Amazon Business Models Guide 2024

Selecting a business model is step #2, if not #1, in your product launch. See, why.

Everyone wants to be successful on Amazon until they get to know what it actually takes. Of course, this is a joke. Jokes are half-meant, though. There’s no one-size-fits-all recipe to success on Amazon. At each step of your sales process, you face multiple choices. Thus, making an informed decision in the majority of cases means the right one.

Choosing between the types of Amazon business models is one such step. The business model is the way how you’re going to sell. In other words, this is an approach to your sales process. If you are a first-party seller on Amazon, this is already a pre-selected business model. 

However, third-party sellers (over half of sellers on the platform, according to Amazon itself), have to choose an Amazon business model before they start selling a product. 

First and foremost, the choice of the business model depends on the type of product you sell. If you’re thinking about creating a new design, re-branding, or improving the existing product, you’ll select between private label and handmade. 

In turn, if your intention is to resell a product from another retail store, supplier or manufacturer, you’ll select between retail arbitrage, online arbitrage, dropshipping, or wholesale. In such a case, the model depends on how much money you have to invest upfront, the time you're ready to spend daily to run your business, and many other criteria.

As a matter of fact, you can combine different Amazon business models in one seller account depending on what product you sell. Oftentimes, sellers do so on Amazon.

Read our Amazon business models guide to find out the popular models and their detailed description.

What Are Amazon Business Models?

Amazon business model is an overall approach to selling a product on Amazon. There is no universal business model for Amazon sellers. You’ll need to select one depending on the product you sell, the money you have at hand, and other factors.

Importantly, the business model determines the way how you structure your sales processes on Amazon.

You can use diverse Amazon business models for different ASINs in your store, the same way you may combine various fulfillment methods – FBA and FBM. 

There are six most popular business models used by Amazon sellers.

Amazon Business Models

Amazon business models:

• private label;
• wholesale;
• retail arbitrage;
• online arbitrage;
• dropshipping;
• handmade.

Related: 13 Ways to Make Money on Amazon in 2023

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Why Is Business Model Important?

The Amazon seller business model you choose directly impacts the way you sell on Amazon. It defines the following essential parameters of the sales process.

Product type

The kind of products you want to sell largely determines the business model you will use and the way you will source and sell that product. With a private label, you create a brand of a popular product; with handmade you create a unique design, while wholesale, arbitrage sellers, and dropshippers resell (or flip) high-demand products

Cases by business model

Private label

You design the brand and place it on the selected product, dictating what and how is branded, promoted, and sold.

Example: Selling custom-designed phone cases.

Handmade

You create and sell your own handcrafted goods, offering unique products but requiring production and quality control efforts. 

Example: Selling hand-knitted scarves and hats.

Sourcing channels

The business model you select largely determines where you source your product. Wholesale sellers buy them directly from brands or suppliers; online arbitrage sellers and dropshippers find them at other retailers, retail arbitrage sellers roam brick-and-mortar stores, while handmade seller create product on their own.

Cases by business model

Wholesale

You directly negotiate and purchase popular products from brands, manufacturers or distributors, requiring larger upfront investments but potentially higher profit margins. 

Example: Buying large quantities of phone chargers directly from a manufacturer.

Retail arbitrage

You source discounted products from liquidation or clearance stores, offering a wider variety but limited by what you find. 

Example: Finding and reselling limited-edition toys.

Fulfillment strategy

Business model the way of fulfilling the order to the customer

Cases by business model

Dropshipping

Dropshipper finds a product and agrees with a supplier that they will deliver orders to Amazon customers. A supplier stores and ships products directly to customers, minimizing dropshipper’s inventory management but limiting control over quality and shipping. 

Example: Finding a supplier for profitable kitchen décor items, listing them on Amazon, and when bought, supplier sends these items to the customer.

Wholesale

You buy products in bulk from established brand, selecting products from its existing offerings. The brand delivers products to a prep center, that preps them in accordance with Amazon’s requirements and sends them to Amazon’s fulfillment center. Then, Amazon delivers the order to the customer. 

Example: Reselling well-known sports apparel brands.

Note. Amazon fulfillment strategy is combined with the fulfillment method: Amazon FBA (Fulfillment by Amazon) or FBM (self-fulfillment). With FBA, you send products to Amazon's warehouses, letting them handle storage, picking, packing, and shipping for a fee. With FBM, you store and ship products yourself, requiring dedicated space, packaging, and shipping arrangements.

You can select FBA or FBM for each product and use one method or both with any business model.

Amazon Business Models Overview

On Amazon, some business models are more popular among merchants compared to others.

According to recent research, 54% of sellers use private label, 25% - wholesale; 25% - retail arbitrage; and 21% - online arbitrage. The least popular are dropshipping at 19% and handmade at 9%. 

Some sellers use more than one business model in their stores.

Below, you will find all six Amazon business models explained in detail.

Private label on Amazon

What is Amazon private label?

Amazon private label (PL) is a business model where sellers place their brand on the existing product manufactured by another company. Since a PL seller is the brand owner, they control how the product is designed, manufactured, and packaged.

Alongside the branding, some sellers may introduce changes to the initial product. Based on the customer reviews, they ask manufacturers to improve certain product features, thus creating added value.

Compared to other models, the private label model takes far more time and effort to start. At the same time, the competition is much lower and the profit margins are higher.

Note: Since private label merchants sell new products on Amazon, they need to create new listings. On the other hand, all other sellers, with the exception of handmade, can add their products to existing product listings. 

Example of Amazon private label product

Private label model: pros and cons

Pros:

• lower competition because the brand is unique;
• higher profit margin;
• full control over price strategy;
• a sellable brand is an asset;
• possibility to create multiple product lines;
• no chance of account suspension.

Pros of Private Label

Cons:

• you have to create and optimize your product listing;
• the necessity for in-depth product research;
• you need to manage inventory;
• you have to market your products, including pay-per-click (PPC) campaigns;
• getting product reviews for a new brand isn’t easy;
• certain risks involved since for a new product you can’t see ranking and sales history.

Cons of Private Label

Time and cost to launch a private label product

On average, Amazon sellers spend $2,500 and up to launch private label products. Typically, it takes around 4-6 months to start.

How to launch private label product step by step

Amazon Private Label Process

Step 1. Create a Professional Amazon Seller account.

Step 2. Do product research to find high-demand or low-competition niches.

Step 3. Check the product’s cost of goods. Make sure it’s profitable.

Step 4. Negotiate with a supplier to brand (and modify) the product.

Step 5. Create a new product listing.

Step 6. Enroll in the FBA program for Amazon to take care of picking, packing, and shipping the product (optional).

Step 7. List your ASIN and promote it.

Note: To calculate ROI and Profit Margin right on your Amazon product page, you can use Seller Assistant App’s FBA & FBM Calculator.

Wholesale on Amazon

What is Amazon wholesale?

Amazon wholesale is a business model of purchasing products in bulk at lower rates from producers, suppliers, or distributors, and reselling them to Amazon buyers for a profit. The profit is generated from the variance between wholesale and retail prices.

As a wholesale seller, your primary objective is to find brands, producers, or distributors who agree to provide lower rates for popular items to resell on Amazon. This task may pose difficulties as established brands often maintain stringent distribution channels. Nevertheless, your efforts to get the best price conditions will be rewarded by substantial profits you will generate.

With Amazon wholesale, a wholesale seller making big orders from a prand has an advantage at the supplier over other sellers who buy less. Their per-item price is low, and wholesale sellers can get increased profit margins when they resell inventory. Additionally, popular brands have large Minimum Order Quantities (MOQ), which makes it difficult for online arbitrage sellers or dropshippers to buy such products.

For example, if a retailer asks for a quote from the manufacturer for 200 T-shirts, the price will be $20 per unit. On the other hand, when a wholesale seller asks for the same but for 5,000 T-shirts, the manufacturer will give them a discounted price of $10 per unit because of the big lot. Then the wholesale seller resells 200 T-shirts to the retailer for $15 per unit and earns $5 on each unit. In this model, all three parties make a profit.

In addition, this model involves less risk compared to, for example, private label. This is because wholesalers mostly sell popular products that already existing on Amazon. They have trackable sales history that allows for predicting product sales. For the same reason, there’s no need to spend too much money on product advertisement.

To track product sales history and see if sellers had account health issues related to the product or brand you can use Seller Assistant App’s IP Alerts.

For the wholesalers, one of the problems is product and brand restrictions on Amazon. There are products you can’t sell or can sell only with Amazon’s permission. Checking whether you can or can’t sell every single product is a headache unless you use the Seller Assistant App Bulk Restriction checker. 

Related: Amazon Restricted Products – Complete Guide for Sellers.

Amazon wholesale model: pros and cons

Pros:

• selling popular products of established brands ;
• lower per-item price hence higher profit margins;
• better chance to win the Buy Box due to discounted price;
• lower advertisement costs;
• good options to scale your business.

Pros of Wholesale

Cons:

• larger upfront capital investment;
• you need to closely monitor expenses, revenue, and financials;
• higher risk due to large volumes;
• high storage fees, either on or off Amazon;
• finding a reliable supplier can be a challenge.

Cons of Wholesale

Time and cost to launch a wholesale product

To start wholesale, you have to invest a minimum of $2,500 for the start. On average, it takes around six weeks to launch a wholesale Amazon business.

How to launch a wholesale product step by step

Amazon Wholesale Process

Step 1. Create a Professional Amazon Seller account. 

Step 2. Find an established brand or supplier, and approach them.

Step 3. Negotiate, and establish cooperation.

Step 4. Get the list of brand’s products and verify the product profitability and restrictions with Seller Assistant App.

Step 5. Order products from the supplier.

Step 6. List your products and start selling.

Retail arbitrage on Amazon

What is Amazon retail arbitrage?

Retail arbitrage is a model where a merchant finds discounted or cheaper-priced products in brick-and-mortar retail stores and then resells them on Amazon for a profit.

For instance, if you find a product on Walmart, Big Lots, Target, or Home Depot, that costs $8, and resell it on Amazon for $15, this will be a retail arbitrage sale. The difference between the initial cost of the product and your price on Amazon should cover all Amazon fees and your profit margin. 

Though the model itself is quite straightforward, it has a number of hidden pitfalls. Even though it’s easy and cheap to start, it’s the least profitable model due to high competition. Also, it takes some time until you can make it real profits. In addition, it requires a lot of patience to find a good retail arbitrage product.

However, around one-fifth of the sellers use this model. 

U.S. Retail Store

Retail arbitrage model: pros and cons

Pros:

• fast and easy to set up;
• low startup cost;
• minimum upfront investment;
• low entry-level; 
• full control of the inventory and sales process;
• small risk.

Pros of Retail arbitrage model

Cons:

• very time-consuming model - you have to physically find and restock inventory;
• relatively low-profit margins;
• takes time to make real profit;
• mileage - you have to drive from store to store;
• finding a profitable product is not easy;
• this model is not a passive source of income.

Cons of Retail arbitrage model

Time and cost to launch a retail arbitrage product

This model is the least expensive way to start on Amazon. You can launch a retail arbitrage business with $500 to 1,000. It’s also fast to set up. You can get a retail arbitrage business up and running in six weeks or less. 

On the other hand, you should keep in mind that it can take up to six months until you can make this business really profitable.

How to launch a retail arbitrage product step by step

Amazon Retail Arbitrage Process

Step 1. Create an Amazon Seller account.

Step 2. Visit liquidation or clearance stores, or retail store offering sales and promotions, to find retail arbitrage products.

Step 3. With your mobile app, read the product barcode and find its match on Amazon.

Step 4. Check if a product is profitable.

Step 5. List your product and start selling.

Online arbitrage on Amazon

What is Amazon online arbitrage?

Amazon online arbitrage is a business model where you purchase lower-priced items from online retailers and then resell them for a profit on Amazon. 

The key objective of online arbitrage sellers is to find profitable deals. That involves finding a product on the online retailer, discounter, or other store to resell on Amazon that you can resell for a wished profit. These deals must be profitable products with high demand, low competition, and healthy sales history. 

Online arbitrage is an excellent way to start selling on Amazon with low risk. That is because you don't have to invest a large sum of money in inventory upfront. However, it can be a time-consuming process to find products that sell for a high profit on Amazon due to high competition.

Online arbitrage is a viable business, but you must be realistic about the challenges and commitment involved. You must be ready to put in the time and effort for daily research of hundreds of products and sourcing to identify profitable opportunities.

In fact, the majority of sellers use advanced tools and apps to simplify these tasks. There are seller tools for sellers that combine all these functions and help you with your product research. The optimal solution for these tasks is Seller Assistant App, which combines product research features, an FBM & FBA profit calculator to check product profitability, Restrictions Checker to see if the product is hazmat, oversized, or has any other associated risks, and other features. It also allows you to make notes right on the Amazon Search Pages or Amazon Product pages.

Online arbitrage model: pros and cons

Pros:

• fast, easy, and relatively cheap to start;
• you don’t have to physically roam brick-and-mortar stores for deals;
• it’s a work-from-home business;
• huge amount of product ideas;
• it’s a good complement to other business models in your Amazon store;
• you can learn how to sell on Amazon without big risk.

Pros of Online Arbitrage

Cons:

• product research takes a lot of time;
• prices on Amazon change all the time, which makes it difficult to keep sustainable profitability levels;
• low-profit margins after Amazon fees;
• you can’t resell certain products or need approval;
• the items you source may look different from what’s listed on Amazon.

Cons of Online Arbitrage

Time and cost to launch an online arbitrage product

This model is fast and inexpensive to start. You can launch it for $500 to 2,500 and get it up and running in about six weeks.

How to launch an online arbitrage product step by step

Amazon Online Arbitrage Process

Step 1. Create an Amazon Seller account.

Step 2. Find profitable products with high demand, low competition, and healthy sales history.

Step 3. Do product research with Seller Assistant App to find out product sales, and potential risks like IP complaints and product flags.

Step 4. Check the product profitability with Seller Assistant App. 

Step 5. Find the supplier and source the product.

Step 6. List your product and start selling.

Dropshipping on Amazon

What is Amazon dropshipping?

Dropshipping on Amazon is a model where the seller lists a product on Amazon, gets an order from the buyer, and asks the supplier to ship it to the shopper directly. The profit margin comes from the difference between the price of the supplier and the retail price of the dropshipper.

Sellers prefer this model because it’s fast and easy to start, and they don’t have to deal with inventory management.

Dropshipping model: pros and cons

Pros:

• fast and easy to start;
• almost no upfront cost;
• it’s remote work and a good source of passive income;
• a large number of product ideas;
• you don’t have to manage inventory.

Cons:

• lack of quality control; 
• no fulfillment control;
• risk of returns;
• finding a high-demand product isn’t easy.

Cons of Dropshipping

Time and cost to launch a drop shipping product

On average, drop shippers spend $500 to 2,500 to get started. It takes more longer than six weeks to get the business up and running.

How to launch a dropshipping product step by step

Amazon Dropshipping Process

Step 1. Create an Amazon seller account.

Step 2. Find a profitable product to sell on Amazon.

Step 3. Find a supplier and conclude an agreement to ship products to your customers.

Step 4. Do product research with Seller Assistant App to find out product sales, and potential risks like IP complaints and product flags.

Step 5. List a product on Amazon.

Step 6. Start selling.

Handmade on Amazon

What is Amazon handmade?

Handmade is a model where sellers create their own products “by hand” and list them on Amazon. Products can range from home decor to jewelry. 

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Example of Amazon handmade product

Handmade model: pros and cons

Pros:

• no competition because the product is unique;
• you can create a brand out of your products;
• higher profit margin;
• full control over price strategy;
• no chance of account suspension.

Pros of Handmade

Cons:

• you need to create and optimize your product listing;
• it can be hit or miss;
• you need to manage inventory;
• you have to market your products;
• you may not have enough time to produce and sell products at the same time.

Cons of Handmade

Time and cost to launch a handmade product

This business model takes around three months to get started, and handmade sellers spend less than $2,500 to launch on Amazon. 

How to launch handmade product step by step

Amazon Handmade Process

Step 1. Register an Amazon seller account.

Step 2. Create your product.

Step 3. List a product on Amazon.

Step 4. Start selling.

How to Select an Amazon Business Model?

To choose the right business model, you need to consider several key factors: . These are your the budget you are ready to invest, the time you can dedicate to your Amazon business, the goal with your product, and the expertise you have in online sales.

Steps to selecting a business model

Amazon Buisness Model Process

Step 1. Write down all the business models.

Step 2. See how much time and money you are ready to invest and cross out irrelevant models.

Step 3. Carefully weigh up the pros and cons of each model.

Step 4. Find your product and use the FBA&FBM calculator to calculate whether define if it’s profitable or not with the model you selected. If yes, proceed to step 5.

Step 5. List your product and start selling.

Seller Assistant App: the Best Tool for Different Amazon Business Models

Seller Assistant App provides exceptional professional-level solutions for product sourcing, dropshippers, wholesale sellers, and virtual assistants involved in product research. This comprehensive tool offers various user-friendly features that enable quick identification of winning products to sell on Amazon.

Equipped with features like FBM&FBA Profit Calculator, Quick View, ASIN Grabber, IP Alert, Restrictions Checker, and other product research functionalities, you can automate product data collection. This will give you insights into product profitability, competition, demand, and other crucial product information. By leveraging this information, you can cherry-pick high-margin items for your store.

Amazon online arbitrage

For sellers involved in online arbitrage selling, Seller Assistant App is a must-have extension. It facilitates product research directly on Amazon's product and search pages, instantly calculates your profit, and saves data to Google Sheets in just one click. 

The unique IP-Alert feature keeps your Seller Central safe from expensive IP complaints, and the Bulk Restriction Checker lets you validate in bulk which products you are eligible to sell on your account. Additionally, the Quick Links feature enables you to find product suppliers on other retailer platforms in just one click, allowing you to discover profitable deals. These and other features of the Seller Assistant App make it an invaluable tool for online arbitrage sellers.

Wholesale 

Seller Assistant App provides an efficient toolkit for wholesale sellers who want to find high-margin products. With the app's browser extension, you can quickly gain insights into the products that are worth selling and will bring you the highest profits. You can also estimate the potential product sales and profits.

In addition to these comprehensive product sourcing features, the app offers unique functionalities such as the Bulk Restriction Checker, which enables you to efficiently check the selling eligibility in bulk, the UPC/EAN to ASIN Converter, which matches manufacturer UPCs and EANs to Amazon ASINs, advanced IP Alert to proactively avoid Amazon policy violations, and many other useful tools for wholesale sellers.

Dropshipping

Seller Assistant App is a professional product sourcing solution for dropshippers who want to expand their business and portfolio. It lets you quickly locate high-profit and low-competition products and ensures that they pose no risk when you sell them.

With Seller Assistant App browser extension, you can view all product metrics in one place, and the IP-Alert feature protects you from intellectual property claims. The Restrictions Checker instantly identifies gated products, and the Bulk Restriction Checker conveniently verifies product restrictions. These features help you stay ahead of your competition. Additionally, the Quick Links feature enables dropshippers to find product suppliers on other retailer stores in just one click and discover profitable deals.

FAQ

What is the Amazon’s business model?

Amazon’s business model is the way of selling on Amazon. There isn't one single Amazon seller business model. Sellers choose from options like private label (creating their own brand), wholesale (buying in bulk and reselling), online and retail arbitrage (finding deals and reselling on Amazon), dropshipping (the seller lists a product on Amazon, gets an order, and asks the supplier to ship it), and handmade (unique products produced by sellers). Each has its own pros, cons, and profit margins.

How much does it cost to sell retail arbitrage?

Retail arbitrage is low-cost to start, but expect initial expenses for inventory, seller fees (Amazon + optional FBA), and retail arbitrage tools. The investment to launch retail arbitrage can be less than $500. Profits depend on finding good deals and managing costs effectively.

How profitable is online arbitrage?

Profitability in online arbitrage depends on finding deals and managing costs. While success stories exist, many factors impact income, from competition and fees to product selection. The average target online arbitrage ROI must be over 10%, and the profit margin - around 15%.

How long does it take to get started with wholesale on Amazon?

While setup varies, expect 3-4 months to launch an Amazon wholesale business. This includes research, finding suppliers, establishing accounts, and building initial inventory. Remember, profitability takes time and consistent effort beyond just the initial launch.

Сan you make money on Amazon FBA?

Making money on Amazon FBA is possible, but not guaranteed. It requires careful research, product selection, competitive pricing, and strategic marketing. While success stories exist, many factors impact profitability, so approach it as a business venture demanding effort and planning, not a quick-fix income source. To be successful with FBA, use product sourcing tools like Seller Assistant App to find profitable products.

How to earn money from Amazon at home?

Several options exist! You can sell your own products, become a product sourcing virtual assistant with product sourcing tool Seller Assistant App, an affiliate promoting others', write and publish ebooks, or design merchandise. Each path requires research, effort, and varying levels of investment. Choose the one that aligns with your skills and interests.

Final Thoughts 

On Amazon, there are six basic business models - private label, wholesale, retail arbitrage, online arbitrage, drop-shipping, and handmade. The majority of them are reselling models, which means that sellers make their profit from the difference between the initial item’s cost and the retail price on Amazon.

In five of six of these models, product research is key to success. In a lot of cases, iIt usually takes sellers many hours a day to browse the internet in search of product ideas. To get it right, you need to find a profitable product and verify if you can sell it on Amazon or not or ifso that it isit’s not restricted. You also need to check that the item isn’t bulk or oversize to avoid extra shipping fees. There are many parameters that need to be considered in the search process.You need to consider a lot of other parameters in the process of search.

Knowing this, we created an app that makes your life easier. Seller Assistant App is a powerful tool that combines product research features, an FBM&FBA profit calculator, and a lot of other useful options. With it, you’ll get access to Advanced IP Alerts, Quick View, Stock Checker, and Restrictions Checker, all in one tool.

Try Seller Assistant Аpp now. Register for our 14-day trial. Grow your Amazon business with confidence.

Originally published at https://www.sellerassistant.app/blog/amazon-business-models-guide