For those of you who have Amazon Prime, you already know and love the free two day shipping and no hassle returns. What many don’t know is that most of these items aren’t actually sold BY Amazon, and are actually 3rd parties (like us!) listing their item on the Amazon marketplace. These 3rd party sellers will purchase the items and ship them to an Amazon fulfillment center. The item will then sit there until it is purchased, at which point amazon goes and finds the item and ships it off.
Instead of thinking of Amazon as a supplier, think of it as a platform. FBA allows small businesses to sell their goods while letting Amazon handle the logistics of shipping/advertising/fulfillment/etc. By using Amazon’s platform, many small business owners have been able to create very profitable (and scale-able) businesses without having to worry about infrastructure.
There are 4 main methods that businesses use to obtain their items to sell. These methods are: Online Arbitrage, Retail Arbitrage, Wholesale, and Private Label.
Retail Arbitrage – search for deals in physical stores. Purchase items cheap and resell on Amazon’s platform. People who use this method will often go to clearance sections with a scanning app to compare prices to Amazon. This is our main focus as a business as it has great profit margins. This is also the method we recommend to those just starting out on Amazon, as the risk is much lower as you learn how Amazon works.
Online Arbitrage – search for deals online and compare costs to Amazon. Purchase items cheap and resell them on the Amazon platform. This method often utilities coupon stacking and discount gift cards.
Wholesale – Purchasing directly from the manufacturer/supplier to get wholesale pricing (usually 30-50% off retail). Wholesale accounts almost always require a business license/tax ID to open. While clearance/thrift shopping will have higher margins, Wholesale is scale-able. Once you have your orders, you can continue ordering more every time you run out of stock. We recommend doing some retail arbitrage first before diving into wholesale.
Private Label – This is creating your own brand/item and selling it on the Amazon platform. This method has the highest risk, but also the highest payoff. Typically (not always) products are sourced from China. Start up costs are typically high for this ($1k-$3k) because of high initial order requirements and shipping costs. While private label can be profitable, we, along with other experienced sellers, strongly discourage beginners from starting with this method. Private label is something you can journey into after getting familiar with the platform and inner workings.
These four methods make up what is known as “Amazon FBA”. Our focus personally as a business is mostly retail/online arbitrage, combined with some wholesale. If you have any questions about the above methods, drop a comment below!
