Compare Amazon Business Models

By Jordan Malik

Global retail ecommerce sales in 2016 grew 8.7% over 2015 to $1.9 trillion, according to ecommerce solution provider PFS (source). Amazon sellers like you and I make up a huge part of that growth.

But when it comes to sourcing products to sell on Amazon, there are quite a few different business models and avenues. 

Arbitrage, Retail or Private Label?

I have found 4 business models to be viable: Retail Arbitrage (RA), Online Arbitrage (OA), Wholesale (or Retail Distribution), and Private Label.

I'll lay out the pros and cons of each below.

Disclaimer: I own a large private label business. But I have many Amazon sellers in my network and I know a lot of people who have become really successful entrepreneurs using every one of these methods along the way. So, with my own personal bias aside, I'm still writing objectively.

Here we go:

Retail Arbitrage

Retail arbitrage means to physically buy products, usually at a highly discounted rate (e.g., in a store clearance aisle) and sell them on Amazon.

Why retail arbitrage works:

• It’s a great way to dip a toe in the water as an Amazon seller, as it requires less early investment
• You can hand-pick your items, some of which might be able to bring in huge profit margins
• When you find really good deals or clearance, you can be really competitive, even against Amazon themselves
• You can accumulate in-store rewards, points and cashback deals
• If you’re smart, this model lends itself well to seasonality, for example, selling in the Toys and Games category in Q4

Cons:

• You need to physically be there in person to get the best deals, and having a car is pretty imperative too
• Certain products and brand names can not be sold on Amazon without approval
• As an overall strategy, it’s most difficult to scale quickly because of the manual labor involved, esp. in seeking out the deals

Online Arbitrage

This is the online version of the above. That means we can wear sweatpants all day, right? Pros:

• No costs for driving and potentially less time consuming as you can source from the comfort of your home
• You can still accumulate those points and cashbacks
• You can build your online sourcing skills (which will be useful if you ever transition into any of the following two business models)
• You can buy in bulk and get it all shipped to you

Potential roadblocks:

• Shipping can be a pain point -- especially when things get delayed
• You are still tied to a specific location, waiting for deliveries
• As with retail arbitrage, it is more difficult to grow considerably

Wholesale / Retail Distributor

Some sellers decide to take the above models one step further and become wholesale distributors. This can bring some new positive aspects to the table, such as:

• Buying direct from the manufacturer means you can buy large quantities at discount
• You will need to be an approved reseller (see 'cons' below), which means it would be less likely to get hit with counterfeit claims or run into issues with Amazon
• Utilize purchase orders and save large upfront investments
• You can get in early on liquidation deals
• This model is great for utilizing Amazon FBA (no need to remove any price tags or stickers, you can get your inventory shipped direct to Amazon’s warehouse)

And the difficulties with this model:

• You need to find products that are not being sold by Amazon
• It can be difficult to get a foot in the door with becoming an approved reseller - you need to get good at negotiations and exercising your buying and selling power
• You can face competition with other resellers who are also competing for the buy box on Amazon. Ed. note: Good manufacturers/brands will enforce their MAP (Minimum Advertised Price) so your competing authorized resellers won't price-gouge. And even though there are non-authorized resellers who are sourcing the product via arbitrage, those tend to run out of stock quickly.

Private Labeling

Being a private label seller doesn’t mean you’re an inventor, or a product designer. It means you are finding products that already exist with sufficient demand, and then sourcing them from a manufacturer and selling them under your own brand label. Ed. Note: I also recommend you identify faults with an existing product - look at the Amazon customer 1- and 2-star reviews for it - and tweak the manufacturing to improve it and/or bundle the item or add value to it, to differentiate yourself from other competing products on Amazon.

Here are the positives of private label:

• Profit margins are generally higher (purchasing directly from the factory) and you can ship your products directly to Amazon’s fulfillment center (FBA)
• You have more control – you source the product, put your brand on it, create the listing and manage your marketing
• Selling private label on Amazon, as opposed to through your own ecommerce store, gives you access to a huge marketplace full of consumers who are ready to purchase
• You are not competing for the buy box on Amazon, as you would be as a reseller of a known brand
• You can do this from anywhere in the world, and if you are really entrepreneurial you can sell in different international marketplaces

And the difficulties:

• Initial investment is usually a bit higher
• It takes a longer time to get your product and brand name out there, and you have to create your own listing and photography
• You still need to invest an amount of your time and efforts to get good results. For example, you will need to become savvy when it comes to sourcing, building relationships with suppliers and manufacturers, and learn all about importing.

Which model is for you?

There’s no one size fits all, it entirely depends on what you want to get out of your business.

For example, at Jungle Scout we hear lots of inspiring stories from our clients. From parents who want a steady income stream so they can stay at home with their children, to people who want to quit their corporate jobs, to entrepreneurs who want to invest and scale up fast.

I know at the start of this post I said “what are the pros and cons of each”, but realistically, the “cons” are just things that you need to learn how to do, spend a bit of time on or investment on. This is just part and parcel of being in business, and I don’t know about you but I love the challenge 

Can you transition from arbitrage to private label?

Sure you can. In fact, a lot of arbitrage sellers who want to take their businesses further and scale faster do this. The good news is, you’re already pretty savvy as an Amazon seller by this point if you are running an arbitrage business. This immediately puts you in good stead, over coming into private label without any Amazon experience.

Here’s my top tips for breaking into private label in 2017:

1. Find the riches in the niches – Product research is so important. In fact, it’s important for sellers that fall into all four of these business models. But as a private label seller, your business relies on strong research to make solid purchasing decisions and ensure your investments are going to be profitable.
2. Verify demand before you move forward – No private label product research is complete without verifying demand for a product idea you are chasing. You can get accurate and up-to-date estimated sales volumes with Jungle Scout. Plus, you can also verify demand for free by using our Estimator tool.
3. Add value – A great way to find products that will earn you a lot of revenue is to find products where you can add value. Look out for products that are unique (usually the products you’ve never even thought of are the clear winners), where you can add value. Try bundling, increasing the pack size, improving the quality or adding a new feature. Top tip? Check the competitor’s Amazon reviews to find their customers pain points and ensure you resolve those issues with your product launch.
4. Get some Marketing acumen – Amazon is a fast growing and ever-changing marketplace and us sellers have to keep up and adapt our strategies accordingly. This is so important for private label sellers. For example, you will need to ensure you understand the basics of Amazon SEO and listing optimization and you will need to consider running Amazon pay per click campaigns. You can also split test your listings to increase conversions and send out automated email campaigns to your private label customers.
5. Get Started – Our mantra at Jungle Scout: "Taking action is better than not taking action." So long as you have done your research and have the drive and ambition to move yourself forwards, the only next step is to get started with that new product.

Final Words

All four Amazon sourcing models discussed hold potential and each has it’s own place within the industry. I hope that this article has given you a few things to think about, whether you are just considering becoming a seller, or if you already are one and thinking about trying out a different method of making money.

Have you made the jump to private label? I’d love to hear your experiences in the comments.

(SOURCE)

How to Find Wholesale Suppliers for Amazon FBA

In this Amazon FBA training video, Stephen lists 4 different ways to find wholesale suppliers for your Amazon FBA business.

FBA / e-commerce models..... continued

By Julie  Čolan

In one of my earlier blogs I spoke a little about the different approaches that can be adopted when sourcing products and selling through FBA and how there is (in my mind at least...) a logical sequence in how and when to apply these models. Last time I dealt with retail arbitrage (step 1) and online arbitrage (step 2) and today I'm going to talk around "distribution" (which I see as the next step in the journey).

So what do I mean by "distribution"?
I'm not sure if it's the best term for what I am trying to explain but I am really just talking about coming to more formal / repeatable agreements with suppliers for a continued supply of stock (i.e. becoming a "distributor").

So far the RA and OA models have not really required any negotiations or the building of relationships with suppliers but this is where, I think,  you can drive some real value in you business (as well as  through branding - more on that later).

So instead of simply visiting stores (high street or online), step 3 requires you to get out there and actually talk to suppliers of goods that you may want to sell - there are a few different types of supplier you will want to talk to and I would generally categorise these as:

• Niche retailers
• Wholesalers
• Distributors
• Manufacturers / brand owners
• Liquidators

I'll give a quick summary of each as follows:

Niche retailers are people that are selling items not widely available on the High Street. They may be fairly local in geography or simply only sold through catalogues / direct marketing / events etc. By getting these types of products on to Amazon you may just be opening them to a much wider market. The reason I distinguish this from RA is that you are much more likely to want to build a relationship with the retailer to secure continuity of supply on favourable terms.

Wholesalers seem to be the logical step for those graduating from RA / OA but, in my experience, most wholesalers are not going to provide you stock at a price you can make work on Amazon unless you commit to a very significant volume. I have had some product lines that have worked and been supplied by commercial wholesalers although I would say that they have been few and far between. As a rule of thumb, the more difficult a wholesaler is to do business with you, the better the opportunity. Any wholesaler who will give you access to their pricelist at the drop of a hat (e.g. just on provision of your e-mail address) is unlikely to have any compelling offers.

Distributors are essentially wholesalers but tend to have exclusive (or near exclusive) deals with manufacturers / brand owners to sell the products wholesale in specific territories. This is almost as good as dealing with the brand owner themselves but does take a lot of time and energy to build up a relationship and credibility with this type of seller. Distributors tend to be a bit wary of FBA sellers as they don't necessarily perceive that we bring a lot of value to the table but they can usually be persuaded. Personally I tend to prefer to deal with manufacturers / brand owners directly (especially as there are tools you can bring in to play to demonstrate value - more on that below) but distributors can be a lucrative source of products.

Manufacturers / brand owners are my favourite supplier! Most people confuse manufacturers and brand owners as the same thing but they often aren't. I'm pretty sure that Nike don't own the factories in the Far East where there products  are made, in fact that same factory probably makes Addidas in the evening shift (brands used for illustration purposes only - I have no idea on the manufacturing of either one). Anyway, most manufacturers just want to make stuff and not get involved in all the marketing and sales palaver that follows and the brand owners don't necessarily want to own the factories. This is the dynamic that can help us all move into the "private label" space (for another day) but it is important that you understand the difference,  Anyway, locating either manufacturers or brand owners is easy, the difficulty is persuading them to let you be the owner of their Amazon listing, marketeer  and online sales lead - all stuff that they need (badly) but just don't know about it. The way I have approached this is to seek out local(ish) brand owners, firms that have been producing products for years but aren't tuned in to the magic of e-commerce as yet. It is surprising how many firms you will find that are local to you with a bit of research. I started with Google, simply asked around and ended up driving around commercial / industrial parks in my local vicinity to find target suppliers. 

The people you really want to find are those with a good product but an established "old school" route to market - probably through wholesalers. There are many many business owners out there creating great products but without the knowledge of e-commerce to understand that they are missing out on a huge market place. So how do you persuade such companies to partner with you? You don't own a shop (in the physical sense at least), haven't been in "the trade" since 1952 and so may have little credibility in their eyes. So now you're really in the heart of business, selling the benefit and trying to demonstrate how YOU can really help them as business owners. Hopefully by the point you are at this stage you have mastered the RA and OA models and have learnt a thing or two about Amazon. Demonstrating to the brand owner that you understand how Amazon works, the sheer volume of sales that are processed through it and the turnover of similar products (Jungle Scout can be a great way of concisely demonstrating this benefit - another topic for another day I guess) can be particularly compelling stories. You can also start to bring into play how you can optimise their product listings to drive more traffic and better conversion rates, and manage follow-up comms with customers to help build brand awareness and develop follow-on sales.

Anyway, I'm starting to realise that I have tried to tackle a huge subject over a few blogs and all of this stuff needs much more depth to do it justice - that will follow I promise. For now though I hope you're enjoying my insight - I really do welcome your comments (even if not wholly positive) and questions. I will complete this series of blogs on the overview of approaches to e-commerce / FBA to talk about Private Labelling / building a brand in the coming days.