Retail arbitrage, online arbitrage, private label, wholesale, dropshipping… Each of these methods is a viable option for the determined Amazon FBA seller!
The most popular by far, however, are wholesale and private label.
Over two-thirds of Amazon sellers sell private label products. Nearly a third are wholesalers. Compared to retail or online arbitrage, or becoming a dropshipping vendor, these two methods dominate. Wholesale and private label are unique in their own ways, with their respective pros & cons.
By the end of this article, we hope you can make a comparison between the two, and figure out which method works best for you!
What is Wholesale?
Wholesaling involves purchasing goods in bulk and then selling each unit on Amazon.
Wholesale products, unlike most other products, have one key difference. They are existing products that have product listings on Amazon already. So if you’re looking to sell wholesale on Amazon, essentially you will be adding units to existing product listings and acting as a reseller.
Wholesale – Costs & Profitability
Notably, the start-up costs of selling wholesale on Amazon are lower. Nearly 50% of Amazon wholesale sellers spent less than $2500 to launch their wholesale business. This is because buying products in bulk generally comes with hefty discounts. Furthermore, wholesale sellers don’t have to invest into marketing their products, because they are reselling already established brands.
In terms of profitability, most Amazon FBA wholesalers earn over $5000 monthly. Wholesale is an attractive prospect to many sellers, because the start-up costs are fairly low for a very decent profit margin! It provides a level of security that other methods do not provide.
Wholesale – Pros & Cons
Despite having a lower start-up cost, wholesale has its benefits and limitations. Most of the pros stem from the fact that the brand you are reselling for has most of the business processes handled, for example:
- There’s no need to create new product listings for an established brand
- Wholesaling is less time intensive because there’s no need to build your own brand
- Do not have to deal with IP infringements yourself, the brand owner does
- No advertising or marketing costs, products are already in demand
- Lead time for replenishment is shorter because wholesale products are locally sourced
- Easy to scale your business because once one brand takes you on, more brand deals are likely
Still, like any other business model, it comes with some cons.
- Partnerships with established brands are difficult to obtain, you must really offer something of value to their business
- You have to place high-volume orders every time, which means your budget for replenishments must be high
- A wholesale license/permit is required to resell any products on Amazon, you need to be approved by relevant authorities for this
- Other resellers will be selling the same products, which causes price erosion
- The fight for Buy Box is highly competitive between resellers, especially for established brands
- You have to maintain a good relationship with brand owners, meaning you have less freedoms as a business owner
Overall, wholesale is a mixed bag, especially for sellers new to the concept. Sellers with wholesaling experience and/or a good network will find it much easier than inexperienced sellers. Still, do not be discouraged, once you have brand deals, wholesaling is a very stable source of income.
Tips for Wholesale Sellers
How do I get started?
Before anything else, get a wholesaling license. If you’re in the US you need to register your business. After this, apply for an EIN with the IRS. An EIN is an Employee Identification Number and it’s free to get. It will take 4-5 weeks of processing, during which you can start cold emailing and cold calling potential brands to resell for.
What kind of products should I sell?
Product choice depends on a lot of factors, mostly on what type of brands you seek out. The top 3 product categories for Amazon wholesalers are:
- Home & Kitchen
- Toys & Games
- Sports & Outdoors
We recommend doing market research to find high-demand products, doing some cost-benefit analysis, and then reaching out to those brand owners. Once you’ve signed on with a brand and have your EIN, you can start selling immediately.
How do I find a wholesale partner?
Finding a brand owner willing to take you on is the biggest challenge to wholesaling. Once you’ve crossed that hurdle it’s a smooth ride. When it comes to convincing brand owners, we find there are 3 key things every seller needs to do:
- Do your homework
Brand owners have no reason to take you on, other than what you bring to the table. Brands already have dedicated teams to run their Amazon stores, so what you need to do is set yourself apart. Show concrete ways in which you can improve their existing listings, their product photos, and/or their PPC strategies.
- Provide useful insights
State your skillsets right off the bat, and point out areas where you can add value. Many big, established brands have trouble selling on online marketplaces compared to their brick-and-mortar stores. Figure out how you can make their transition easier. You can even scour customer reviews and provide insight into how they can improve their product for customers. Make sure you have the data to support these claims though, or you’ll be rejected immediately!
- Don’t give up
You may send hundreds of cold emails and still not receive a reply, so don’t give up! Keep following up, we recommend on a weekly basis. If you show your dedication, brand owners will take note and be impressed by your tenacity.
What is Private Label?
Private label involves purchasing generic products from 3rd party manufacturers, then selling it under your own brand on Amazon. This means that the manufacturer doesn’t have rights over the brand label on the product, that’s yours – essentially, a “private label.”
Private labeling is markedly different from wholesaling. Private label sellers create their own brands, so this means they need to create product listings themselves. Each private label product has to have a variety of labels & identifiers stipulated by Amazon. These include GTIN, UPCs, SKUs, FNSKUs, and finally, a unique ASIN assigned by Amazon.
Private Label – Costs & Profitability
Private label brands aren’t established brands. This adds a couple of steps in launching a private label business compared to wholesale. Private label sellers have to create their own brand, design logos & brand content, market their products, and run much more robust PPC campaigns.
Over two-thirds of private label sellers spend well over $2500 in start-up costs. In terms of profitability, over half made over $5000 monthly. Looking at purely numbers, there are no glaring differences between wholesaling and private label. The key difference here is how much more time-intensive creating your own private label brand is.
For this reason, private label is seen as quite a high risk but high reward business! There is no established brand to fall back on… Yet there is a lot of freedom to run your business exactly the way you want to, which is what attracts e-commerce entrepreneurs to this business model.
Private Label – Pros & Cons
As mentioned before, private label is high risk and high reward. It’s a time intensive business and the success of a private label brand on Amazon is very much tied to this. The more time and effort you invest into your private label business, the more likely it is to succeed.
Most of the benefits of private label stem from the freedom you have as a business owner. For example:
- You have full control over the creative processes, you can design your own logo and even create custom packaging
- The only partnerships you have to maintain are with your manufacturers and any 3PL agencies you want to use
- Order volume is highly negotiable and you can find suppliers who offer a lower MOQ
- You’re automatically on the Buy Box as the sole seller of your product, you don’t have to fight for Buy Box share
- You are your own boss. You don’t need to ask permission to add any variations & customizations to your products
- For new, specialized products there is much less competition compared to established brands
- Profit margins can be very lucrative, depending on how in-demand your product is you can actually increase your margins very fast
Of course, there are some cons to selling private label on Amazon:
- High workload, need to create your own brand, logo, product design, labels, packaging and so on
- Have to incur marketing and advertising costs for your product listings, including Amazon PPC
- Very time consuming, have to frequently optimize product pages, product listings, images, backend search terms and PPC ad campaigns
- No quality assurance for your products, because you have to find and vet your supplies yourself
- A longer lead time because most private label products are imported from cheaper, overseas suppliers
- Need to deal with listing hijackings, IP infringement, and other types of fraud on your own
- Without an established brand, there is no brand loyalty, so you have to generate good reviews & ratings to climb to the top
- Demand fluctuates for new products, and is difficult to forecast which means your profitability and income is not always stable
Private label gives you full autonomy over your business but as you can see that can be a double-edged sword. It’s important to remember Amazon FBA provides sellers an established supply chain. Launching your own business & creating a brand is easier on Amazon than anywhere else, so don’t balk at the challenges!
Tips for Private Label Sellers
How do I get started?
To get started with private label on Amazon, you need to register your business with the relevant authorities. Provide your tax information, fill out some forms and then you can register to become an Amazon Seller. Once you’ve registered, you can begin immediately.
Most private label sellers take 3 months or less to launch their own brands on Amazon.
What kind of products should I sell?
For a successful private label product, extensive product research is an absolute must. If you go in without having done your research, your brand is sure to fail. We recommend using Amazon tools to find product opportunities, and identifying untapped niches to sell in.
As a basis, the top 3 Amazon categories for private label sellers are:
- Home & Kitchen
- Kitchen & Dining
- Sports & Outdoors
These intersect with the best categories for wholesale too, which is mostly established brands. We recommend looking into other categories too, you never know what brilliant niches you could find.
How do I start private labelling?
Selling private label on Amazon is an easy step-by-step process:
- Register your business legally and then sign up to be an Amazon Seller
- Create your marketing materials, meaning your brand name, brand logo, and etc.
- Do your product research! Find a niche, crunch some numbers (cost, demand, revenue) and establish your profit margins for each product
- Purchase GTINs, UPCs, and create ASINs and product detail pages for your product
- Source your product, get in touch with suppliers & negotiate MOQ and costs, conduct factory inspections and request samples
- Prepare your products. Then assign inventory to them on Amazon Seller Central.
- Ship your products to Amazon, and then you’re ready to start taking orders.
- Manage your product listings, optimize them and run PPC ad campaigns for your ASINs
There are many useful guides on starting an FBA business that you can refer to.
We hope that you found this article a helpful guide to selling both wholesale and private labels on Amazon. Armed with this information, we hope all Amazon FBA sellers can make an informed decision on which business model to pursue.
We are SellerMetrics, an Amazon PPC Software that helps Amazon sellers, brands, KDP authors and agencies scale their Amazon Advertising PPC via bid automation, bulk manual bid changes and robust analytics.
About the Author
I am Erika Sharma, an employee of SellerMetrics. Our mission is to help Amazon Sellers navigate Amazon PPC, by offering them the knowledge and tools to kickstart their Amazon PPC optimization process without hassle.