Six Amazon Business Models and The Pros and Cons of Each

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With over $80 billion made in 2020, Amazon’s third-party seller marketplace is where it makes money. Amazon doesn’t make nearly as much from its own sales. Among this $80 billion made, there are many Amazon business models these sellers can choose from.

 

Below, you’ll see a list of the most popular models for selling on Amazon.

Six Amazon business models, and why you should pick them

The different business models focus on different ways you can find products. Product sourcing is a big deal, so be sure to take the time to understand how each sourcing strategy works.

  1. Private label selling

Private label sellers take already manufactured products and add their branding to them. Below are some advantages and disadvantages of this sales model:

 

Pros

  • Allows you to create a unique brand
  • Greatest potential earnings concerning long-term strategy
  • You don’t need to share the product listing with others

Cons

  • Requires higher than average advertising investment
  • Revenue stream typically is a slower turnaround
  • Requires more brainstorming of brand name and unique design

 

Private label sellers don’t have to share the product page with others. Because of this, it is up to them to build the page from the ground up, requiring more advertising. However, once your product gains popularity, you can earn money for a long while.

  1. Wholesale

Wholesaling is when the Amazon seller invests in products from existing suppliers. The idea is to buy in bulk to increase your potential earnings. Here are gains and risks of this option:

 

Pros

  • Can leverage the power of existing brands
  • Less need to pay for advertising
  • Bulk discounts can help gain more inventory

Cons

  • Requires more money upfront for inventory investment
  • Potentially very competitive across niches
  • Profit margins have potential to be lower

Wholesale products need to be in demand to sell effectively. Because it requires a higher investment, this sales type is often better for those with experience. Some wholesale suppliers might also have minimum experience requirements. Wholesale can provide excellent continuous income to those who know their sales channels.

  1. Retail arbitrage

Retail arbitrage is hunting down bargains at physical stores to resell them at a higher profit margin. Because of its simplicity, it’s an ideal starting point for entry-level sellers. There are some pros and cons to this sales strategy however:

 

Pros

  • Excellent way to learn the basics of eCommerce
  • Requires very little start-up money
  • You have complete control over what you buy

Cons

  • Requires a lot of time and effort continuously
  • Not ideal if you are looking for long-term potential
  • Research on desirable products can be tricky

 

Retail arbitrage is ideal for sellers who like hustle and bustle. You’ll have to find and resell products to maintain earnings. This fast-paced sales model is ideal for beginners to the Amazon marketplace.

  1. Online arbitrage

Online arbitrage is like the retail version, only you make discount purchases of physical products online. So you go to stores going through a major sale and resell them on other websites. The risks are like retail arbitrage:

 

Pros

  • Easy to identify whether a product is profitable
  • Easier than driving around and looking through different stores
  • Can compare prices from Amazon.com easily

Cons

  • Still requires a lot of time and effort to start
  • Little chance of long-term profitability
  • Must share product listing with other Amazon sellers

 

Online arbitrage also requires a lot of hustle and bustle. Because new eCommerce stores crop up every day, the research process is unique. Follow major eCommerce stores and do research based on growing trends you find on Amazon.

  1. Dropshipping

Dropshipping is a passive income source for those who want to resell someone else’s product and brand. This makes you an order fulfillment specialist, handing off packaging, shipping, and quality control to another organization. Here are some pros and cons:

 

Pros

  • Requires very little money to get started
  • Excellent earnings potential to those who can get a following
  • Requires no effort on shipping and warehousing

Cons

  • You can’t control the quality of the items sent
  • You aren’t growing your brand or individual product line
  • The potential earnings are pretty minimal for most dropshippers

 

With dropshipping, most of the people who sell here seek passive income. Despite what the name implies, this is far from an effortless practice. You’ll still want to focus on niches and solutions for your customers when picking this sales model.

  1. Handmade items

Creating handmade products has a bit of charm to it. Being your own manufacturer means you get pride in selling something you made. However, there are some risks involved:

 

Pros

  • You share the earnings with fewer people
  • You can charge based on the time and effort you put into the project
  • Creating a custom product is easier through this method

Cons

  • You can only fulfill so many orders
  • This business model isn’t ideal if you aren’t crafty
  • It requires a lot of time and effort

 

Performing research on websites like Pinterest can be excellent for finding trending, crafty ideas. There are a wide variety of potential crafting options you can choose from. You can also choose to create a secondary sales channel through craft-focused sites like Etsy if you want to diversify where you sell.

What’s the best business model for me?

The best sales technique for you depends on where your skill set is. This will change depending on your investment capital and experience.

 

Selling techniques that require the least amount of experience are both retail and online arbitrage. If you want to learn the basics of how Amazon works, it’s great to start there.

 

Those who have marketing and audience building experience might find dropshipping ideal. The best dropshippers know their audience and find excellent suppliers. Wholesaling also falls into those who know how to work their sales channels.

 

Alternatively, if you are excellent at brand building, private label selling is an ideal option. Its popularity is clear from Amazon’s nearly 160 thousand private label products.

 

If you have unique crafting talents, handmade products might be ideal. Of course, you can also choose to brand your own unique line of crafting products.

 

You don’t have to marry yourself to one sales type as well. So try them out and see which one fits!

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