Amazon is an e-commerce giant. Millions of businesses, big and small, sell on Amazon today, allowing them to display their products to millions of customers worldwide. Amazon’s scope of business is continuing to grow, and their business practices are continually evolving, keeping them at the forefront of online retail competition. The primary reason sellers are considering doing business on Amazon is that it allows them to reach a far more significant customer base than found on any other online marketplace. Even more interesting is the fact that they can make more profit by doing less work.

So, if you are considering selling on Amazon, you have plenty of opportunities to reach out to your target audience. Sellers are selling and making profits under different business models. Yes, Amazon incorporates different business models for its sellers. It has a diversified FBA business model with many moving parts. Choosing the right business model is a critical decision and something that we want to help you with.
While there is no right or wrong answer to the question about which is the best business model for you to sell in, each model comes with its very own benefits and disadvantages. In this ultimate guide, we will be exploring each of Amazon’s different business models to help you choose the best that suits your methods and make a living selling on Amazon.

So, let’s jump in right away!

The different ways of starting an Amazon business

Retail Arbitrage (Reselling)

Retail arbitrage is the phenomenon where you buy products at a retail store for a particular price and then sell them on Amazon at a higher price. It is often considered as taking advantage of market inefficiencies as you are essentially flipping the merchandise.
It works in a way that you find clearance items on sale at a lower price at local retail stores and then sells them on Amazon at a higher price. In some cases, especially during the fourth quarter, sellers look for products marked at a regular price that they can sell for three times or more on Amazon. This is the time of the year where people are desperate to find products, and are buying in frenzies, and will pay any price for the product they want.

Pros of selling retail arbitrage:

  • Very entry level
  • The business model is easy to understand
  • Doesn’t require minimum investment into inventory to start
  • This is probably the most inexpensive way of getting started on Amazon

Cons of selling retail arbitrage:

  • You are required to explore the stores physically to find the best products on the best deals. It is very tiresome
  • Retail arbitrage is not a passive source of income
  • The procedures involved are time-consuming as you have to physically find and restock inventory all the time

Getting started with retail arbitrage:

If you find retail arbitrage the best Amazon FBA business model for you, then you can make profits out of it. You simply buy products in large quantities to get low prices, and then sell them individually on Amazon for higher rates. The following are the steps to take to become a retail arbitrage seller:

1. Buy Low

As a retail arbitrage seller, you need to find suppliers to buy products for rock-bottom prices. Typically, they are the wholesalers and manufacturers.

  • Manufacturers manufacture products in factories and outlets and sell them in high quantities for meager prices per unit
  • Wholesalers are typically those who purchase directly from the manufacturers and sell them to resellers like you but in smaller quantities

If you are just starting out, you should buy from wholesalers because manufacturers only sell specific quantities, which are usually large (5-figure purchases). Buying from wholesalers will help you keep up with your inventory without spending too much.

2. Sell High

Once you have found the supplier who is willing to sell you products at a decent price, you need to find and analyze the competition for the same product on Amazon. This will help determine the selling price per unit for the product you purchased in bulk.

3. Manage Inventory

Your supplier will take the responsibility of sending the goods to you; however, you will have to handle the storage, including getting the items to your customers. If you don’t want the hassle of managing your inventory, you can consider availing fulfillment by Amazon service.

Online Arbitrage

Like retail arbitrage, online arbitrage works the same, but there is a minute difference. Instead of physically strolling the retail shops in your locality, you would go to online stores. You will search the websites of the online retailers for products on clearance; similar to if you were in a physical store. Once you find the products, instead of scanning them with your scanning app, you will compare their prices directly to the Amazon website to determine whether they are going to be profitable or not. Moreover, there are plenty of tools available that can make online sourcing easier. You can source from hundreds of websites, some of which are large-chain stores whose name you may recognize, while others you may have never heard before.

The best thing about online arbitrage is that it gives you the ability to source and buy from stores that you do not have locally but always comes with great deals that you can flip on Amazon.

Once you get your products delivered, you can prep them to send them to the Amazon fulfillment center.

Pros of online arbitrage:

  • A great way to complement your retail arbitrage endeavor and add more product to your inventory
  • Source at any time, not just during business hours
  • Products ordered are shipped directly to you with proper packaging
  • You are provided with more sourcing opportunities as you don’t have to physically visit stores in search of products on clearance
  • This makes online arbitrage a right work-from-home business model

Cons of online arbitrage:

  • Sometimes it is difficult to tell whether the product on the website matches the Amazon listing
  • You can end up buying too much inventory as the online quantities are usually much more extensive than in stores
  • As there are plenty of products available, you may end up looking in the wrong places

Getting started with online arbitrage:

Online arbitrage works similar to retail arbitrage, with the only difference being you source products from the internet. You will buy products from the supplier through online medium, that is; instead of heading to your local Walmart, you would rather visit walmart.com. On the site, you will look for products on clearance to buy at a low price. Once you find the best deal, you will order a mandatory quantity from the supplier.

Next, similar to retail arbitrage, you will analyze the competition for the same product on Amazon, and based on that, you will price our product. The purpose is to sell the products you purchased at a high price, say 3-4 times higher.

Lastly, based on your sales and traffic, you will have to manage your inventory. From packing to shipping the product to the customer, you will have to handle everything, unless you avail FBA services.

Private Label

Private label selling is the practice of buying a product and then rebranding it to make it your own. Majority of the times, sellers purchase products from China through Alibaba and then attach their own logo, brand name, and marketing to it. Private label selling has gotten more attention in recent years due to the many benefits it provides. And with the restricted items list getting even more significant and sellers getting suspended for selling restricted brands, new sellers have grabbed this opportunity to lay their foundation where the competition is less.

Private label selling means you own the brand and you don’t have to worry about getting suspended for selling products from the restricted items list. This allows you to overcome your competition as you have created the listing by branding the products all by yourself.
This means you will not find people who undercut your prices for making a profit. However, with private label selling, you need to learn the proper use of marketing along with becoming good at creating listings. It takes a lot of effort to launch a new product, but it is worth the effort.

Pros of private label selling:

  • Can have multiple product lines in one brand
  • You are creating a sellable brand
  • There are no worries about products becoming unrestricted
  • More control over price
  • As you are the brand owner, there is little to no competition

Cons of private label selling:

  • You must purchase products in larger quantities
  • You have to face the dilemma of marketing your products
  • Private label selling is riskier than retail arbitrage as the product essentially has no sales history or ranking to draw upon

Getting started with the private label:

Private label is all about finding a product, make some tweaking that people will actually love, and label it under your own brand. You can choose an already existing product from Amazon, read on its reviews and feedback from the competitors’ page, emphasize on the negative reviews, try to implement the changes requested by the buyers, and get yourself a whole new product with your brand name on it.

Private label selling has the potential for steady yet high profits; however, getting people into buying your product requires the implementation of proper marketing strategies.

1. Pick a product

Look for products that are low in competition but high in demand. If there are hundreds of sellers selling the same product, then it will be difficult for you to get noticed. Look for products with a potential to improve regarding design and features, and a potential to sell well as well.

2. Customize and Create

Once you have picked a product, you need to invest time researching its flaws. Read the customer reviews and see people are saying, what aren’t they liking about the product, and determine if there is room for improvement. You can come up with a new design, perhaps reconstruct the whole product with a different material, or add new features to the product. All you have to do is find a manufacturer who can repurpose the whole product. Order the re-designed product as a sample to review it before ordering in bulk. Platforms like Alibaba and SaleHoo are filled with manufacturers who can design a product according to your requirements.

3. Make Sales

Once you are sure about your product, it is time to create a listing using the best Amazon SEO practices. You need to ensure that your product appears on at least the first page of Amazon search results.

Wholesale

Selling wholesale on Amazon is a whole different scenario, and we would recommend it only if you have years of experience selling on Amazon. With the wholesale business model, you are required to have prior knowledge of sales history and sales rank. It works in a way that you buy from an intermediary or a manufacturer and that too in large quantities to get a lower price.

When you go into wholesale, you need to go deep. Unlike online or even retail arbitrage, where going deep means buying 3-5 units of each product you choose, going wholesale means you need to place a minimum order worth hundreds of dollars.

The wholesale business model is riskier than retail arbitrage since you tend to buy in bulk. You would hate the idea of ordering 200 items and then be stuck with them.

Pros of wholesale model:

  • You can scale your business
  • Buying higher quantities allows your business to be more passive
  • You have higher chances of winning the Buy Box if your purchase price is lower than your competitors

Cons of wholesale model:

  • Higher risk as you are buying products in larger quantities
  • Larger investment of capital

Getting started with wholesale:

This isn’t something that you don’t know. But here is an outline of what it looks like:

  1. Identify popular products and brands customers actually want and already purchase regularly
  2. Identify suppliers for those products, then buy them in wholesale quantities to get the lowest price possible
  3. Put the products up for sale in front of as many people as possible
  4. Sell them at a profit

Conclusion

That’s it! These are the most popular Amazon FBA business models that most sellers approach. Considering the advantages and pitfalls these models have, you can choose the one that suits your way of doing business.