A lot of advice on the web leads new sellers to think the same best practices will work for every Amazon business.
The truth is, your Amazon strategy should depend on your unique business model. What kind of competition will you face? What kind of products can you sell profitably? To answer these questions, you need to understand where your business fits in the larger ecosystem of Amazon sellers.
In this post, we’ll explain three Amazon business models, so you can identify which one is the best fit for you as a seller. We’ll break down the pros and cons, along with tips for adopting each model.
Reselling on Amazon
This first Amazon business model is the easiest to use—you simply buy brand-name products and resell them on the marketplace. Before we dive into the pros and cons, we should point out that there are two ways to source products for reselling on Amazon:
- Arbitrage is the process of buying something on sale (either online or in-store) and reselling it at a markup. For example, if your local drugstore has a clearance sale on Band-Aids, you might buy Band-Aids for $2/box and resell on Amazon for $6/box.
- Wholesale means buying products in bulk directly from a brand supplier, distributor, or manufacturer and reselling them at a markup. For example, you might reach out to a distributor of Hasbro toys to buy action figures at a bulk discount.
Both ways of sourcing products can be profitable, but the arbitrage model is more difficult to scale.
The resale model offers a business model that you can quickly launch without much overhead or business experience, making it a favorite among entrepreneurs.
- Fast and easy to set up. Amazon’s seller platform is intuitive and makes it very simple to add your products. Since chances are high you’ll be reselling an item that already exists on the marketplace, you can look up your product in Amazon’s catalog and list it with just a few clicks, instead of uploading all the product details yourself.
- Low overhead. If you use Fulfillment by Amazon (FBA), as many resellers do, you don’t need to store your own inventory or handle your own shipping. For a reasonable fee, Amazon takes care of warehousing, fulfillment, and even customer service.
- No brand assets needed. Since you’re selling other brands’ products, you don’t need to worry about creating unique product listings or Amazon Storefronts.
- Built-in social proof. When you sell a brand that’s already known and trusted, it’s much easier to start generating sales from day one.
This Amazon business model is flexible and simple to run, so it’s ideal for many first-time sellers.
That being said, the resale model is not without its challenges. This business model often means dealing with crowded markets.
- Competing for the Buy Box. Amazon doesn’t create multiple listings for the same product. Unless you’re the only seller of a given item, you’ll have to compete for what’s known as the Buy Box—Amazon’s default purchase option. In some cases, as in the image below, you may even be competing directly against Amazon for the Buy Box. If you don’t win the Buy Box, shoppers are less likely to purchase from you because it involves extra steps.
- Repricing is a must. Because of this fierce competition, you’ll need to adjust your price regularly to stay competitive. While this can be done manually, an automated repricing tool is the preferred choice of many sellers. Whatever you choose, you’re investing either time or money.
- Tight profit margins. Whether you use an arbitrage or wholesale model, you’re likely to have low profit margins. Branded products often aren’t cheap to acquire, and there is typically intense competition. These factors can make it difficult to consistently profit on certain items.
- Amazon Brand Gating. In an effort to prevent counterfeiting, Amazon restricts the sale of hundreds of brands (or requires a detailed application process and a hefty $1,500 fee if you want to resell that brand). So, before you invest in a product, make sure you have the authorization you need to sell that product. There’s no official list, but this is a reliable current list of restricted brands on Amazon.
The hard truth is that reselling is a competitive business. That doesn’t mean it can’t be profitable, but it means that you need to enter with both eyes open—and a product that can actually make you money.
Verdict: Reselling is ideal for beginner, side-hustling sellers
The resale model is ideal for small sellers looking to build a good side income or who want a stepping stone into the ecommerce industry. Due to the fierce price competition, however, it’s more difficult to create a larger, sustainable ecommerce business with this model (though certainly not impossible).
Amazon Private Label Business
Chances are your grocery store has their own private label products—generic products that are nearly identical to big-name brands. Running a private label business on Amazon is similar. You take a generic product (purchased from a wholesale supplier, usually) and tack your brand name onto it.
As a private label seller, you’re able to establish your own brand, even if you’re not manufacturing your own product. This comes with several benefits:
- You can avoid Buy Box competition. With a private label, you don’t have to compete with other sellers on the same product page. Since the product is under your brand label, you’ll have your own product listing.
- A private label improves product value. A unique brand name often increases the perceived value of your product. With a brand, you can build a reputation with customers, position your product, and work to build customer loyalty and awareness—all of which drive up sales. In a marketplace as competitive as Amazon, this is an important tool for drawing buyers to your listings.
- You have control over your marketing. Unlike reselling merchants, private label sellers can customize images and product details to make their listings stand out from the crowd.
With this Amazon business model, you have to work hard and invest money into your label to make your offering stand out.
- Your product source can make or break your seller reputation. The quality of your product reflects directly on you as the seller. Your brand name is the one customers see, not the supplier’s. If your supplier provides low-quality manufacturing—or doesn’t provide consistently high-quality products on a reliable schedule—it can easily destroy the credibility of your business.
- You risk other private labels selling the same product from the same supplier. Many manufacturers and wholesale suppliers are willing to work with multiple private labels. If you’re one of several Amazon sellers who are selling an identical product with different logos, it can create problems for brand, competition, and even customer trust in the long-term.
- You must meet Minimum Order Quantity (MOQ). When you order from a manufacturer or other supplier, chances are there’s a minimum order size you must meet. This is how the supplier ensures they earn a profit, but this means you’re investing more in your inventory (and storage for your inventory) up front.
- You must invest in your branding. You’ll need upfront capital for things like logos, design assets, packaging, labels, etc. Unique product photos are also a must. Shoppers need to see, at a glance, that your product is different than the other options.
Verdict: A private label business gives competitive advantage to sellers with some starting capital
While the costs are a bit steeper for a private label business than a resale business, the trade-off is lower competition. This factor often makes it well worth the costs for sellers who are able to initially invest time and money in their Amazon business.
Launching Your Own Brand
If you’re planning on selling a unique product that you produced, this model is for you.You have a trademark, you have a product manufactured to your specifications, and you’re heavily invested in building brand equity.
The size and diversity of Amazon’s marketplace create a lot of opportunities for ecommerce sellers launching their own brand.
- Amazon marketplace is a great place to grow your brand. Whether you’re selling your product in a physical retail store, running an online Shopify store, creating handmade products, or selling a new product for the first time, the massive traffic potential on Amazon makes it an ideal channel for expanding your business to new buyers.
- Proprietary products have an easier time standing out from competitors. Even if there are products with similar functions or purposes, no one is selling your exact product. You have something unique to offer. While that doesn’t eliminate competition, it does give you a competitive edge over private label and resale sellers.
- Amazon offers branding tools for sellers. Amazon offers free services that will help you establish your brand as much as possible on the marketplace. Amazon Brand Registry helps you protect your intellectual property. Amazon Storefronts allows you to create a customized store page for your business. Amazon Enhanced Brand Content lets you expand your product listings to communicate brand value. All of these will help you establish your business on Amazon.
While Amazon offers a lot of opportunities for launching a new product, the process of starting a business with a proprietary product requires a large investment of time and money.
- Creating a new product takes effort. While designing and selling your own unique product is an exciting idea, it’s also a time-intensive way to make money online. Designs, manufacturing research, patent and trademark registration, and more all go into creating a product. The process can get long and costly.
- It takes time to develop social proof. When you launch a new product, you rely heavily on product reviews, seller feedback, and word of mouth to develop trust for your brand and demand for your product. This usually takes at least a few months to build momentum.
- You’ll need to invest a lot of capital. Given the demands of the previously mentioned processes, you’ll need a good amount of capital to invest in your product, packaging, and branding. Since these investments must be made before you start selling, there’s a greater risk of losing money on this business venture in comparison to other Amazon business models.
- Brand growth on Amazon isn’t easy. Amazon’s brand will always be front and center in the marketplace. If you want to grow your overall brand, you’ll likely need to put in effort outside of Amazon as well.
Verdict: Launching your own product on Amazon is best for experienced sellers
Creating your own proprietary product is seen as the pinnacle of ecommerce. All the most popular brands follow this model, and many ecommerce entrepreneurs dream of establishing their own popular brand. If you’re in this for the long haul and want to build a brand with a lot of equity and sales potential, this Amazon business model is a great one for you. However, it also takes the most effort, research, planning, and investment to do well. If you’re looking for a business you can run on the weekends, this probably isn’t it.
Use This Guide to Determine Your Ideal Amazon Business Model
As you compare these models, don’t just settle for the one that sounds the easiest. All three require time, effort, and investment in order to be successful—and all of them are viable paths to a thriving long-term ecommerce business. So take your time. Think about what products and industries interest you, and brainstorm which model aligns best with the business you’re envisioning. As long as you’re prepared for what that plan entails, you can’t go wrong with any of these Amazon business models.