Decided on selling on amazon but not sure what business model to pursue? In this blog, I will cover 5 amazon FBA business models and the pros and cons of each business model. I hope this information will enlighten you and give you a better understanding of what business model will best fit your life.
What is the Amazon FBA Model?
Amazon FBA is a service provided by Amazon to its 3rd party sellers. This service allows sellers to ship their inventory to amazon and give amazon control of the fulfilment portion of the process. Amazon will receive sellers inventory, store their inventory, move inventory around its fulfillment network, ship items to customers, and handle any customer service needed.
What are the different models of selling on amazon?
There are many models to go by when selling on amazon but in the blog we are going to cover the big 5 that most people are talking about. These models are as follows:
Retail Arbitrage
Online Arbitrage
Wholesale
Private Label (White Label)
Amazon Merch (Print on Demand)
These 5 models are the most popular ways to sell on amazon and build a business within the amazon network.
What is arbitrage?
Arbitrage is the act of buying something at one price and selling it for a higher price in order to make a profit. People have been making use of arbitrage for thousands of years. In the book "The Richest Man In Babylon", It talks of traders buying spices, metals, and other commodities at low prices in order to sell for more than the price they pay. This is the art of reselling. It all comes down to arbitrage.
What is retail arbitrage?
Retail arbitrage is commonly referred to buying your products in a retail store and selling them in another market for more than paid in store. retail arbitrage is as simple as going to the grocery store buying a case of water (24 pack) and selling individual bottles for $2.00 each at a busy intersection on a hot day. The case was only $5.00 in the grocery store and anyone can go to the grocery store to get a case for the same price, but the person selling them has cold water right there. This is the power of retail arbitrage. Some products are just worth more in some places.
What are the benefits of retail arbitrage?
Retail arbitrage can have tons of benefits, especially if you are in an area that gets products that less available in other areas. Retail arbitrage will require you to go to physical stores. This allows you to develop relationships with store managers and employees to get some of the best deals. Having a list of profitable products that you can go into walmart, buy, and flip on amazon is a great feeling. You may walk in and spend 1000 dollars but get back 2-3 times that much back. Also, when products are in demand, you are able to get your products the same day and possibly sell the same day if you are merchant fulfilling your items.
What are the downsides of retail arbitrage?
The down side of retail arbitrage is that inventory available is always different, and it is dependent on the area that you are sourcing. You may live in a town where supply exceeds demand and therefore have a lot of opportunities to buy items at a discount. Another downside is expanding the model. Yes, im sure you could grow a retail arbitrage business to several million a year with a great team, but there are a lot of man hours required to do that, ultimately killing your margin.
What is online Arbitrage?
Online arbitrage is not much different than retail arbitrage, the main difference is that the items you are buying to resell are coming from an online source such as walmart.com. You can shop from a variety of websites and find items that are good to resell on amazon. I like to online arbitrage for finding products that are in extremely high demand when they come out and sell out fast from traditional retailers. These products go up in price very quickly on 3rd party markets.
What are the benefits of online arbitrage?
Online arbitrage has several benefits for sellers, one being that you never have to leave your home. You can sit at home all day, browse websites for good deals, and order product you think you can flip for a profit. Another benefit is going to be order quantities. You may only find a few of the same item in a retail environment, but online usually there are quantity limits closer to 10 units of a product on most products you can order online, although every website you shop from is different.
What are the downsides of online arbitrage?
The main downside is the waiting time from products getting bought and products getting sold. Online arbitrage is a great model to go by but it takes a while for products to become available. The time you place an order with a website, it could be at least 3 days before you get your product to resell whereas retail arbitrage it's in your hand today. Prices on amazon can change a lot when a new product becomes available elsewhere on the internet. There are also problems with the sites you order from. Big orders for resale may flag some accounts and cause them to cancel your order or even cancel your account altogether.
What is Amazon wholesale?
Amazon wholesale just refers to someone buying from a wholesaler and reselling those items directly on amazon without any middle men. This is where you will find a supplier, wholesaler, or distributer to send you large quantity of items at usually about half the price of retail. I have sold some wholesale items and experienced working with multiple suppliers, and one thing they typically have in common is that they have large lists of products that can help you find profitable products fast.
What are the benefits of amazon wholesale?
Wholesale on amazon comes with a ton a benefits. These benefits include the ability to purchase many units at the same time allowing you to go deep rather than wide. Another benefit is actually having someone who wants you to order large quantities at standard prices that other retailers like walmart and and target are paying for the same product. Lastly, Some wholesalers will even ship their product to amazon on behalf of you, meaning you dont have to see or touch the product at all. Talk about letting the business run itself.
What are the downsides of amazon wholesale?
Downsides to wholesale is the small margin. Wholesale products are very thin margins for the most part. it is possible to find items with higher margins; however, most distributors are selling to thousands of people just like you, and you are probably not getting the best prices. Wholesalers have to mark up the product once they buy their massive quantities. If the wholesaler or distributor is getting directly from the brand, chance are that it is marked up a small bit and it may be hard to compete with other sellers who sell that product.
What is private label?
Private label is the process branding a product that is already on the market as your own, For example, you have probably been to a grocery store and seen the name brand paper towels like brawny, and bounty. And you have probably seen the store brand paper towels for a bit cheaper. That is called a white label product. Private label is the same as whitelabeling. Sellers find a manufacturer for a certain product and make changes to the product and packaging to make it unique to their brand and turn around and sell it on amazon.
What are the benefits to private label?
Private label has many benefits. The main benefit of private label is that you are no longer competing at a listing level. In amazon, multiple sellers can all sell the same product, however with private label, you are the brand owner which means you have complete control over distribution and can deny other sellers selling on the listing you created. Another Benefit of private label is that you typically get products much cheaper because of minimum order quantities and the fact you are getting it from the source which gives you above average margins when compared to other models.
What are the downsides to private label?
Private label may be one of the most risky models. Inexperienced sellers will try to order products from alibaba and turn them into a private label product that makes millions on amazon. It costs a lot of money upfront for a product to be produced cheap enough overseas and have it shipped to America. The product hasn't been tested in the market yet and see how it will perform. The product may cost more in ads than expected. and for it ever to do good long term a good ad budget will be necessary to get exposure for a new product. Essentially, there is a lot of unknowns for a product and they all call for a substantial amount of risk, especially when starting out.
What is Amazon Merch?
Amazon Merch is another way to sell stuff on amazon using a print on demand process. Print on demand is essentially where you have customized an item like a T-shirt with your logo, or some other graphic via a POD service. The service provider will only print that item when it gets ordered. They will also ship directly to the customer for you. This a very similar version of private label because you are limited on the products you can print but still have a brand behind the products. Amazon offers to print on Tshirts, mugs, hats, and more.
What are the benefits of Amazon Merch?
One key benefit of amazon Merch is the ability to provide an endless amount of products listed in the amazon ecosystem without any upfront cost. You simply create designs for products, upload your design and apply it to the product. You simply have to market the product for than it costs to ship and then you are making money. Another benefit is never having to worry about the logistics, its all done for you. Once your item is available, it can generate sales for the rest of your life.
What are the downsides of amazon merch?
Amazon merch has very little downside and can truly be passive income. If you think you can design a t shirt or 2 and make some substantial amount of money, then you are wrong. Yes you may sell a few here or there, and you could get lucky and create something totally unique that resonates with most people and therefore you get consistent sales from that item. Most people will get very little sales from a 1 time design. You should only consider doing this method if your willing to create and create some more. With large portfolios of designs, you can have daily sales that earn a good wage.
Final Thoughts
All models do work and you can fail at each and everyone of these. My suggestion is to go with models that fits you the best. You want no inventory and a lot of time on the computer then amazon merch is a low risk option. If you have lots of cash and still low risk, I would entertain wholesale or online arbitrage. If you have some money and some time, retail arbitrage and online arbitrage are both great options to look at. My least favorite is private label, it involves a lot of risk and feels more like a gamble unless you plan on creating a new and unique product that hasn't been released to the market yet.
Comment and tell me what model you like the best and why!
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As always, Happy Selling!