Selling on Amazon is extremely profitable for small and medium businesses (SMBs). This is, of course, evident in the growing number of Amazon sellers.
The platform has tremendous potential, with even new sellers earning an average profit of $42,000 annually.
Several different business models are available, each with its own pros and cons. You can build your career as an Amazon Seller with the model that works best for you.
If you’re looking to sell on Amazon but don’t know what the right track is for you, don’t worry. We’ve covered all the major revenue-generating models you can use to conduct your business as an Amazon Seller. Learn more here to open your eCommerce business and start growing quickly.
Top Business Models for Amazon Sellers
There are five main models for conducting business on Amazon:
Each has different pros and cons, product sourcing methods, and profit margins.
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Dropshipping
Dropshipping refers to the process whereby you can fulfill orders without maintaining any inventory or stocking up on products.
In this model of business, your supplier handles the logistical aspect of fulfilling orders placed on your Amazon Seller account.
This involves the following:
- Stocking products
- Packaging orders
- Dispatching goods
This means that your job is to act as an arbitrator and accept the orders from the customers, then forward them to your supplier or dropshipper. They then process the order from their end.
Dropshipping entails a contract between you and a wholesaler or manufacturer who will fulfill orders on your behalf.
This allows you to list a greater variety of products on your Amazon Seller page. All you need is the right supplier.
In this case, the profit margins depend on the type of deal you make with your supplier.
Pros of Dropshipping
- You can process orders without having to stock, package, and ship products yourself, thereby requiring less effort and lower labor costs.
- Overhead costs are relatively low because you don’t have to rent space to store your inventory or invest in packaging supplies.
- You can run your business without needing to stock up on goods.
- You can sell a larger variety of products from different suppliers.
Cons of Dropshipping
- You may face some difficulty finding suppliers.
- Profit margins may be lower.
- Coordination between buyers and suppliers can be quite a task.
- You cannot control or customize the branding or packaging of products.
- You run the risk of your supplier providing a substandard quality goods without realizing it.
Online Arbitrage
Online arbitrage involves sourcing products from online stores with good deals. This means that you have to track the prices of different products on Amazon and other online stores. This detailed guide covers some of the key aspects of online arbitrage.
If you notice a particular product being sold for a high price on Amazon, you can scout other eCommerce websites to see if you can find it for a lower rate. Then, you can resell it on Amazon at the going rate, which is higher than your buying price.
The profit margins in online arbitrage depend on the type of deals you are able to find online and can, therefore, fluctuate.
Pros of Online Arbitrage
- You don’t have to invest a high sum of money as the entry threshold is low.
- Location is not a criterion since you can base your business anywhere, as long as you are able to receive and send out deliveries.
- You can stock a variety of different products without having to maintain a huge inventory.
Cons of Online Arbitrage
- Since the profit margins fluctuate, you may not have a steady income.
- By limiting yourself to online sources, you might risk losing exclusive sales at local stores.
- It can be time-consuming to find good deals online, and you are not always guaranteed a cheaper rate.
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Retail Arbitrage
Retail arbitrage is extremely similar to online arbitrage. The only difference is that instead of sourcing products online, you must look for deals in brick-and-mortar stores around you.
Local retail stores sometimes offer exclusive discounts or seasonal sales at low prices, well below the manufacturer’s suggested MSRP) of a product. You can make the best of these and stock up on products to sell on your Amazon page for a decent profit.
Retail arbitrage can be extremely lucrative, with sellers making up to $2 million in sales with an estimated gross profit of 30%. This is because there is opportunity to price products for a higher rate on Amazon, compared to other retail stores.
Pros of Retail Arbitrage
- You have complete control over the inventory you wish to maintain since you don’t have to adhere to minimum stock requirements.
- You can stock a variety of different products.
- You can customize the branding and packaging as you wish.
- Profit margins can be reasonable even if you don’t hike up the price too much.
Cons of Retail Arbitrage
- There might be higher overhead costs because you might have to pay for transportation and gas if you have to drive to several different locations.
- Pricing can be inconsistent, leading to unpredictable margins and sales.
- You might have to invest a lot of time and effort into scouting for good deals.
Private/White Label
When conducting business for your private label, you can brand existing products under your own private label and sell them on Amazon.
This entails a contract or agreement with a supplier or manufacturer who will provide you with the product of your choice. The product will have your individual brand name or logo, and you will pay wholesale or bulk prices to the supplier.
Once you have found the right supplier for the product of your choice, you can list it on your Amazon seller page and build your brand.
The secret to successful private labeling is to ensure that your branding—which includes your packaging and presentation—is customized to appeal to your target audience.
Pros of White Labelling
- You can sell a wide range of products under your own brand.
- You can adopt the latest trends across different products.
- You have full control over the branding of your product and can modify and make changes as you wish.
- You can enter into contracts with several suppliers for different products and create a broader private label.
Cons of White Labelling
- It can be tough to build a loyal customer base.
- You may have difficulty gaining the trust of customers as a new brand.
- If you get unlucky with a supplier, it can affect your profit margins and result in losses.
- You may be required to purchase in bulk quantities without proof of sales.
Wholesale
Amazon wholesale is a fairly lucrative prospect and a popular business model.
To conduct a wholesale business on Amazon, you must stock up on bulk quantities of goods that you deem profitable.
When buying large quantities of a certain product, you must be able to purchase them at a discounted wholesale price.
You can list these products on your Amazon Seller page, and opt for Fulfilled by Amazon (FBA) delivery for any orders you receive. Around 250,000 Amazon sellers opt for FBA.
Pros of Wholesale
- You’ll have a ready customer base that is established due to pre-existing brand awareness, which saves you a lot of marketing effort.
- You will be able to easily find reliable sellers to source your products from.
- It is easy to swiftly scale your inventory to match up to an increase in sales.
Cons of Wholesale
- You may face competition from other sellers offering the same product.
- It can be difficult to find unique products to create your own niche.
- Landing wholesale accounts can be challenging.
Conclusion
There are close to 2 million Amazon Sellers around the world that can be classified as SMBs. Of these, 500,000 are based in the USA.
Amazon classifies any business with less than $1 billion in annual revenue and no more than 999 employees as an SMB.
Use this list to best determine your niche in the Amazon ecosystem and start selling online today. And once you grow, start learning how to best compete with Amazon to retain more of your profits.
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