What Are the Different Business Models for Amazon Sellers?
One of the most important factors that can determine the success of your Amazon seller business is the business model you choose. Business models on Amazon aren’t very complicated, they just refer to the most popular ways that sellers choose to sell their products. You are able to switch to other models whenever you’d like, but some models need more money to get started than others. The main recognized business models include retail arbitrage, online arbitrage and private label. There may be other newer ones, but these are the ones most sellers are familiar. Let’s explore some pros and cons of each model and you can select the best one for you based on your current needs.
Retail arbitrage has the lowest barrier to entry out of all the selling methods. Retail arbitrage means that sellers go and find lower cost products in brick and mortar stores and they sell them on Amazon at a higher price. Sellers to stores in their local areas and browse inventory for items on sale or items that are much cheaper than Amazon’s current offerings. This is done by the Amazon seller app; in the app, there is a built in scanner that can scan virtually anything with an Amazon code. Once an item is scanned, the Amazon offering will show up and you can see the current prices for that product. In the app, you can also put in the amount you’d like to sell it for to estimate the profit of the item. This can be done repeatedly until you gather a collection of profitable items and you can send it in to an Amazon warehouse.
There are many businesses that started off with retail arbitrage to get more money to explore other Amazon business models. Retail arbitrage is straightforward and relatively easy, you can get started with as low as $100. If you want you can start with even lower than that, but it will slow you down tremendously. It takes Amazon 2 weeks to pay you the profits from products, so it’s better to get started with more money so you’re not sitting around waiting for Amazon to pay you. The opportunities with retail arbitrage are tremendous because sellers can get very creative and find many local places that have huge discounts on products; these include garage sales, library sales, Craigslist, etc. It’s important that any products you send to Amazon have good condition or this can hurt your seller rating.
Online arbitrage is a similar business model to retail arbitrage, but it leverages online software tools that can find deals for you to sell on Amazon. Instead of scouring through real stores near you, you can use software to scour online sites and send you deals. There are a lot of online arbitrage tools on the market, so it’s going to be up to you to find the most cost effective one for your business. What’s great about online arbitrage is that the deals are continuously updated with software. You can set certain parameters like how much profit you’re looking for, which store for the software to search and more. You may be questioning how many deals you can find using the tools, but there are literally millions of opportunities you can’t pursue because you don’t have the time or money to do so.
For example, an online arbitrage tool can search Walmart.com for deals. There are millions and millions of products on Walmart, so you can narrow down to a certain category or price point. Once the software scans, you can go through each of the deals manually one by one to see what works best for you. Once you do this, you can purchase the item from the online website, ship it to your house or a third-party prep center, then send it to an Amazon warehouse.
Private label: Private label has the highest barrier to entry out of all the other business models, but it also is the most scalable. Private label refers to when an Amazon seller has a supplier manufacture a product and it’s branded and the seller sells it at a premium price. This generally involves communicating with a supplier (many affordable ones are in China), branding the product, getting a sample to ensure quality and sending a sizable quantity (hundreds of products) into an Amazon warehouse. The seller starts by identifying a need in the marketplace; for example, if there are generic products on Amazon that are making significant sales, there may be a private label opportunity to position a product as a premium alternative. The process for private label products can take weeks or months to get your first product into a warehouse in addition to spending several thousands of dollars.
It takes some time to do proper product research, do all of the branding work, communicate with the supplier, get a sample and ship it to Amazon. Although the amount of money, time and effort needed can be daunting, if your product succeeds, all you need to do is continuously reorder. This can make thousands of dollars passively while you work on trying to launch a second product. Most sellers that are generating over 7 figures annually use private label in some capacity.
The first several months of your Amazon business is crucial and surrounding yourself with reliable information and people is even more crucial. You may have come across the opportunity to sell on Amazon from YouTube, Google or another social media platform. It’s vital to always double check people’s claims about selling on Amazon and not to fall for scams. Anything you see another seller doing, you can do yourself. It just takes time and consistent effort.
If something you see online that promises something seems too good to be true, it probably is. Don’t share your account information with anyone, follow trustworthy Amazon sellers on social media and just put one foot in front of the other. If you keep learning and keep progressing day after day, you’ll be in a comfortable position a year from now.
Until you make over 100 product sales, I would recommend not trying any expensive software. It’s very easy to get distracted and try a bunch of things and end up nowhere. Try one business model and focus heavily until you’ve got a repeatable process to generate sales. Once you get that down, you can look into other ways to increase your sales. All of that starts with doing the non-flashy work until it’s second nature to you. This will enable you to start creating systems for your business and this will allow you to start scaling significantly.
These models outline the basic business models for Amazon sellers. I would recommend getting started with retail arbitrage to get a feel for the platform, then branching off to whatever suits you best. This enables your account to get established and you’ll be familiar with all of the day to day needs before diving into something more capital intensive. If you enjoyed reading this post, take a look at the other posts for more information on getting started with selling on Amazon.