Amazon Business Models: How to Select the Best Option for Your Company
To date, third-party sellers (rather than Amazon itself) account for more than half of Amazon’s retail sales. Amazon’s sellers benefit greatly from the freedom it provides.
There are six major Amazon business models that sellers use to offer products on the marketplace, each with pros and cons. To be able to start your own company on Amazon, you must first choose the appropriate model for you.
If you do a good job and effectively build your Amazon business, you might ask yourself one day, “Should I sell my Amazon business for profit?” When that day arrives, make sure you do your research and learn what measures you must take to get the most out of your hard-earned company.
But first and foremost, you must choose an Amazon business strategy. Let’s see how.
Private Label
A private label is a method of rebranding. In this strategy, a seller discovers unbranded goods or an unknown brand and turns them into their own.
Along with the rebranding, some sellers make alterations to the original product. Based on client feedback, they request that manufacturers enhance certain product aspects, therefore producing extra value.
In comparison to other methods, starting a private label requires significantly more time and work. Simultaneously, competition is substantially lower and profit margins are higher.
Wholesaling
Wholesale is when a seller invests in a large volume of products directly from suppliers and then resells them on Amazon for higher prices. Buying in bulk from suppliers grants you valuable items at lower prices. Once the order is completed, the wholesaler distributes its products to retailers.
With this strategy, a wholesale buyer must purchase large quantities of stock in order to get advantageous pricing from the supplier. Wholesalers can squeeze out higher profit margins when reselling goods to retailers if the per-item pricing is low. Suppliers often prioritize bulk orders. As a result, wholesale merchants benefit from favorable price and delivery arrangements.
Retail Arbitrage
Retail arbitrage is a business concept in which a seller discovers discounted or lower-priced items in physical retail shops and resells them on Amazon for a profit. For example, if you discover a product at Target for $8 and resell it on Amazon for $15, you are engaging in retail arbitrage. The difference between the product’s original cost and your Amazon pricing should include all Amazon costs as well as your profit margin.
Though the model itself is simple, it has some hidden risks. Despite its ease of entry and low cost, it is the least lucrative model owing to heavy competition. Furthermore, it takes time to see meaningful earnings.
Online Arbitrage
Online arbitrage works on the same basis as retail arbitrage: buy cheap, sell high. However, unlike the latter, online arbitrage sellers source their items on the internet, as the name implies. As a result, this strategy avoids one of the most significant drawbacks of retail arbitrage: you don’t have to physically browse brick-and-mortar businesses.
Product research is often the most time-consuming task for an online business. You don’t simply discover a lucrative product. You must determine if you can sell it on Amazon or not in order to avoid restrictions. You must ensure that the item is neither bulky nor overweight, since this can result in additional delivery charges.
Dropshipping
Dropshipping on Amazon is a model in which the seller publishes a product on Amazon, receives an order from the buyer, and requests that the supplier deliver it straight to the customer. The profit margin is the difference between the supplier’s wholesale price and the retail price of a dropshipper. Sellers appreciate this approach since it is simple to set up and they don’t need to invest upfront in products.
Selling Handmade Products
Handmade is a business concept in which sellers make their items “by hand” and sell them on Amazon. You can make and sell anything, from jewelry to wall art.
How Do You Pick an Amazon Business Model?
When considering your alternatives and choosing the ideal Amazon business model for you, there are a few crucial variables to consider:
- Budget. How much money do you have to invest in your first inventory?
- Time. How many hours per day can you devote to acquiring inventory, maintaining stock, and delivering products?
- Flexibility. Do you want to be able to work from home, or do you need an office?
- Experience. How much sales and marketing experience do you have?
Final Thoughts
Overall, third-party selling on Amazon entails determining the benefits and drawbacks of each business model and being realistic about how much time and money you have to devote. Stick to your plan after you’ve settled on the ideal approach for you. If you are willing to stay dedicated to a business strategy over the long run, you will be able to reap the benefits of selling on Amazon and participating in this multimillionaire company.
