In this video I will give you a detailed comparison of the 6 different Amazon business models used by Amazon sellers in the hopes of helping you to determine with of the 6 is best suited for you. This video is perfect for anyone wanting to understand the pros and cons of each Amazon business model, and looking for a good example of how each of the business models work.
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How To Choose The Right Amazon Business Model in 2021 - Audio file
How To Choose The Right Amazon Business Model in 2021 -Video transcript
Hey guys and welcome back to my channel. In this video I would like to go over the 6 different Amazon business models you can choose from to build a business on Amazon, so be sure to watch all the way through so you don't miss any of the important details as we do have a lot to cover.
Now, before I hop into this video, if you are new to this channel you're going to want to subscribe as I talk about the best ways to make a full time income with Amazon FBA and always get straight to the point, with that said let's get right into this video.
As alluring as it may seem to quit your day job and benefit from third-party selling, it’s essential to understand the types of sales opportunities that Amazon offers.
So let’s take a look at the differences of these different Amazon business models, as well as what you can do to get started selling on Amazon using each one.
There are six over-arching business models used by third-party sellers to effectively generate revenue. Some Amazon business models are more widely used than others with the right method for you being completely dependent on the types of products you’re interested in selling, your goals, budgets and much more, as there is no right or wrong model to follow.
The first one up is retail arbitrage; Retail arbitrage is popular among those looking for an entry-level Amazon business model. It essentially involves hunting down bargains or reduced goods and selling your finds on for a higher price.
The business model allows sellers to benefit from panic buyers and products in high demand by bulk buying items at a reduced price and raising the cost to sell on Amazon. It is a simple concept that can enable you to generate a significant stream of revenue over time as you build up an inventory and discover which product lines provide the most sales opportunities.
To calculate profits generated from retail arbitrage, you will need to consider the original price of your product and the price you are selling it for, minus the standard Amazon fees. Do plenty of competitor research to see the price ranges of other sellers to make sure you do not go too high or low.
And while it may be tempting to ramp up your prices and increase your profit margins, if your competitors are offering an item for significantly lower on Amazon, you will lose out on sales.
If you are looking for an affordable way to start third-party selling on Amazon, retail arbitrage has a strong track record. You can spend as much as little as you like to start successfully building up your inventory and offering consumers a wide range of products.
If budgets are tight, you can start small to kick-start your selling journey and gradually work your way up to having a large volume of products on Amazon.
You get to maintain complete control over your inventory in terms of the quality of your products, allowing you to easily determine suitable prices and make sure you buy the right volume of stock.
There are several tactics to use to generate an inventory that doesn’t require a large investment but is still of high value, such as visiting stores that are due to close down or those that have regular sales to reduce their stock.
Despite the simplicity and affordability of breaking into the retail arbitrage Amazon business model, it’s important to keep in mind that your profits will likely reflect this. For those that are looking to generate a significant amount of revenue in a short space of time, other models may be better suited that involve greater initial investments and a higher level of risk.
What’s more, you will need to be prepared to dedicate a significant amount of time and effort to sourcing and managing your inventory, with you being solely responsible for restocking as and when needed.
Retail arbitrage does involve some research, but mostly you should be prepared to drive around various retailers with the hopes of finding some reduced gems that are in high demand online. If you have a full-time job and are looking for an Amazon business model to act as a secondary form of passive income, this may not be the most viable option.
According to Jungle Scout’s 2021 Amazon seller survey, 49% of retail arbitrage sellers spend less than $1,000 to get started selling on Amazon, with one in three saying they spent less than $500. The survey also showed that 62% of retail arbitrage sellers earn less than $5,000 per month on Amazon, and 25% earn less than $500.
The next Amazon business model called online arbitrage is largely the same as retail arbitrage, except it’s all done online. It involves scouring the internet and buying reduced or cheap products from ecommerce marketplaces that you know you will be able to sell on for a higher price on Amazon.
Your profits are calculated similarly too, however you will need to consider the shipping costs charged by each marketplace to make sure each product you bulk buy is going to be profitable overall.
Online arbitrage can be far easier than shopping around in brick-and-mortar stores. You can directly compare prices with Amazon to identify potential opportunities and make sure each prospective product is worthwhile.
With ecommerce quickly becoming every consumer-preferred way to shop, there are a huge amount of opportunities for sourcing products. More ecommerce sites emerge every day, so you can discover small or up-and-coming retailers that may sell their products at lower prices.
If you are looking for an Amazon business model that allows you to work remotely and flexibly, online arbitrage does this. You don’t need a vehicle for visiting physical stores and can instead work from wherever suits your lifestyle, whether this is in the evenings from your sofa or first thing in the morning before you head to the office.
According to the same survey I mentioned before 55% of online arbitrage sellers earn less than $5,000 per month selling on Amazon. However, 16% earns at least $1,000 to $5,000, and 54% of online arbitrage sellers see profit margins of 16% or higher.
Next up is wholesale. In a nutshell, this involves sellers investing in large volumes of products directly from suppliers and selling these on Amazon for a higher price. Buying in bulk allows you to get hold of potentially high-value items but at low prices, allowing you to maintain a high-profit margin for every sale you make.
Of course there is a minimum order you have to place with suppliers so if you’re new to the selling scene, you will need to do plenty of deep research into sales history and understand the demand for each product you consider stocking.
Getting wholesale wrong can leave you with tons of unsold stock that can become outdated or obsolete if you do not predict your sales or get your prices right. Get it right though, and you can make a significant amount of profit long term.
Once you have a strong idea on which products are in consistent demand on Amazon, you can maintain a continuous stream of income by sticking to these specific product lines and gradually widening your inventory over time based on sales data.
You do not need to dedicate a huge amount of time and effort to wholesaling either, unlike retail arbitrage which involves driving from store to store to find bargains. After plenty of competitor and market research, you can find a smaller number of profitable products and keep ordering them in bulk rather than dedicating hours to stock management and replenishment for a range of individual products.
Keep in mind though, wholesale is not something you can try on a whim. For new sellers, this Amazon business model will require you to have a considerable amount of money from the get-go to invest in your stock.
Making a large initial investment in your Amazon career can be a huge success, but it doesn’t come without risk. Be aware that you might get it wrong and lose money somewhere down the line, either due to a lack of experience or resources. For those on a strict budget or just starting with third-party selling, wholesale may not be the most sensible entry point.
The top 5 most popular categories for wholesalers to sell in are Home & Kitchen, Toys & Games, Sports & Outdoors, Beauty & Personal Care and Health, Household & Baby Care.
61% of wholesalers earn more than $5,000 per month selling on Amazon. And 58% of wholesalers have profit margins less than 20%. Also, 47% of wholesalers said it only took six weeks or less to start selling on Amazon.
The fourth Amazon business model on my list is Private label selling. Now, the private label model consists of sourcing products from a third-party manufacturer and branding them up as your own. You can purchase unbranded products for a low price, attach your brand name and logo and charge a higher price to make a profit.
You do need some extent of experience in branding, marketing, and optimization if you want to build a brand reputation and a name for yourself on Amazon, with private label sellers essentially starting from scratch.
It can be both a blessing and a curse to start with a new brand of your own. On one hand, you are not at the mercy of your products being suspended due to other brands’ reputation or strategies. On the other, you do not have anyone else’s reputation to benefit from so will need to optimize your listings if you want your brand to be seen in the Amazon search results.
Compared to the other Amazon business models, private label is often the most expensive method. On average, 61% of private label sellers spend $2,500 or more to get started. 56% of private label sellers make $5,000 or more in monthly sales, and 35% of private label sellers realize a profit within the first six months of selling on Amazon.
Despite not being as fast an Amazon business model of selling as the arbitrage or dropshipping methods, 48% of private label sellers have their businesses up and running in three months or less.
Now, let’s move on to the next business model which is dropshipping. This Amazon business model is popular among those who want to use Amazon selling as a source of passive income. It allows you to remove yourself from any of the stress and hassle that comes with managing inventory, packaging, and shipping products.
Essentially, you are selling products on behalf of a supplier. Once a consumer has bought a product from you, this is passed onto the supplier, who dropships it to the customer on your behalf.
While this saves Amazon sellers a huge amount of time and resources, it also means you have no control over the quality of the products or the methods used for shipping. If a product arrives damaged or late due to being out of stock, your seller reputation is on the line.
If you find reliable and reputable suppliers, drop-shipping can be a great opportunity for those looking for hassle-free Amazon selling. However, if your supplier delivers products in poor quality or does not inform you about out-of-stock products, it can end up costing you money to refund customers or source your products elsewhere.
On average, dropshippers take longer to get started on Amazon, with 56% saying that it took longer than six weeks. Additionally, 10% stated it took over a year to get started.
And the top 5 most popular categories for dropshippers to sell in are Home & Kitchen, Sports & Outdoors, Kitchen & Dining, Tools & Home Improvement and Garden & Outdoor.
Dropshippers also spend more time working on their businesses than other Amazon sellers. 54% of dropshippers spend over 20 hours per week on their Amazon businesses. And nearly one in four spent over 40 hours per week.
Now, finally, there is always the option of coming up with a new product of your own. By manufacturing products, you are in complete control of their quality and value. What’s more, you will always be able to make a profit by knowing exactly how much you are spending on materials and how much time goes into the manufacturing process.
Of course, this Amazon business model is not for everyone making it the least popular of the bunch. Not every seller can start making their products from scratch.
You may not have a suitable workspace, enough time, or any idea of where to start when it comes to handmaking an item. If you do have a handmade product in mind and enough time to dedicate to this business model it can be a huge success. If not, you can end up spending time and money without seeing any profit for a year in some cases.
50% of Amazon Handmade sellers earn less than $5,000 per month selling goods on Amazon. And 30% earn less than $1,000 per month, making handmade among the least profitable methods of selling on Amazon behind retail and online arbitrage.
However, handmade sellers have better margins on average, with 52% earning profit margins between 11-25%.
Now, there are several key factors to consider when weighing up your options and deciding on the best Amazon business model for you. First, there is budget. How much do you have to invest in an initial inventory? How much risk can you afford to take with your inventory?
Another factor to consider is time. How many hours a day do you have to dedicate to sourcing an inventory managing your stock, and shipping your products? Also important is flexibility. Do you want to be able to work remotely or do you have an office space? Do you have space to store your inventory and packaging materials?
And last but not least, experience. How much experience in sales and marketing do you have? Do you have any resources in your favor that can help you throughout the process of sourcing inventory and posting your listings?
Now, before you decide on which Amazon business model to go for. I suggest investing some of your time in a great free training that can guide you through this process.
I recommend this training because this is the best training on the market and one that I have personally gone through. They walk you through every aspect of what it takes to start, grow and scale your Amazon business.
This training will build off of what I talk about inside my videos so I left a link for you in the description and if you're serious about selling on Amazon I encourage you to check it out!
Now, all in all, third-party selling is all about identifying the pros and cons of each Amazon business model and being realistic about how much time and money you have to invest. Once you have decided on the best strategy for you, stick to it. By being committed to a business model long term you are sure to see results from selling on Amazon.
Thanks for watching and please make sure to watch the next videos with more Amazon FBA tips that will show up right about now.