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How to Choose the Right Amazon Business Model

Lena Schwab
Lena Schwab,
Published: October 26, 2021
6 min read
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How To Choose the Right Amazon Business Modell_Guest Post by AMZ Advisers

One seller’s way of selling on Amazon may not be the best for another. That’s why it’s crucial to review each Amazon business model before you plan your selling strategy.

Today, we’ll break down the 5 most popular Amazon business models. We’ll review their features and pros and cons to help you select the best fit for your needs. 

Let’s dive right in!

This is a guest post by
AMZ Advisers

Esteban Muñoz is an SEO copywriter at AMZ Advisers, with several years’ experience in digital marketing and e-commerce. Esteban and the AMZ Advisers team have been able to achieve incredible growth on the Amazon platform for their clients by optimizing and managing their accounts and creating in-depth content marketing strategies.

Which Amazon Business Model Fits Your Needs?

Private Label

With Private Label, you rebrand or rename an existing product with your own brand or label. AmazonBasics is one clear example of Private Label. 

This is how it works:

  1. Survey the marketplace for high-demand/low-competition items.
  2. Buy the products from the manufacturer.
  3. Spin the item with your own design, brand or package.
  4. Create a product listing and start selling.

This is the most popular Amazon business model. According to Jungle Scout, 67% of sellers said they used this method to sell on Amazon.

Plus, it has the potential for steady profits. Jungle Scout states that Private Label sellers can make $5,000 per month. 

However, you must keep in mind that Private Label is also the most time-consuming model. You’ll need to learn about marketing and creating product listings on Amazon. Also, it will take time to get noticed in the marketplace.

Advantages

  • Build your brand from scratch
  • Control over your products prices
  • Sell on multiple categories
  • Build seller-supplier relations

Disadvantages

  • Finding profitable products
  • Inventory management
  • Getting product reviews
  • Large marketing investment

Retail Arbitrage

Retail Arbitrage is about flipping merchandise. You find low-cost goods at retail stores and resell them online for a profit. 

Here’s how it works: 

  1. Purchase products below retail value.
  2. Mass up on the item to increase profits.
  3. Create listings and sell at a higher price. 
  4. Pay Amazon Seller Fees.
  5. Make a profit.

This may be the easiest Amazon business model of all. It’s also great for entry-level Amazon sellers. 

Your profit is the difference between the selling price, minus Amazon’s fees and the original product cost. 

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However, Retail Arbitrage is also the least profitable Amazon business model. Jungle Scout estimates that sellers may earn less than $5,000 per month, and sometimes less than $500.

Advantages

  • Affordable entry-level model
  • Simple stock management
  • Low startup costs
  • Reliable passive income source

Disadvantages

  • Constant search and restock of inventory
  • Low profit margins
  • No steady product supplier
  • Optimizing product listings

Online Arbitrage

This Amazon business model is about acquiring discount items online. And as with Retail Arbitrage, you resell the products on Amazon. 

If you want to opt for this model, follow these steps:

  1. Search for products below retail value.
  2. Compare prices to Amazon options. 
  3. Buy in bulk to boost up profits.
  4. Upload listings and sell at a higher price. 
  5. Pay Amazon seller fees.
  6. Make a profit.

As with Retail Arbitrage, consider Amazon’s fees and the item’s original cost to calculate your final revenue.

Advantages

  • Remote work business model
  • More sourcing opportunities
  • Products are shipped to you
  • Reuse packing materials
  • Complement to Retail Arbitrage

Disadvantages

  • Narrowing down reliable suppliers
  • Managing excess inventory
  • Optimizing product listings
  • Low profit margins

Wholesale

In Wholesale, sellers buy low-cost items from suppliers. Then, they sell them in the marketplace for a profit. 

Here’s what wholesalers do: 

  1. Find suppliers to buy from at a discount.
  2. Handle product storage.
  3. Set the price to sell on Amazon.
  4. Upload listings to the marketplace.
  5. Fulfill orders to customers. 

This Amazon business model requires good sales experience. A wholesaler must acquire big bulks from suppliers to make a profit. 

This increases the risk because you may end up stuck with products that won’t sell fast. So, make sure you do a thorough market research to find high-value items at a low cost. 

You’ll also have to deal with fulfillment and shipping on your own. However, you can enroll in Fulfillment by Amazon (FBA) to handle storage, shipping, and customer service.

Advantages

  • Low purchase prices and higher profit
  • Reorder profitable items to increase sales
  • Scale your business

Disadvantages

  • Find reliable suppliers
  • Large capital investment
  • Managing excess stock

Dropshipping

This model frees you from fulfillment and shipping. When you drop-ship, it’s the third-party supplier who fulfills orders to customers.

Sellers just upload products into the marketplace and notify the supplier when an item is sold. Become an Amazon dropshipper by following these steps: 

  1. Find a supplier with high-demand/low-competition products.
  2. Check if the items are available to sell.
  3. Create product listings on Amazon.

Whenever a customer places an order, you must do the following:

  1. Pay the supplier for the purchased item.
  2. Deliver the customer’s shipping info to the supplier.
  3. Let the supplier fulfill the order.
  4. Handle customer service if problems arise.

The downside of dropshipping is quality control. Sellers don’t have the chance to inspect the goods. So, customers may get damaged or late items, which could lead to poor reviews. 

Review Amazon’s Dropshipping Policy to learn more (sign-in required).

Advantages

  • Easy to set up
  • No upfront cost
  • Automated Business Model
  • No inventory management 
  • Reliable passive income source

Disadvantages

  • Find reliable suppliers
  • Large capital investment
  • Slow delivery times
  • Lack of quality control

Things to Consider Before Choosing an Amazon Business Model

As we mentioned above, selecting the right business model can make or break your success on the platform. 

Therefore, let’s look at the main features to consider, before you choose an Amazon business model:

  1. Private Label: Place your own brand onto an existing item.
  2. Wholesale: Buy directly from a brand or distributor. 
  3. Retail Arbitrage: Acquire discounted products from retailers.
  4. Online Arbitrage: Get discounted products online.
  5. Dropshipping: Third-party suppliers fulfill customers’ orders.

Additional Tips

Consider each model’s pros and cons

Do you plan to build a long-term brand from scratch? Then, Private Label is the right choice. But if you seek a secondary source of income, then go with Online or Retail Arbitrage. 

Stick to your budget

It’s crucial to take your business’ strengths and weaknesses into account when selecting an Amazon business model. 

Remember, the tools you choose must work to your advantage. So, consider the following factors when planning your Amazon incursion: 

  • Budget. Every expense counts, and there’s always risk when starting up a new business. So, how much can you invest in advertising, storage, Amazon and supplier fees?
  • Time. In the case of Retail Arbitrage, how many hours will you dedicate to searching for products? How long do you need to upload listings, and prepare shipments? 
  • Space. Do you have a fully-dedicated office and team to build your Amazon store? Or do you prefer to work remotely and outsource logistics to suppliers? 

Learn from Experience

Is this your first Amazon business? Do you have key allies that will lend their expertise to building your store? 

Find stores that have found success with each Amazon business model. Learn from their own seller journey to boost your chances of success. 

If you follow the steps they’ve taken, and avoid similar setbacks, it’s likely you’ll be successful too.

Final Thoughts 

Each Amazon business model comes with its own perks and setbacks. Make sure you have the necessary tools to work with the one that fits your needs.

Review your strengths and opportunities thoroughly so you can make an informed decision. And whatever decision you take, make sure to learn the ins and outs of each model to ensure the success of your business.

Best of luck!

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