for this part.  Compare this to a standard machine screw, nut, and washer of approximately the same size which you could buy from any hardware store for perhaps 25 cents, or, if you bought a bunch of them together, pennies.

To understand why we charge what we do for a part like this, consider the difference between the standard 8/32 machine screw, washer, and nut you might buy from a hardware store, and our screw, lock washer, and barrel nut.  What hardware you buy from a hardware store is made by the billions.  The principle of economies of scale say that the more of something you make, the cheaper you can make it.

We suffer from the opposite of economies of scale. We make and sell small quantities of something that is not standard and that has to be made specially for our application.  In this case, the barrel nut is not something you can just order; the screw is of a non-standard length.  For each order, we pay quite a lot for the manufacturer to set up and make a run of these parts for us.

If we were to sell tens of thousands of these parts, the set up cost would be spread among many many parts, and be a small part of the cost.  But selling only hundreds or low thousands of these, it comes to dominate the cost of making the part.

So the next time you come across a part you need for a very niche application, to fix a rare appliance, or an old something-or-other, think about how many of these the seller is likely selling and whether it is something you can buy off-the-shelf at any hardware store, and try to understand that the economics of small business sometimes require that we sell at a certain price, or not sell at all.