Amazon Business Models: 5 Ways You Can Start Selling Online
For years, Amazon has been a hub for new entrepreneurs and business owners. There is tremendous potential for success when selling on Amazon; even new sellers with less than two years of experience can earn an average of $42,000 in annual profits.
Aside from providing businesses with the ability to expand their customer base and reach a larger audience, Amazon also offers other advantages, such as:
- Fulfilled by Amazon customer service
- Free listings
- Amazon Prime customer base
- Higher profit margins
If you’re trying to launch your Amazon business or jumpstart your career as an Amazon seller, the first thing you must do is choose the best business model to source your products. And once you’ve decided on a model, your revenue-generating selling strategies will follow.
Continue reading for everything you need to know about the most popular and most profitable Amazon business models, so you can pick what will work for you.
Top 5 Amazon Seller Strategies
The most popular strategies for Amazon sellers are:
- Private Labels
- Online Arbitrage
- Retail Arbitrage
The profit margins for each vary, and each model has different elements involved, as shown in this infographic from Inventory Planner:
We’ve covered the basics of how each method works, along with their respective pros and cons, below.
Private labeling involves the sale of existing products under your own individual, private label or brand, on Amazon.
To do so, you will enter into an agreement with the supplier or manufacturer of the product of your choice. They will provide the product at wholesale or bulk prices, with your brand’s name. You can then list the product on your Amazon seller page, under your own brand.
A good strategy for private labeling is to find a profitable product that generates evergreen sales and sell it under your brand name. To effectively do so, ensure that you update its presentation to make it appealing to your target audience.
Pros of Private Labels
- Competitive pricing will attract more customers
- A diverse range of products
- Flexibility with adopting the latest trends
- Full control of branding
- Ability to change and modify products with ease
- Fulfilled by Amazon makes the job easier
Cons of Private Labels
- Difficulty building customer loyalty
- Suspicious customers may not trust a new brand easily, which can be tough to overcome
- Suppliers may send you defective or faulty products, which could affect your profit margins
- Lack of originality and unique products
- Requires bulk purchasing of product before proof of sales
Wholesalers on Amazon earn over $5000 each month, which is an attractive prospect for many sellers. It entails finding a supplier or manufacturer to provide you with bulk quantities of goods at a wholesale price.
You can then list the product on your Amazon seller page and sell it at a profitable price.
You can buy and sell anything you want; whether or not these are priced at discounted rates is up to you. There is a chance that you can find a niche wherein you will be one of a handful of sellers of a particular product.
However, it is more likely that you will face a lot of competition for mainstream products. This is why you must choose your inventory wisely and optimize your listings.
- The customer base is already established due to existing brand awareness and recognition
- Easy to source and sell products with reliable suppliers
- You can quickly and easily scale your inventory and increase your sales
- Sell ready products which already have market value
- Difficult to find unique products that other sellers don’t carry
- Higher competition when it comes to popular and common brands and products already being sold
- May be challenging to land wholesale accounts
Dropshipping on Amazon allows sellers to outsource the fulfillment of their orders to third parties. This means that the seller only acts as an arbitrator between the customer and the manufacturer or supplier.
As a dropshipping seller, you can enter into contracts with suppliers, who will manage the packaging, dispatch, and delivery of your orders. All you have to do is accept the order and payment, and forward the required details to the dropshipper.
The product shall be listed on your Amazon page, and you can fulfill orders without worrying about the logistics.
- Less effort is required with regards to ordering, stocking, packaging, and shipping products
- Lower overhead cost
- No need to maintain large stocks or inventory of products
- Potentially lower profit margins
- No control over advertising and marketing
- No way to customize or personalize the branding
- Double the effort as far as communication and customer support goes – you have to stay in contact with the buyer and the supplier at once
What is Amazon arbitrage? Also known as retail arbitrage, you can purchase products from retailers and offline stores, and sell them at a higher price on Amazon.
To successfully reap the benefits of retail arbitrage, you will have to keep an eye on sales, offers, and discounts available at different stores near you. When you find a good deal, you can purchase as many units as you can and sell them at a markup on your Amazon page.
For example, a certain pen has a maximum retail price (MRP) of $5. If a store near you sells these pens at a discounted rate of $2, you can buy as many as you want and then sell them for the regular price of $5 on Amazon and enjoy the profit margin.
- Freedom to stock as many different products as possible
- Quick and simple
- No minimum stock requirement from suppliers, thus giving you complete control over your inventory
- Inconsistent pricing
- High overhead costs
- Might require a lot of time and effort to find reasonable deals
- Lower profit margin
Online arbitrage is very similar to retail arbitrage; it only differs in the source of your products. In retail arbitrage, you might purchase inventory from brick and mortar stores. Online arbitrage requires you to scout many online stores for good deals on various goods.
Certain products are often listed for a higher price on Amazon than other websites. You can thus purchase these products at a lower price and list them on Amazon at the going rate with a decent profit margin.
- Low entry threshold, which means you do not need a lot of time or money to invest to get your business started
- Does not depend on your location and requires little effort
- You do not have to maintain a large inventory, and you can stock a wide range of products
- You may not always find good deals online
- Profit margins vary
- You might miss out on exclusive discounts available at brick and mortar stores
Through Amazon, businesses can tap into an incredibly diverse clientele, with over 300 million active users worldwide. No matter which Amazon selling business model you choose, there is tremendous potential for long-term revenue and success.
Start and grow your online business through Amazon today!