Let’s talk about two popular Amazon-based business models. Amazon retail arbitrage and private label FBA.
Instagram, Facebook, Google. The success stories are everywhere. These people made over a million in their first year. That twenty-something paid off their student loans in less than six months. This couple makes $250k+ a year and travels the world with their family.
These days it seems like everyone is getting rich on the Internet and building multiple streams of passive income … except for you.
So let’s dive into two popular Amazon selling techniques and uncover ways you can start your own e-commerce business today. We’ll talk about Amazon retail arbitrage, private label Amazon FBA businesses, and the pros and cons of each. Plus, find out which one is more likely to work in your favor.
What is retail arbitrage?
Retail arbitrage sounds complicated, but it’s a pretty simple concept. Arbitrage sellers source products at a discount from retailers, then flip them on Amazon for a profit. Here’s an example:
You’re an Amazon retail arbitrage seller. You go to stores like Walmart or Target to find products on sale. You buy those products in bulk at a discount, list them on Amazon just below their normal retail price, and pocket the difference.
Let’s say you find staplers that normally retail for $5 on sale for $2. You’d buy 100 of them for $200, and sell them for $4.90 each. The total revenue is $490, and the net profit is $290.
Retail arbitrage pros and cons
If you need a side hustle to generate quick cash, retail arbitrage might be a solution. It’s relatively easy to get started and there aren’t a ton of startup costs.
You just have to cover the cost of an Amazon seller account, your products, and shipping. There’s no branding, no marketing, and no coordinating shipments with suppliers.
But you deal with low profit margins. This means you aren’t selling products for much more than you paid for them. And you make up for this with volume and/or bulk. You have to find a place to store all these products in your home or sign up for the Amazon FBA program that’ll take care of it for you. But again, you have low profit margins — there’s a good chance you won’t be able to afford that luxury.
Not to mention, Amazon is coming down on unauthorized sellers. This category includes you if you sell arbitrage products without permission from the original brand. If you’re caught selling certain products or brand names without permission, Amazon will suspend your account.
Now let’s say you don’t get caught and you’re making a few hundred or thousand a month in profits with retail arbitrage. How are you going to scale your business? The only answer is more product. More volume. More storing stuff in your garage. More trips to Walmart.
More, more, more.
The only way to make more money is to put in more work. That’s not scaling, that’s just putting in extra hours.
What is Amazon FBA?
Amazon FBA is Amazon’s fulfillment program. It officially stands for “Fulfillment by Amazon.” It’s a program designed to help online sellers store inventory, ship products, and manage customer service inquiries. In short, Amazon does the hard work for you in exchange for a reasonable percentage of your sales. In addition, products you fulfill via Amazon are eligible for Prime benefits.
When you hear people talk about an “Amazon FBA business,” they aren’t just talking about the program itself. They’re talking about private label products that you brand and market, then fulfill via Amazon. Here’s an example of how it works:
You want to sell your own product line on Amazon. You research competitive products, come up with branding, and reach out to a supplier. The supplier ships your branded products straight to Amazon. You write up an optimized description and list your new product online. As orders come in, Amazon fulfills them.
There’s a little more legwork, in the beginning, to get your brand up and running. But in the long run, it’s way less work than retail arbitrage selling.
Private label Amazon FBA pros and cons
Starting your own private label Amazon FBA business takes work. But it’s not impossible, and plenty of people pull it off with just a few hours a day. Here’s what you need to get started:
• Industry research to find a competitive product
• An affordable, quality supplier (likely overseas)
• An Amazon account with FBA privileges
• A well-written, optimized product description
Most people invest a few thousand dollars on their first bulk product order, and use the profits to fuel future investments. Once your brand is profitable, you may only need a couple of hours a week to maintain it — sometimes less.
In addition, you own your product. This means you aren’t limited to brand regulations on Amazon. And you aren’t at risk for being shut down for selling without authorization. You get to set your own prices, you get to choose your branding, and you get to build a business you can sell for millions of dollars if you choose to.
Unlike retail arbitrage, private label brands scale easily and quickly — without putting tons of extra hours. This is how you break the time-for-money cycle.
If you need some extra cash or want a lucrative side hustle, Amazon retail arbitrage might be for you. But it’s not a scalable business model, and it’s not the best way to pay your bills.
On the other hand, starting your own private label Amazon FBA business is one of the top ways to earn passive income. And it’s easy to learn how by checking out this awesome FREE eBook. It’s got tons of valuable information inside about passive income models, and why some are better than others.
Take the first step today to unlock unlimited earning potential in just a few months. Be sure to check out these other resources to learn more.
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Matt Clark is the Chairman and Co-Founder of Amazing.com, a serial entrepreneur, and investor. He’s been featured on Forbes, CNBC, and Entrepreneur.com.