There are many ways to start your own online business empire and eCommerce is one of the most popular ones.
The most popular way to sell physical products today is with Amazon FBA.
What is Amazon FBA?
FBA stands for Fulfillment By Amazon and was created in 2006. You source inventory from retail stores, or distributors, wholesalers, or manufacturers, then ship your products to Amazon and they store it at their many warehouses.
Once a customer orders from your store on Amazon.com, Amazon will pick, pack, and ship your products to the customer.
It costs $39.99/month to be a professional seller. You’ll be charged $1 per item sold if you’re an individual seller. Amazon also takes usually 15% of any product you sell. This is their referral fee for using their platform.
It can get costly for selling on Amazon and storage fees, but Amazon is the biggest eCommerce site in the world and they get tons of traffic.
If you start your own eCommerce store, you’ll have to do all the marketing to get traffic. Amazon already has most of the eCommerce traffic today.
In this post, I’m going to talk about the 3 major business models of Amazon FBA, the barrier to entry, and what you’ll be doing.
The 3 major business models:
1. Arbitrage (retail/online)
There are two methods to Arbitrage, retail and online. Retail arbitrage is buying from local stores. Online arbitrage is buying from online websites.
Both methods of arbitrage consist of buying low and then selling it on Amazon for a higher price. Buy low, sell high, it’s that’s simple.
You can get started with this model with any amount of money. Because of this simplicity, the barrier to entry is low.
Anyone with an Amazon seller account and a smartphone can get started right away. There is no risk. But like they say, no risk, no reward!
You’ll spend the majority of your time driving around to different stores like Walmart, Target, Home Depot, Lowe’s and such, scouring the clearance aisles for deals with your smartphone (if you’re doing retail arbitrage).
I prefer online arbitrage. You’ll spend the majority of your time checking online websites for deals.
Some products can be found cheaply at certain websites and sell on Amazon for a higher price. But to do online arbitrage effectively, you’ll need tools like Tactical Arbitrage to scour websites for good deals. This business model is hard to scale.
Wholesale is finding products from distributors or manufacturers to resell. For this model, you’ll need a business license or a seller’s permit.
Most companies will ask to provide at least one of these to open an account to do business with them.
This is a true business-to-business relationship. This model will require you to learn to sell yourself to land accounts with other companies.
You’ll also need a good amount of money to get started and stay profitable in this model than arbitrage. Therefore, the barrier to entry is much higher.
If you’re working with a distributor, chances are you won’t have to sell yourself. Most distributors want your business and will deal with most Amazon sellers. Manufacturers are a different beast.
There will be a lot of manufacturers that don’t allow or no longer accept Amazon sellers. This is where you’ll have to do some convincing or move on.
You’ll hear a lot of no’s. But wholesaling is a numbers game. You’ll eventually get a yes, just keep going and never give up!
This business model is also very scalable. You can start at home or use prep centers to inspect and prepare your products and ship to Amazon for a fee.
3. Private Label
Private label involves creating or enhancing a product with your own brand label. Most private label sellers on Amazon typically source suppliers from China through Alibaba.com because of cheaper manufacturing.
The barrier to entry with this model is high because it involves a lot of things, including product research, listing optimization, dealing with inspection, shipping, and customs to get your product to the U.S.
Also, I can’t forget giveaways and running PPC campaigns. All these things can cost up to thousands. Not sure I’ll be doing private label again any time soon.
What you’ll essentially be doing in this model is product research, contacting manufacturers in China, negotiating prices, minimum order quantities, and coordinating with these manufacturers to build or enhance a product.
You will then coordinate the design, packaging, labeling, and shipping to Amazon. The great thing about this model is you can potentially build a brand you can later sell off Amazon if it’s a great product.
Amazon FBA is a great opportunity that started in 2006. I discussed the three major business models, their barrier of entry, and what you’ll be doing.
Many people say Amazon FBA is too saturated now, but that’s what they also said in 2010.
If you have any questions, please leave a comment below or you can email email@example.com. I’ve started blogs, niche websites, and eCommerce stores. Maybe we can work together. Thanks for reading.