Someone recently asked me, “What’s your #1 piece of advice for someone looking to get started selling on Amazon?”
My best advice for beginners just getting started selling online is to start with the end in mind.
There are many different business models to explore in e-commerce. Get familiar with all of the options and the risks and rewards to each, as well as how each model aligns with your personal goals will help you decide which model to start with.
Ask yourself, “What do I want to get out of my experience selling online?” Do you want to build something you can sell or do you need money right now? Do you want to dip your toe and learn the process or dive deep into higher quantities and bigger risks for potentially bigger rewards down the line?
Here’s a basic introduction to the most popular models and the benefits, risks and goals of each:
Retail arbitrage(RA) / online arbitrage(OA): With this model, you go shopping at popular stores online and in-person and you buy products at retail (or sale) prices that you can sell for a higher price on Amazon and make a profit.
- Benefits: RA/OA is a great choice for someone just getting started and wanting to learn the process of selling something online. You can source in small quantities and if you buy popular brands the sales happen fast with no paid advertising required
- Risks: You can’t sell anything you want to sell without some extra work involved, many popular brands require you to be an authorized distributor or be ungated on Amazon. Popular products will have multiple sellers competing and sometimes this can turn into a price war and you can end up losing money. Popular products are often hard to replenish or find large quantities of. Some retailers ban resellers from visiting their stores or buying in large quantities.
- Goals: It’s hard to sell a business like this, so choose this model if you just want to learn and make a little money fast.
Buying Products Wholesale: The wholesale model requires you to open accounts with brands and buy their products in bulk to sell online.
- Benefits: Unlike RA/OA, this allows you to source in higher quantities and get permission to sell these brands’ products with proper invoices that are used to be ungated on Amazon. If you can get an exclusive deal with a brand you could grow their online presence and be the only one allowed to sell that product, reducing the competition and keeping all the profits.
- Risks: Wholesale margins are normally tight for selling on Amazon. Most brands sell their products wholesale at 50% of the retail price. Amazon fees can be 30% and advertising (which is often required when you are selling a lessor known brand), can easily make up the other 20% leaving you with little to no profit. Also, if you spend the time and effort to grow a brand online, they can decide to take over, leaving you with nothing after all of your hard work.
- Goals: It’s hard to sell a business like this, so choose this model if you don’t like the shopping and small quantity sourcing of RA/OA but still want a model where you can source in smaller quantities and make money fast.
Dropshipping: With dropshipping, you are listing a product that is already listed somewhere else except you are listing it at a higher price. When it sells you purchase it at the normal price and enter the customers’ address. The original seller sends it to your customer and you collect the profit.
- Benefits: With dropshipping there’s no inventory to manage. You are simply playing the middle man and selling something at a higher price then you bought it for.
- Risks: Customers are super smart nowadays and can shop easily across multiple platforms. They may not buy your product if they can find it for a lower price somewhere else.
- Goals: It’s hard to sell a business like this, but if you don’t want to have inventory and you want to learn the process of selling online as well as make a little money, this model could be for you.
Print on Demand: Like dropshipping, print on demand requires no inventory. You are simply buying a product that already exists from a print on demand vendor (think t-shirts, coffee mugs, phone cases, any swag that can be printed on) you upload your unique design, list those products online and when they sell you place the order with the print on demand vendor and they print your product on demand and ship it to the customer. You pay them the cost of the product, and keep the profit leftover from the price you sold it at.
- Benefits: With print on demand there’s no inventory to manage, and unlike dropshipping you can differentiate the product with your own design and make it unique to your niche. Funny cat t-shirts can be a big seller. You can also hire out the design work on freelancer websites. Another benefit is you can create a design once and make money from selling it on multiple products over and over again.
- Risks: The margins are small and you can spend a lot of time and money on designs and marketing and not sell anything. There are lots of people making these kinds of products so you’ll need to know how to design something people will like and market it to them
- Goals: The cool thing about print on demand is that you can actually build a brand that can be sold one day. If you are the best brand of funny cat t-shirts on the internet, you could really sell that brand asset along with your designs so this model is the best of both worlds between making money fast with no inventory and having a sellable asset to show for it.
Private Label: Sometimes called white label, private label allows you to put your own brand name on a product. If the product is a stock product that already exists and you put your logo on it, this is white label. If you differentiate an existing product or develop a new product where you own the design and can protect it with intellectual property, this is private label.
- Benefits: You’re growing a sellable asset! If you can develop a really cool product that meets the needs of the marketplace and isn’t being sold by other brands, you can make a lot of money with great margins and build something you can sell for a 3-6x multiplier one day!
- Risks: If you choose a common product that many brands sell, you could lose money due to high competition and lack of any value behind your brand. There are also significant setup and operating costs involved in launching your own brand and products such as patents, trademarks, a website, social media, logistics, importing, and last but not least, advertising costs on multiple platforms.
- Goals: If you’re looking to build a business you can sell one day and be able to expand into multiple retail channels, this is the business model for you.
That’s it! I hope this write-up on e-commerce business models will help you make an informed decision on how to get started selling online. You can learn how to build your own private label brand from concept to launch right here.