Which Amazon Business Model Best Fits Your Needs?

2021 will be a great time for third-party sellers on Amazon. As of 2019, 86% of Amazon sellers are profitable and earning $26,000 – $810,000 per year in profits. Also, around 58% of Amazon’s $280 billion revenue came from its third-party sellers. This growth comes from some of the most popular Amazon Business Models:

  •   Private label
  •   Retail arbitrage
  •   Online arbitrage
  •   Wholesale
  •   Dropshipping
  •   Handmade

Amazon offers different business models for new entrepreneurs to succeed. After all, one seller’s way of doing business may not be the best for another seller. 

In this post, we’ve put together each model’s PROS and CONS to help you decide which one is right for you.

Private Label – Put Your Own Brand onto an Existing Product

With Private Label, you rebrand or rename an existing product with your own brand or label. AmazonBasics is one clear example of the private level business model.

Here’s how private label works:

  1. Research Amazon’s product database for high-demand/low-competition niches.
  2. Buy the product from the manufacturer, or find someone who can build it for you.
  3. Spin the item with your own design, brand or packaging.
  4. Attach the branding and marketing to the product.
  5. Create a product listing and start selling it on Amazon.

Private label is the most popular Amazon business model. According to JS, 71% sellers said they used this method to sell on Amazon. This is because Private Label has the potential for high, steady profits.

However, keep in mind that this might be the most time-consuming Amazon business model of all. You’ll need to learn about marketing and creating product listings on Amazon. Also, it will take time to get noticed and make your first profit.

Private Label Pros

  •   Building a sellable brand
  •   Have more control over price
  •   Create multiple product lines

Private Label Cons

  •   Marketing your own products
  •   Purchase or manufacture in large volumes

Retail Arbitrage – Buy Discounted Products through Retailers

The retail arbitrage model is about flipping” merchandise. You find low-cost or discount goods at retail stores and resell them online.

The final profits are the difference between the selling price, minus Amazon’s fees and the original cost of the product. So it’s important to keep in mind Amazon’s fees to factor in a profit for your business.

Here’s how retail arbitrage works:

  1. Purchase products below retail value.
  2. Mass-up copies of the same item to increase profits.
  3. Create product listings and sell the item at a higher price.
  4. Pay Amazon Seller Fees.
  5. Make a profit.

Retail arbitrage is probably the easiest Amazon business model to get started selling on Amazon.

Retail Arbitrage Pros

  •   Entry level business model, easy understand
  •   It is the least expensive sales model to start selling on Amazon
  •   No minimum investment into inventory required

Retail Arbitrage Cons

  •   It is the least profitable business model
  •   Constant search and restock of inventory
  •   Optimizing product listings

Online Arbitrage – Acquire Discounted Products Online

Online arbitrage is about finding low-cost goods on a website or online marketplace. Then, you list the product on Amazon and sell it at a higher price.

Here’s how it works:

  1. Search for products below retail value.
  2. Compare prices to Amazon options to see if your products are profitable.
  3. Buy copies of the same item to increase profits.
  4. Create product listings and sell the item at a higher price.
  5. Pay Amazon Seller Fees.
  6. Make a profit.

With retail arbitrage, you’ll have to consider Amazon’s fees and the original cost of the products. Otherwise, you won’t be able to make a profit for your business. 

Online Arbitrage Pros

  •   Work-from-home business model
  •   More sourcing opportunities available
  •   Products are shipped to you
  •   You can reuse boxes and packing materials
  •   A good complement to retail arbitrage

Online Arbitrage Cons

  •   Narrow down reliable suppliers
  •   Getting stuck with excess inventory
  •   Handling product storage
  •   Optimizing product listings

Wholesale – Buy Products Directly from a Brand/Distributor

You buy low-cost or discounted goods in bulk, and then sell them individually at a higher price. That is the wholesale business model.

Here’s how it works:

  1. Find a supplier or manufacturer to buy bulks of items at low-cost prices.
  2. Handle the storage and inventory of the purchased bulk.
  3. Determine a higher price to sell.
  4. Sell your products at the higher price on Amazon.
  5. Pack orders and send them to your customers.

This Amazon business model requires good sales experience. A wholesaler must acquire a hundreds-of dollars purchase from the supplier. This increases the risk because you may end up stuck with a bulk of items difficult to sell.

As a wholesaler, you’ll have to deal with packaging and shipping products themselves. You can also use Fulfillment by Amazon (FBA) to handle your storage, shipping, and customer service.

Wholesale Pros

  •   Lower purchase prices means higher profit
  •   Reorder profitable items to increase sales
  •   Scale your business

Wholesale Cons

  •   Large capital investment
  •   Getting stuck with excess inventory
  •   Handling product storage

Dropshipping – Third-Party Suppliers Fulfill Customers’ Orders

When you drop-ship, you buy products from a retailer or manufacturer who fulfill the customer orders directly.

This Amazon business model frees you from shipping and keeping an inventory. Instead, you simply list products and tell the supplier when one is sold. Then, the manufacturer takes care of the rest.

Here’s how you become an Amazon dropshipper:

  1. Find high-demand/low-competition products.
  2. Find a supplier or manufacturer.
  3. Check if the items are available to sell.
  4. Create product listings on Amazon.

Whenever a customer places an order, you must do the following:

  1. Pay your supplier for the purchased item.
  1. Deliver the customer’s shipping info to the supplier.
  2. Let the supplier fulfill the customer’s order.
  3. Handle customer service if problems arise.

The main downside of drop shipping is that you don’t have a chance to inspect the goods. You cannot ensure that packing and shipping is handled in a proper way.

Shoppers may get damaged products or no products at all. In return, you could get lower sales and poorer customer satisfaction.

Dropshipping Pros

  •   Quick and easy to set up
  •   No upfront cost
  •   Fully automated Amazon Business Model
  •   Sellers don’t handle the merchandise
  •   Does not require you to own inventory

Dropshipping Cons

  •   Slow delivery times
  •   Lack of quality control
  •   Products may be out of stock

Handmade – Create Your Own Products

Selling handmade on Amazon means you personally create the handmade products you offer. Then, you list them on Amazon and fulfill the shipment yourself.

The handmade business model lets you be at the front of the customer experience. You sell directly to the public and get all the profits, and set your own process.

Another great perk is that Amazon waves the $39.99 professional selling plan costs for handmade sellers. This makes it a lot easier to start a handmade business model on Amazon.  

Here’s how you can set up Amazon Handmade:

  1. Craft your own products by hand.
  2. Create detailed product listings on Amazon.
  3. Determine a price to sell.
  4. Sell your products.
  5. Pack orders and send them to your customers.

Handmade sellers must consider that Amazon deducts a 15% referral fee from each sale.  Sellers also have to deal with packaging and shipping products themselves.

As with wholesale, you can also use Fulfillment by Amazon (FBA) to handle storage, shipping, and customer service.

Handmade Pros

  •   Eliminates the middlemen
  •   Takes advantage of niche marketing
  •   You control packing and shipping

Handmade Cons

  •   Time-consuming business model
  •   Handling product storage and packing
  •   Takes time to make profits

Which Amazon Business Model is Right for You?

Not all Amazon Business Models are cookie-cutter. Each has its own processes and perks, which may or may not suit your needs. So, how do you decide which Amazon business model is the best fit for you?

Choose all the Amazon business models that interest you. Here’s a quick review:

  1. Private Label: Put your own brand onto an existing product
  2. Wholesale: Buy products directly from a distributor or brand
  3. Retail Arbitrage: Acquire discounted products through retailers
  4. Online Arbitrage: Acquire discounted products online
  5. Dropshipping: Third-party suppliers fulfill and ship customers’ orders
  6. Handmade: Craft or create your own products to sell

Each Amazon business model requires different resources to succeed. You should review what tools you have to select the best sales model for you. For example:

  •   How much capital do you have?
  •   Do you have an appropriate workspace?
  •   How much time will you dedicate to your business?
  •   Will mentors or third party services aid you?

Your strengths will help you determine which Amazon business model is the best for you. It will also increase your chances of success as an Amazon seller.

Author

 

Esteban is an SEO copywriter at AMZ Advisers, with several years’ experience in digital marketing and e-commerce. Esteban and the AMZ Advisers team have been able to achieve incredible growth on the Amazon platform for their clients by optimizing and managing their accounts and creating in-depth content marketing strategies.