Amazon retail sales continue to grow year-over-year, attracting interest from both new and seasoned investors looking to set up their first ecommerce store and build a formidable income online. For what it’s worth, the marketplace currently houses more than 2 million third-party sellers and over 12 million products.
While Amazon’s initial business model focused on selling books online, the company has come a long way since then, adding toys, automobile parts, health supplements, furniture and furnishings, clothing, grocery, and all types of commodity and luxury items as part of its offerings.
Today, sellers can choose from over 36 different product categories and serve customers with varying needs.
Does Amazon allow B2B sellers to sell on its marketplace?
Yes, Amazon does accommodate B2B sellers as well, enabling them to reach millions of new business customers worldwide through its online marketplace. However, this blog is aimed at B2C sellers looking to sell on the smiling A but confused about their options as to what business model they should pick to start their selling journey.
There are mainly six types of Amazon business models B2C sellers use to generate revenue on the marketplace. These include:
Let’s look into the details of each.
Disclaimer: You’ll find different Amazon business models case studies in this blog. To make it clear, ZonGuru doesn’t endorse any products mentioned by the respective publishers. The links are just there to give you an idea of how the business models work in real life.
The private label business model on Amazon involves sourcing a product from a third-party manufacturer and labeling and selling it under your brand name. Almost all private label products are customized to some extent to help sellers stand out from the competition and build their own unique brand.
As a seller, you can employ different strategies to differentiate your private label product on Amazon. It can be as simple as using eco-friendly packaging for your product to something as complex as adding a new and improved feature. At the end, it all depends on identifying a market gap and filling it using your expertise and knowledge of the niche.
There are many advantages of selling private-label products on Amazon.
Of course, it’s not all sunshine and rainbows when selling private label products on Amazon. There are some disadvantages to this business model.
Are these reasons big enough to fade private label selling on Amazon, though? Well, not really, because the positives of the private label business model far outweigh its negatives.
If you want to start a private label business on Amazon, you must have at least $3500 in investment, provided you can source your product for $3 or less. This estimate covers Amazon seller account fee, research tools subscriptions, 3-month inventory order, listing services, and an initial budget for running PPC campaigns for the first month. If you want to target aggressive growth, you’ll need a much bigger budget than this.
Amazon private label can be quite profitable if done right. Just looking at the US market, more than 65,000 third-party sellers generate over $100,000 in sales every year. Meanwhile, nearly 4000 American private label sellers make 1 million dollars in annual revenue. Private label products have traditionally yielded more profits than their counterparts, and the situation isn’t too different on Amazon either.
Talking about a realistic timeframe, you can expect to launch a private label product on Amazon in around three months. This includes the time required to hunt, source, and ship the product and get the product detail page ready for listing.
Finding a profitable product to sell on Amazon requires deep and holistic market analysis. However, some niches have historically performed better for Amazon private label sellers, so it’s recommended to start your research from these. Here are some of the best private label products to sell on Amazon:
Need further inspiration? Check out this Amazon hot products ebook from ZonGuru!
So far, so good. But how do you get started with private label selling on Amazon?
There are many challenges you are going to face on your Amazon private label selling journey. Most sellers struggle to find the right product. That’s possibly the biggest challenge you are going to face too. Making sure you nail this step is crucial as it can make or break your business. Listing optimization is another. You need to know what goes into creating a listing that ranks and converts. Finally, review acquisition remains a big challenge for both new and experienced private label sellers on Amazon.
It’s important to understand what you are getting into before you start a private label business on Amazon. It may not be the right business model for everyone. If you think you have a decent amount of capital to invest, can spend time researching and studying the market, like the idea of wealth accumulation, have the patience to see through a process, and are risk averse in nature, then Amazon private label can be a great option for you. Here is an interview with Manta Sleep, one of the most successful private label brands on Amazon in recent years. Their case study would further help you make an informed decision.
Is there a way to sell on Amazon without manufacturing your own products?
Yes, we have Amazon wholesale for that!
Amazon wholesale involves buying products in bulk from already existing brands at wholesale prices and then reselling them for a profit on Amazon. It is the complete opposite of the Amazon private label business model, where you manufacture your own product and sell it under your brand name.
It’s worth noting the wholesale product you may want to sell may already be listed on Amazon. In fact, you would find it to be the case more often than not. Most wholesalers pick popular brands, and so there is almost always more than one seller selling them.
Since you are not the original manufacturer, Amazon may ask you to provide proof of authorization to resell the wholesale item when you first try to add it to your Seller Central. Ideally, this proof of authorization should come from the brand in the form of a permission letter. However, brands are not always willing to work with new sellers and may refuse.
In the instance where getting a permission letter from the brand is nigh impossible, sellers may source the product from wholesale distributors and show the invoice as proof to Amazon. While we don’t recommend this approach, as there is always a risk that the original manufacturer may try to get Amazon to shut you down for infringement, it can set you up in the short term until you can find a way to contact and convince the brand. Bear in mind though, it may not work for all wholesale items.
The advantages of the wholesale business model are quite obvious.
Like any other business model, Amazon wholesale is not perfect and has some limitations.
Important: Amazon may sometimes suspend your wholesale account for infringement even when you may have permission from the brand to sell the product. This can happen if some other seller on the same listing is found involved in wrong sourcing practices. However, you can always open a case inside Seller Central and get your account back.
You can start a wholesale business on Amazon with an investment of around $2700. This should cover your company formation expenses, Amazon seller account fee, seller tools subscription, and website setup and inventory costs for the first month. However, don’t expect this budget to work out for high-ticket items or products with higher profit margins.
Profit margins for Amazon wholesale typically vary between 10% to 25% per unit sale on average. This is after FBA fees. If you plan to do FBM, you can generate even higher profits depending on how well you can manage your overheads.
You can start a wholesale business on Amazon in six weeks or less. Expect most of this time to be spent on product research and contacting brands and suppliers. Some people think setting up an LLC can take long too. However, if you have everything ready, you should be done with the registration within ten business days.
There are many wholesale products you can go after, including:
To get started with Amazon wholesale, follow these steps:
Interestingly, the biggest challenge Amazon wholesalers face is managing their operational costs. Sellers must optimize their sourcing and fulfillment operations to boost their profit margins. Convincing big brands to work with them is another challenge wholesalers face when selling on Amazon.
If you have a medium-sized investment, love networking with people, and can adapt to a situation on the go, then Amazon wholesale might just be the right selling model for you. If you have contacts in the supply chain industry, even better - but it’s not a mandatory requirement. Also, you must have around 30-40 hours of spare time per week to spend on your business. Here is an Amazon wholesale business case study to further inspire you and help you make an informed decision.
Interested in reselling products on Amazon but don’t have the budget to start a wholesale business?
Well, you can try Amazon retail arbitrage!
Retail arbitrage involves buying products at discounted rates from your local stores and then flipping them for a profit on Amazon. It’s very much like the Amazon wholesale reselling model. The only difference here is that you are working with brick-and-mortar stores, not brands and distributors, to source your inventory.
Since you buy products at retail prices, they cost you more than what you would otherwise pay to brands, manufacturers, and distributors to get them. This, of course, increases your inventory costs. However, the good thing is you can purchase as many units of your product as you want without worrying about the MOQ requirements that wholesale sellers must meet when placing an order. As a result, you don’t need a big investment to get started.
Want to know more about the Amazon retail arbitrage business model?
Starting an Amazon retail arbitrage business has many benefits.
However, the very simplicity of the retail arbitrage business model tends to limit its potential and not many sellers find it exciting enough.
While you can start a retail arbitrage business on Amazon for as little as $100, we recommend putting in at least $1000 if you want to make a decent income. The investment requirements for Amazon retail arbitrage depend on what type of product you want to sell (high or low-ticket items), how much of it you want to sell, what profits you are aiming for, and if you plan to use FBA or FBM.
Successful retail arbitrage sellers make well over $100k per year flipping products on Amazon. They run proper businesses with full-time employees. The average income of Amazon retail arbitrage sellers is significantly lower, though.
You can get started with Amazon retail arbitrage in less than a week. There isn’t much you to have to do. Once you have your seller account set up, which should take around 1-2 business days, you can start sourcing products and listing them on Amazon right away.
It’s recommended to follow the recent sales data and latest market trends when choosing products for your Amazon retail arbitrage store. However, some product categories have traditionally performed well for Amazon retail arbitrage sellers, so it’s always worth looking into them. These include:
To get started with Amazon retail arbitrage, follow these steps:
You are going to face many challenges as an Amazon retail arbitrage seller. However, replenishing the stocks for your in-demand items without overpaying for them will arguably be your biggest challenge. You must also remain wary of any practices that might be against Amazon’s TOS to avoid account suspensions.
Amazon retail arbitrage can be the right selling model for many sellers, especially if you are just starting on Amazon. It is simple to understand, easy to execute, and can be done with a small investment. However, you need to put in a serious shift to manage it. If you have a full-time job or some other commitment, then running an Amazon retail arbitrage business can be difficult. Also, it’s not the ideal option for people planning to build a business they can flip in the future. Here is an Amazon retail arbitrage case study to further help you make an informed decision.
Is there a retail arbitrage alternative that doesn’t require all this physical work like visiting brick-and-mortar stores to find products?
Yes, you can try online arbitrage on Amazon!
Online arbitrage is simply buying products from other online marketplaces such as Walmart.com, eBay, OfficeDepot, etc. and flipping them for a profit on Amazon. It’s just like retail arbitrage but without the endless grind of having to drive from one department store to another to find products to sell.
Most online arbitrage sellers use specialized software to scrape hundreds and thousands of product listings on the web and find potential deals on cheap. You can set up custom parameters to refine your search and discover products that meet your criteria in a jiffy. Tactical arbitrage is the most commonly used software for this purpose.
Aside from that, there isn’t much difference between online arbitrage and retail arbitrage. The investment requirements are pretty much the same. Expected profit margins aren’t too different either. They also share the same limitations.
You might wonder though if doing online arbitrage is legal on Amazon? After all, you are simply buying products from one online marketplace and selling it on another. For a company that values its brand so strongly, it might not be an acceptable practice.
Yes, online arbitrage is allowed on Amazon. There is nothing about the business model that violates Amazon’s policies. Even the first-sale doctrine supports the concept of online arbitrage, and so Amazon has no reason to prohibit sellers from practicing it.
Of course, there are some restrictions for online arbitrage sellers on Amazon. For example, they can’t always sell in gated categories. Likewise, they cannot list products that require brand permission. If you stick to these rules, you should be fine doing online arbitrage on Amazon.
But what if I don’t want to invest in inventory at all? Is there still a way to sell on Amazon?
Yes, you can sell on Amazon without holding any inventory through Amazon dropshipping.
Dropshipping on Amazon involves taking orders for a product on the marketplace and forwarding them to the manufacturer or supplier. The latter then fulfills them. This way, you don’t have to hold any inventory. Meanwhile, you only pay the supplier after the order is placed and the customer sends you the payment on Amazon. Your final profit is the difference between the retail price you set and the wholesale price you pay to the supplier.
Bear in mind, dropshipping on Amazon still requires you to communicate with the customers and keep them informed about their order status. Also, you must handle and process all return requests.
Amazon has outlined a dropshipping policy for sellers. As long as you follow it, you can do dropshipping on Amazon legally. At its core, the dropshipping policy requires sellers to identify themselves as the main supplier of the product. Everything from the name to the contact information on the invoices, packing slips, and shipping labels must match with your information. This is an arrangement you must make with your supplier beforehand. You can read the full policy here.
There are many benefits of starting a dropshipping business on Amazon.
Of course, there are some potential drawbacks too.
FBA is a seller-exclusive fulfillment program from Amazon. It allows you to outsource your fulfillment operations to the company, which picks, packs, and ships the products on your behalf in exchange for a small fee. You don’t even have to worry about the customer service part. On the other hand, dropshipping is a business model. It allows you to sell on Amazon without holding any inventory.
You can start a dropshipping business on Amazon for as little as $500. However, don’t expect huge returns with that. If you want to generate a decent side income, you’ll need a minimum investment of $2500 at least.
If done right, Amazon dropshipping can definitely be profitable. Sellers can expect to make profits between 10 and 30% on each unit sale. Just to be clear, these numbers don’t account for the Amazon referral fee and other dropshipping expenses. Average monthly earnings can vary between $500 and $5000 depending on how much you are willing to invest into your business. Of course, top dropshippers earn even higher than that.
It shouldn’t take you more than a month to start a dropshipping business on Amazon, provided you have the investment ready. You can expect to spend most of this time on finding profitable products and communicating with suppliers. In parallel, you can set up an Amazon seller account and register an LLC. Although the latter isn’t a mandatory requirement to start a dropshipping business on Amazon, it certainly does give you an edge when convincing suppliers to work with you.
There are plenty of products you can dropship on Amazon. Here are some of the best ones:
Starting with Amazon dropshipping is easy. Just follow these steps:
The biggest challenge Amazon dropshippers face is onboarding suppliers. Most companies don’t prefer to work with dropshippers. Even if they do, they are not always happy to take instructions from you and follow the necessary guidelines to identify you as the seller of records. In that case, you must hire a 3PL service. Other major challenges include maintaining customer communications and ensuring timely delivery of orders.
If you have no interest in building a brand and just want to earn some decent side income, while staying away from manufacturing, sourcing and fulfillment hassles – in that case, Amazon dropshipping could be the right business model for you. However, make sure you weigh the inherent risks that come with the business model before jumping into it. Here is an Amazon dropshipping case study to further help you make the right decision.
Does Amazon only allow mass-produced products for sale? What if someone wants to sell handmade products? Does Amazon offer anything for such sellers?
Yes, Amazon has an exclusive program for sellers interested in launching handmade items and are looking for marketplace options other than Etsy. We call it Amazon Handmade.
Amazon Handmade is an artisan-only seller program that allows you to sell hand-assembled, handmade, and hand-altered products on the marketplace. The ecom giant maintains a dedicated section for handmade products on its website, giving artisans an exclusive platform to build their audience.
The Amazon Handmade program is quite different from the regular seller program in terms of the fee structure and registration process. Even the seller dashboard is different.
Interestingly, Amazon doesn’t hold-off from showing handmade products in regular search results. This gives your listing additional visibility on the marketplace.
Selling handmade products on Amazon can be a great way to start an online business.
Like any other business model, Amazon Handmade is not perfect either and has some potential drawbacks.
You can start an Amazon Handmade business with an investment of around $2000. While this is lower than what you need to start a private label business on Amazon, it’s still on a higher side compared to Amazon retail arbitrage and dropshipping.
Top-tier sellers make over $1million in annual sales on Amazon Handmade. Of course, these numbers take time to reach and not everyone does get there. However, you can still expect to earn a handsome amount selling handmade products on Amazon with an average profit margin of 30% to 35%.
It can take you up to three months to set up your Amazon Handmade store and launch your first product. You must find a profitable niche, apply for the registration process, get the inventory ready and shipped to Amazon, and come up with a holistic launch strategy to make your product a success. Good things take time to build, so it’s important to be patient here.
According to an Amazon, jewelry, home goods, and kitchen and dining items remain the most popular products on Amazon Handmade. You can look into these categories to find something that matches your artisan interest. Remember, you can’t outsource Amazon Handmade items. You can also use third-party product research tools to check what’s selling hot in other categories.
To get started with Amazon Handmade, follow these steps:
Quality control remains the biggest challenge for Amazon Handmade sellers. You are selling to a niche audience, which can often be quite picky about their purchases. A lower quality handmade product is bound to fail. Listing optimization is another challenge Amazon Handmade sellers face.
If you are an artisan by trade, tech-savvy, and have some money to invest, then Amazon Handmade could be the perfect business model for you. It would give your talent the deserved exposure while helping you build a steady online income. Here is an Amazon Handmade case study to inspire you and help you make the right decision.
A limited liability company (LLC) is the best business structure for beginners to sell on Amazon. It gives you the most flexibility in terms of profit distribution while providing tax and liability protection benefits. An Amazon business operating under an LLC is also easier to flip. Meanwhile, you can upgrade it to an S-Corp or C-Corp whenever you want.
For more experienced sellers, we would recommend registering an S-Corp. It gives you all the benefits of an LLC and even more.
You don’t need an LLC or any other registered business entity to sell on Amazon. Many Amazon sellers prefer to operate as sole proprietors. However, if you’re looking to build something in the long term, having an LLC does provide some major benefits. Also, if you’re planning to do wholesale or dropshipping, an LLC can give you an advantage in terms of securing suppliers.
Amazon charges a referral fee to sellers to sell on its marketplace. This referral fee can vary anywhere between 8% and 45% depending on the product category. Your choice of business type doesn’t affect the referral fee at all, except for when you are selling on Amazon Handmade, which has a fixed 15% fee regardless of what product you sell.
Amazon dropshipping is better than affiliate marketing in many aspects. For starters, it promises higher returns. You can set your own prices and add products on the go. You also don’t have to worry about bringing traffic to your listing. Meanwhile, affiliate marketing is about making money from the commission you earn on the sales. This commission is percentage based and typically lower compared to the profits you make by dropshipping products on Amazon. Affiliate marketers must also work hard to bring traffic to their affiliate page or blog using SEO and other ways.
Every Amazon business model has its own strengths and weaknesses. However, we always recommend thinking long-term when making such decisions – after all, everyone wants financial freedom and to leave behind a business that their children can run in the future. Unfortunately, Amazon wholesale is not best suited for that. Same applies to Amazon arbitrage and dropshipping business models. Amazon Handmade is much better in that regard but if you are not an artisan by profession, you can struggle.
Amazon private label though, does offer an opportunity to build a sustainable, passive income online. You can even sell your Amazon private label business down the line and retire. If not, you can pass it on to your kids. Yes, it does require a bigger investment than other Amazon business models, but it also gives you the best shot at changing your life for the better.
Here, at ZonGuru, we provide smart tools for sellers looking to start their private label business on Amazon. From product research to finding reliable suppliers to listing optimization, our tools help you at each and every step of your selling journey. Inform your business decisions using the power of data! Would you like a quick demo before committing? Book a walkthrough of our tools here!
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