Amazon presents a profitable business opportunity for entrepreneurs looking to get started on ecommerce. The marketplace supports a number of different business models. No matter what kind of ecommerce business you’re considering, Amazon is a great platform to get started. There are a bunch of business models for amazon
The online retailer is the largest marketplace in the world. Selling on Amazon gives you access to a large audience of potential buyers. The company also counts with valuable resources available for sellers such as search engines, marketing tools, and their fulfillment service.
Once you have decided you’d like to become a seller on Amazon, the next step is to choose your business model. Let’s explore the top 4 most popular business models on Amazon.
1. Private label
Private label refers to the practice of sellers designing their own packaging for an existing product and rebranding it under their own label. The product is manufactured by a third party, but it’s sold under the seller’s brand. These products are commonly positioned as lower-cost alternatives to national brands.
The strategy has long been employed by grocery stores who sell store brand products next to their name brand counterpart. Similarly, Amazon will often purchase products from a manufacturer, attach its own logo and brand, then offer it on the marketplace. It’s the most popular type of business model on Amazon.
- Cheaper than nationally branded product
- Control over pricing and production
- Control over packaging and design
- Quality highly dependent on manufacturer
- No brand recognition
- Often perceived as lesser quality products
- Takes a lot of effort, time, money in crafting a brand
Selling private label products requires some copyright and patent protection research in order to avoid infringing on name brands. Amazon has a strict policy against counterfeits, so be sure to distinguish your product from your competitors.
A reseller purchases products in bulk from a wholesaler or manufacturer and sells them as individual units on Amazon for a profit. It’s the second most common form of seller on the marketplace. It requires a sizable investment to procure a large inventory of products, but the profits can be equally large.
Purchasing a large stock of products incurs additional inventory storage and management costs. Alternatively, a reseller can opt to use Fulfillment by Amazon (FBA) to store, package, and ship products to customers. The service grants you special Amazon seller badges that can help your products stand out on the platform. Customers tend to prefer items from sellers with the Prime and FBA badges. It adds an extra level of reliability and boosts your listings higher in the search results.
- Relatively high profits
- Lower costs translate to lower prices which could earn you a Buy Box on Amazon
- Scalable business model
- Warehouse costs
- Difficult to find cheap and affordable suppliers
- Large upfront inventory cost
The key to this business model is finding the right suppliers. Focus on buying low priced items to maximize your profits.
3. Retail/Online arbitrage
Arbitrage profits occur when a seller takes advantage of a price discrepancy between markets. Product prices can vary across different online marketplaces and brick-and-mortar stores. Arbitrage sellers benefit from such differences by purchasing products at a discounted price and selling them close to the actual retail price on Amazon.
Sellers seek out marked down items and resell them for a profit. However, hunting down discounts and promotions can quickly become a full-time job. If you’re considering retail or online arbitrage as your Amazon business model, then be prepared to spend a considerable amount of time searching for products.
- Little investment capital requirements (budget friendly!)
- Lower risk option
- Selling well-known brand name products requires no marketing
- Time consuming
- Hidden costs (i.e. driving to stores, storage, shipping)
- Low profit margins
- Limit per customer on discounted products
Please be aware of Amazon Brand Registry. The program is aimed to protect brand owners against counterfeits and unauthorized sellers through “brand gating”. Brand gating gives brand owners exclusivity for selling their products on the marketplace. It means that unless you have permission from the brand, you will not be allowed to sell their products on Amazon.
Unfortunately, there is no database of registered brands. One way to determine if a product is protected is to check if it has Enhanced Brand Content (EBC). Most products with EBC are likely registered; however, the feature is optional and not every registered product will have EBC. As a rule of thumb, always check with the brand owner to avoid any issues or infringement.
Sellers using this business model purchase products from a dropshipping supplier on a per-order basis. The supplier then packages and ships the product directly to the customer. In simple terms, dropshipping gives you the ability to sell products on Amazon without having to hold inventory or fulfill shipments yourself. Dropshipping allows you to place orders from your supplier as you receive them on Amazon which keeps investment costs low.
Lean more about the costs of starting a dropshipping business here.
- No inventory storage costs
- Low start-up investment costs
- Access to multiple suppliers means a larger variety of products
- Highly reliant on wholesaler/manufacturer
- Difficult to do quality control
It’s essential to spend time finding a reputable supplier. The core of your dropshipping business lies on your supplier. They control the quality of the products, ensure speedy delivery, and handle post-sale customer service. Here is a post to help you find the right wholesale supplier for your dropshipping business.
A distinguishing feature between different Amazon business models for sellers is their supply chain. Depending on the type of seller you want to become, you’ll be responsible for procuring products, inventory storage and management, shipping, customer service, and quality control. Consider your options carefully and make a well-informed decision that best fits you as an entrepreneur. Once you have chosen a business model, next you’ll need to register as a seller on Amazon. Here is a step-by-step guide on how to register on Amazon.
Bonus Tip: No matter which business model you choose, you’ll be competing with hundreds of other products on Amazon. Consider starting your own WooCommerce webshop to expand the reach of your ecommerce business. Selling through your own webshop will eliminate certain costs associated with listing on Amazon. It gives you full control over your marketing and business strategy.
List your WooCommerce webshop products on Amazon
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