Before you even start to think about getting your first sale. You will have to decide on A.) What Niche that you want to sell in and B.) the business model that you will use to sell those products. This should be one of your first major decisions. That you will be making when starting an Amazon FBA business.
Picking a Niche could be something you love, have a lot of experience in or finding a certain product that has little competition. Choosing the right business model will have a greater impact on how you conduct business. From how you source your products that you are going to sell to the level of expertise needed to be successful.
In this article, we are going to outline the different business models you can use for selling on Amazon. While going over the experience need and how easy it is to get started.
Retail / Online Artibrage
If you have no experience selling anything online. Then I suggest trying out retail Arbitrage. It is simple to do with low start-up costs. It gives you some great exposure to the world of eCommerce. You will be able to learn how to ship items into FBA. how to create a product listing. While getting some math skills you will need to turn a profit. Each and every single one of these skills can be applied to the different business models on Amazon. Making it a great starting point for individuals with little to no experience.
What is retail / online Arbitrage
Retail Arbitrage is buying an item at a retail store or another eCommerce store for a lower price and then selling it for a profit on another marketplace. Generally, the items are being bought for a lower price due to being on sale or a clearance item.
Retail Arbitrage On Amazon
Retail arbitrage works on Amazon by buying clearance and sales items from a retail store like Walmart or Target. Once you find an item that is 70% off on clearance at Walmart. You check the price on Amazon to see how much it is selling for. If there is room for profit, after shipping and fees, etc. You purchase the item from Walmart then send it to Amazon FBA.
What makes this business model great is that you are able to do this with little start-up costs. All you will need is a computer, printer, mobile phone, and some labels.
Pros and Cons of Retail Arbitrage
Easy to get started – With little start up cost anyone can get started with retail artibage.
Low overhead – You are able to run this business out of your house. All you really need is a phone and some hustle and you will be able to make this work.
Fantastic Learning Experience – If you have no experience in eCommerce then retail arbitrage offers a low risk way of learning the ropes.
Sense of Demand– Amazons Best Sellers Rank (BSR) Tells you the ranking of the product. If a product has a high rank then they are selling fast. Which in turns tells you the demand of the product.
Brands are Gated – you might find a amazing product at a great discount. but some major brands are gated on Amazon not allowing you to sell on there listing.
Limited Inventory -Due to only having what is available on clearance at certain stores. Limits the amount you can buy at one time.
Time– It can take a lot of time going to different store sourcing inventory. Since you aren’t buying large quantities this process is repeated.
If you are just getting started then I suggest using retail arbitrage. It is great to get a learning experience on how the Amazon platform works. While using the profits from your retail Arbitrage Hustle to move onto another business model in the future. For most this is an easy way to get started, you find products at a discount use the seller app to see the price and if you are eligible to sell then send it into Amazon FBA.
Dropshipping is an entry-level business model suited to entrepreneurs who want to get their feet wet in the world of eCommerce. Dropshipping allows you to open up an eCommerce store without storing any inventory or dealing with shipping. In Fact, you will never touch or physically see any of the products that you might be selling. The Manufacturer or Wholesaler handles all the storage and shipping of the product while you concentrate on marketing.
Dropshipping effectively eliminates some of the pains that are associated with eCommerce. While this might sound too good to be true, there are drawbacks to this business model.
What is Droppshipping
Dropshipping works by having an agreement with a manufacturer, distributor or retailer. That will ship products on your behalf to your customer once you get an order. With dropshipping, there is no inventory storage, shipping, or even creating a product. The supplier that you get your inventory from will send the package as if you sent it from your own warehouse.
Lets break down the process a little:
- A customer comes to Amazon and places an order on your listing.
- you receive the order and send it to your supplier.
- The supplier will then, pick and pack the product and send it to your customer.
- You will then receive the tracking information from your supplier and give it to Amazon.
- The money that you received from the buyer will be used to purchase the product from the supplier. you keep the difference.
Dropshipping on Amazon
On Amazon drop shipping is hard. While there is an opportunity to do it. Amazon has a clear set of rules for you to follow. Otherwise, you are putting your account at risk of being suspended. Also with the fees on Amazon + finding a product that you can dropship that actually makes a decent profit off is going to be hard.
To be able to dropship on Amazon you must follow these rules:
- Every product that you drop ship must be identified as being sold by you.
- Shipping Labels and Packing slips must include your business information and not that of your supplier.
- You must accept all returns with Amazon’s standard return policy.
For the most part, as long as you follow the rules then you can dropship on Amazon. The profit margins might be slim and finding the right dropship supplier is crucial. You will need to make sure that they will be will to make each shipment out in your name and in a timely manner.
Pros and cons of dropshipping on Amazon
Low Overhead – While dropshipping might be a challenge there is little overhead that you have to worry about. All the storage, shipping and handling is done by your supplier.
Inventory – Unlike retail arbitrage where you buy one to sell one. Dropshipping offers a way to sell multiple units per day . While profits might be low you can make up for it in quantity.
Low Margins – Profit margins on drop shipping are extremely low. After you account for fees etc you can expect to make 5% or less.
Competition – While competition is strong on Amazon anyway. Eventually you will run into a wholesaler who will be able to undercut your pricing. Since you are drop shipping you won’t be able to compete with that.
No Control – You have no control over the products that you are selling. If the distributer forgets to send something out. It might put your account at risk. Amazon will see it as your fault and not theres.
Not only do you have to source products but you are working with thin profit margins. Not understanding the cost involved with Amazon is a quick way to lose money. Your product research has to be on point. So finding a product that isn’t already listed on Amazon to resell is going to be your best choice since you can’t compete with price. Finally, you will have to place a lot of trust into your supplier because any mistake that they make could put your account at risk. You have minimum control over what happens with the products that you are selling.
Liquidation is similar to that of retail arbitrage but instead of going out to stores to hunt down products to sell. You buy bulk items from liquidators then sell them as used on Amazon. It doesn’t just have to be liquidators that you get your inventory from stores will sometimes be closing or selling overstock inventory. Which can then be sold to you at a fraction of the cost. leaving you with plenty of room to find a profit by reselling it on Amazon or eBay.
What is liquidation
Liquidation is buying items from store closing, overstock, and clearance or liquidators. Some merchants will try to offload there inventory at 10% of the original cost if the product isn’t doing well. Liquidators will also sell used and damaged items, that then you can resell on eBay or Amazon.
Liquidation on Amazon
Liquidation is a high-risk high reward business model. While you are able to do this on Amazon. Finding the right inventory can be a challenge. Also, you have to make sure you are allowed to even sell it on Amazon in the first place. Generally, you will be able to get items that are 90% off of retail price giving you a lot of room for a profit. A lot of the items you are dealing with will be returns, used or products that don’t stand a chance of selling. So choosing your inventory is important.
Liquidation is also a great next step if you start off as retail arbitrage it is pretty much the same thing just done on a larger scale.
Pros and Cons of Liquidation of Amazon
High Margins – Getting the right product could easy get you a 90% profit on your investment. While this might not be the case all the time. Generally there is pretty good profit margins in Liquidation.
Branded Goods – If you are able to sell the item. Some products might already have a following. Items with a high BSR will be able to sell fast.
Unsellable Inventory – If you are buying a pallet of goods from a liquidator. There is a high chance that not all of the items will be in a sellable condition. Leaving you with no choice other that
Warehousing – If you are ordering large amount of inventory you will need warehousing. To store and go through your shipments. Liquidators will sell by the pallet and even truckload. You will need a area to stage and go through shipments as well as a forklift to unload and load.
While this is similar to retail Arbitrage there are more skills needed in order to succeed. Not only do you have to find the right products by making connections with liquidators, manufacturers, etc but you will need warehousing and be able to ship products on a much larger scale. Most if not all of your retail arbitrage experience can be applied to this business model.
Reselling is often overlooked as a business model on Amazon. Most “gurus” will be telling you to start a private label product or how easy it is dropship for free on Amazon. They will even swing the idea of retail arbitrage. Along as you buy there course. But there is still a chance to create a profitable resell business on Amazon.
What is Reselling
Reselling is buying in bulk items from a distributor, wholesaler or manufacturer. Which in turn you resell as new. You are in charge of storing and distributing the inventory. Resellers generally don’t just sell a few items but will sell as much as possible within a certain niche from different brands to product lines.
Reselling on Amazon
Reselling on Amazon works great because if you find the right product that already has a following off of Amazon. You would be able to gain sales just by having it on Amazon. With the right product research, you will be able to list products that people actually want to buy. There will also be room for an advertising budget, compared to dropshipping you should have healthy profit margins for you to be able to do advertising campaigns.
If you started off doing retail arbitrage then wholesale is probably going to be your next step. Think about it. if you find a product on a discount that sells well with little competition. You can track down the distributor or manufacturer and see if you can sell it full time.
Pros and Cons of Wholesale on Amazon
Profit Margins – Buying items in bulk straight from the manufacturer is always going to give you a decent profit margin.
Branded Goods– you are selling products that might already have a following on Amazon. making it easier to gain sales with limited advertising budget.
Higher Startup Cost – From storage fees, shipping and buying bulk items. The cost to start up a resell business is going to be high.
Reselling you are dealing with either multiple manufactures or distributors, organizing shipments to Amazon FBA from either your location or that of the distributors. Also by this stage marketing will start to play a more important roll in order to gain those sales on Amazon. This is a little easier than a private label and since you don’t have to create marketing material and build a rand around your product. But definitely harder than the previous models.
With reselling you will have to predict trends to find products that will sell in your niche. Also need to have control over your inventory levels so forecasting becomes a major roll in your success.
The private label is the holy grail of Amazon business models. Well, that is depending on who you talk too. Private labeling offers you the ability to create your own product and a brand around that product. Making it one of the harder business types to set up but the most rewarding if you finally make it.
What is private label
Private labeling is purchasing a product from a manufacturer and then adding your own brand/logo to that product. This is similar to reselling but instead of buying someone else’s brand you are creating your own.
Private Label on Amazon
Creating a private label brand to sell on Amazon opens a lot of opportunities on and off the platform. Setting up your own brand can lead to the brand registry ( you will need a registered Trademark.) opening up more marketing opportunities. You will most likely have your own websites. Which you can use to get sales and gain a following around your product line. This will make it easier in the future if you already have an audience following you on social media and email lists.
Having a private label brand is more future proof, then retail arbitrage and liquidation. As your private label grows so does your company leading to more employee’s products and sales.
Pros and Cons of Private Labeling on Amazon
Control – You are in control of pretty much every aspect of this business from branding to sourcing. The product is yours the brand is yours and the business is yours.
Future Proof – If you create a product and do everything right every year should be a growth in sales as you build your brand.
High Profit – Buy Low and Sell high. Since you have to purchase a high MOQ to start your price should be pretty decent leaving a lot of room for a profit.
Hight Start Up Cost – With private labeling there is normally a high MOQ when sourcing from a manufacturer. Not only that but you will need a marketing budget etc.
Marketing– Since your brand is unheard of marketing is going to play a huge role in getting your first couple of sales. making it hard to get started if you don’t have enough money.
Getting Started – Starting a private label isn’t just jumping in and selling a product. There is a lot of planning that goes into the process which could take up to a year before you even get your product into Amazon FBA. From business plan, bank account, registering trademarks, LLC etc to sourcing your product and manufacturer. It is a slow process.
Private Labeling is the hardest business model but the most rewarding to get into on Amazon. This is due to it being demanding as you are in charge of all aspects of the business. Product creating, development, marketing materials, sourcing, shipping, and selling.
Manufacturing doesn’t have to be done on Amazon. There are a lot of manufacturers that will not sell on Amazon. They just let the brands they supply products to do the selling. You can sell hand made goods on Amazon or even go all out and become a manufacturer that not only creates products for other brands but has there own private label.
What is manufacturing
Manufacturing is the creating or products or goods to be sold to retailers, distributors and other vendors. This is normally the first step in the production line. Manufacturing is generally done on a large scale, using machinery and industrial production to make the end unit.
Manufacturing on Amazon
Manufacturers sell all the time on Amazon (Thanks to China!). generally, they will be able to sell at the lowest price and make the most profit because there are no middlemen in their distribution line. Manufactures should still try to sell at the going rate for the product even if they can go lower. Their clients will want a lower price if possible and for most manufacturers, their clients (B2B Business) are more important than selling to customers (B2C) as there are dealing with a much larger scale. As for someone looking to start out as a manufacturer on Amazon, I do suggest either going hand made goods or straight to getting B2B clients before you make the jump to B2C.
Pros and Cons of Manufacturing on Amazon
Large Scale – Manufacturing makes money by doing volume. 1,000 units 100,000 units etc.
High Profit – If you are a manufacturing selling private labels products of your own making. then your profit margins will the highest due to no middle men.
High Start Up Cost – Machinery, storage, employees. Being a manufacturer is suited as a one man job and the cost to set up even on the modest side are going to be expensive.
Large Scale – From ordering raw materials to create the product to marketing the end result. The scale of this business type and its operations can be a challenge.
This is no longer a one-man operation you will need a team of people just to create the product, source the raw materials, logistics, marketing. Basically the whole 9 yards. No longer will you be the savvy marketer or the creative selling a product. But ahead of a company taking on a huge operation. All the other business types are possible with a small team or a one-man army. But manufacturing takes on a form of its own.
As you can see selling on Amazon isn’t necessarily straight forward. There are different avenues you can take. Not only in creating a business but as a side hustle to get you to where you want to be. You can even start out at the bottom of doing retail arbitrage to scaling your success to your own private label product. No matter where is start the most important thing you can do is start.