How to Make Money on Amazon
Amazon generates an average of $1.29 billion in revenue per day ($14,900 per second, you read that right!), most of which comes from third-party sellers. There is no doubt that even if it is a small part of Amazon's huge e-commerce empire, it will become a life (economically)! Therefore, Amazon is one of the biggest ways of online income (it can be said to be the dream platform of many!). But earning from Amazon is more complicated.
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Fortunately, I was introduced to Amazon Affiliate Marketing in 2015, and since then, I have been gaining some sustenance from this platform.
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Today, our topic of discussion is not Amazon affiliate marketing but the three most common methods of selling products on Amazon. I've been selling products on Amazon for about a year now, and most of my work is currently focused on this.
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I am constantly learning myself and want to share my learning’s and experiences through work on this blog so that anyone interested can learn how to start their journey selling products on Amazon.
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So let's give an idea of the three methods of selling products on Amazon, their advantages and disadvantages, how to earn money from them, and which method will be useful for those just starting out. And at the end I will also reveal which model I am working on (more).
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The methods of selling Amazon products are
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(Retail/Online) Arbitrage
Wholesale
Private Label
Arbitrage
Retail/online arbitrage involves buying and selling products on Amazon that are on sale at a discount. Arbitrage can now be done in two ways.
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1. Retail arbitrage: basically, buying products directly from physical stores at discounted prices and selling them on Amazon.
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2. Online Arbitrage: Basically, buying stock clearance items, discounted prices, or products from online or e-commerce sites and selling them on Amazon.
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Both are essentially the same thing—buying discounted branded products and selling them on Amazon at a profit. The difference is in the type of product sourcing—the first is to go directly to the store, and the second is to buy and resell online.
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It is easy for people in countries where there is an Amazon marketplace, such as America, UK, or Canada, to do retail arbitrage on Amazon because they can easily go to a big box store (like Walmart, Target, etc.) and buy products that are being sold at a discount and resell them on Amazon.
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For those of us in Bangladesh, there is no opportunity to do retail arbitrage on Amazon, but there is an equal opportunity to do online arbitrage; that is, one can buy products from any American e-commerce site at a discounted price and resell them on Amazon.
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* I will give examples of our domestic brands and marketplaces for easy understanding.
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Example:
Suppose Bata or Apex shoes are being sold at a discount in their showrooms or in some stores or super shops. Now, you can buy discounted shoes and resell them on Amazon. This is retail arbitrage.
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And if Butter shoes are sold at a discount on their website or an e-commerce site, ordering them from there and reselling them on Amazon is an online arbitrage.
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But yes, if a product is sold at a discount somewhere, you can buy it and resell it on Amazon with a profit. This is not the case. For this, Amazon has to check the product's good demand, sales rank, price history, etc., and confirm the product's profitability, excluding Amazon's referral fee, FBA fee, prep fee, etc., and then select the product.
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Need help understanding the terms mentioned above or how to select a product? It's okay if you're new to this. Knowing and understanding the above issues, I will try to give you an idea of how to order the product in the next post or a few separate posts. Understanding these factors will reveal most of what this business model entails.
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Any business model has pros and cons, and arbitrage is no exception. Let's examine its main advantages and disadvantages.
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Benefits:
1. Getting started is easy—the arbitrage model doesn't require you to create a brand-new product. You can easily start by buying branded products available on the market. It's easy to get started, so it's the best model for learning the art of selling products on Amazon.
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2. Less Capital or Investment—This model can be started with less capital than any other. As little as $500 is enough to get started (or you can start with less; there's no catch).
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3. Unlimited Products – Just as there is no end to the types of products in the world, there is no limit to how many products you can sell in this model. You can buy and sell products of any category as you wish; you can test how the products of any category sell.
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4. Low-Risk – The risk of loss is less than any other model with less investment.
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Disadvantages:
1. Time Constraints—Finding arbitrage products is time-consuming, which can lead to boredom at times. You have to look for new discounted products constantly.
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2. Scalability—The same product can be ordered repeatedly in different models and sold continuously. In this model, only the discounted pieces of a product can be bought and resold. Moreover, many websites have a limit on ordering products together, so even if there is a discount, many products cannot be bought at once.
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3. Gated—Many brands restrict the sale of their products (not allowing them to sell products without approved sellers). Amazon also restricts many brands and categories. So, approval is required to sell products in many brands and categories or sub-categories.
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How can arbitrage income?
Buying retail products at a discount and then retailing them on other marketplaces may make this model look cheap or the highest pocket money, but that is not the case. Many sellers use this model to sell millions of dollars worth of products annually, earning $10K, $20K, or even $50K+ (US dollars) monthly. In the context of our country, a monthly $500-$1000 is a very good income, which is not impossible to do from online arbitrage (even without selling products yourself, this income can be done by serving clients).
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If you are interested in verifying the income figure I mentioned above, you can visit an international Facebook group called Hassel Buddies (mainly focused on arbitrage). By joining the group, you can see the case studies shared by the sellers, learn from the group discussion, and ask questions.
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But yes, if you start today, you will earn a lot of money overnight. It is not at all like that. Almost everyone (I don't know of exceptions) who does well in this or any business model has had to stick with it for a long time. Again, I thought about working online, and the income started coming in. It is not the case at all. Yes, it is possible to earn a lot of money here, but to achieve it, you must have the mindset to stick with it for a long time.
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Wholesale
Wholesale is buying products in bulk amounts from a brand, distributor, or wholesale supplier and selling them on Amazon.
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The basic difference between retail and online arbitrage is that arbitrage products can be purchased at the retail amount when as many pieces of the product are available at a discounted price. There is no such limitation in the case of wholesale. Still, the product you want to sell must be directly found by its brand or an authorized distributor or wholesaler of that brand and open an account to buy the product at wholesale rate. Afterward, you can order as many products as you want and sell on Amazon.
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Amazon FBA Wholesale
Image credit: webretailer.com
Example:
Going back to the example of Butter Shoes, in the case of wholesale, you would buy the shoes directly from Butter or one of their authorized distributors or wholesalers at wholesale rates and sell them on Amazon at retail or retail prices.
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Benefits:
1. Fast Startup/Results—Wholesale, like Arbitrage, can be started very quickly and has a relatively quick return (you don't have to start your own brand to launch a product like a private label).
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2. Existing customer base/brand awareness—People already know about the brand's products in the market, so there is no need to spend on advertising or marketing to build brand trust or awareness in the market. Existing customers of reputed brands tend to buy the product themselves, so if the product is in stock, it is only a matter of time before it is sold.
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3. High Demand—As the product of any brand that is already in the market will be sold, the product chosen for wholesale sale usually has a high demand in the market. Selling products that are already in demand is relatively easy (no-brainer).
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4. Consistent Inventory – Distributors usually have a large amount of inventory (product) in stock. So there is no possibility of any product running out of stock or not getting the product for sale.
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5. Scalability—Once you find a brand/product that sells very well, it is very easy to keep ordering it and increase the quantity. You need to order the product from your distributor and send it to Amazon's warehouse for sale.
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Disadvantages:
1. Wholesale Account – Many brands and distributors do not want to work with Amazon sellers. So you may be unable to open a wholesale account with any big brand or distributor or not hear from them.
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2. Licensing—To start wholesale (in the US), you need to open an LLC (company) in any state and get a resale certificate and TIN/Tax ID. These must be managed before starting the business and will require some investment.
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3. Inventory Quantity—Wholesale requires ordering products in bulk, and many distributors have a minimum price/quantity for these orders, which can be difficult for those starting with a small investment to maintain.
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4. Competition—Other wholesalers also have the opportunity to sell the same brand/product, which can create a lot of competition in the market.
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Private Label
Private labeling is the process of making a product from a third-party manufacturer and selling it under your brand or label. In private labeling, you will basically manufacture and sell products from third-party manufacturers under your own brand name.
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Example:
Taking the example of shoes again, at the private level, you are not a brand that is in the market. You decide on a brand name yourself, contact a shoe manufacturer or factory, and then make the shoes using your own brand name, logo, packaging, etc. Sell them on Amazon.
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China is world-famous for this kind of manufacturing. Many famous brands in our country also import products from China using their own brand name. Yes, if the manufacturer of the product you are working with is in Bangladesh (or India, Pakistan, or any other country) and readily available, you can make the product from here and sell it on Amazon.
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Benefits:
1. Control—You can decide the product's design, packaging, price, etc., as you wish. You own brand products, so you have ultimate control over product creation, product listing page layout, pricing, etc.
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2. High-Profit Margins – Products can be sourced at low cost and sold with high-profit margins. Especially if you can sell products in unsaturated niches and bring innovation and good value to the quality of the product and brand, the profit margin can usually be kept very high (35%+).
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3. Long-Term Asset—If a product is a hit, it can be manufactured and sold for a long time as long as there is demand for it.
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4. Profit by selling the brand—Once you have a successful brand, you can sell it for a huge amount (30, 40, or more times the monthly profit) at one time.
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Disadvantages:
1. High Startup Cost—You will be building your own brand, so launching your product will cost a huge amount in product sourcing, branding, packaging, shipment, product photography, listing creation, trademark/brand registry, PPC ads, etc.
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2. High Risk—There is no way to be 100% sure whether the product/brand will be successful before investing in it and launching it in the market. Since the upfront cost of product launch is high and there is no opportunity to take a small amount of product for testing from the manufacturer, the risk is a little higher.
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3. Time-consuming—The entire process, from niche and product research to product development, sending products to Amazon warehouses, generating product reviews, organic ranking to consistent sales, and making a profit, takes much longer than arbitrage and wholesale models (at least six months to one year and a half).
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In addition to arbitrage, wholesale, and private labels, Amazon also operates another dropshipping model.
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Dropshipping
Dropshipping is selling a product to a customer without buying it. The customer then orders the product directly from the supplier and receives it.
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Dropshipping is another way to sell physical products on Amazon. It is quite popular in our subcontinent, including Bangladesh, mainly because it does not involve much upfront cost in inventory and has the advantage of easy scaling using relatively cheap, low-skilled manpower (and probably the most revenue comes from this model in Bangladesh from Amazon). ). But I personally do not do dropshipping, nor do I recommend anyone do so.
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The reason for this is…
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1. Amazon officially allows dropshipping, but maintaining its policy makes it quite difficult. For example, Amazon strictly prohibits dropshipping products from other retailers and prohibits using anything other than your own packing slip, invoice, and packaging during product delivery.
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However, most dropshippers order products from Amazon's direct retail competitors, such as Walmart and Home Depot, and send them to customers. You can understand how Amazon will take the matter if the product reaches the customer with a competitor's packing slip, invoice, packaging, logo, etc. After ordering the product on Amazon, it will undoubtedly hurt their huge brand; many customers will need help to take the matter. And as a result, sooner or later, such accounts are at risk of getting banned.
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Which method is better/useful for selling products on Amazon?
There is only a partial answer to this, depending on your preference. You have to select a model based on your own situation.
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If you have no experience on Amazon and are looking to launch a product 'relatively quickly' and make money, then Arbitrage or Wholesale will suit you. Both these models are relatively easy to learn and start working and do not require much upfront investment.
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On the other hand, if you want to build your brand and have the capital to invest, the private label may be a good model for you.
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But you do not have to work only on one model. You can work with arbitrage, wholesale, and private labels simultaneously. First, start with arbitrage or wholesale, and then, from the profit received, invest in your private-label brand.
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At present, I mainly work in the wholesale model. I have also done some arbitrage. We have already discussed that the main difference between wholesale and arbitrage is the sourcing method. Besides, the product selection criteria are almost the same.
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Finding products for arbitrage is time-consuming and requires constant searching for new products. Besides, there is a risk of facing IP complaints/brand restrictions. On the other hand, it is a bit difficult for wholesale Amazon sellers to get approval from big brands or distributors, but once you get some good suppliers, you can keep reordering the same product from them again and again, and it is relatively easy to scale (business).
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But whatever method you choose, if you start by doing enough research, having a good understanding of the market, and not just jumping in, you can expect good results.
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