Does your head sometimes start to spin when you look at all of the different ways you can sell on Amazon? It’s great to have choices, but sometimes they can overwhelm us!
We typically say there is no right or wrong answer to the question about which model is “best.”
A way of selling may be perfect for one person, and not appealing at all for another person.
There are so many factors to consider, including your own business experience, situation, tolerance for risk — and simply preference.
We personally chose retail arbitrage because we like it and are good at it, but that’s not the model for everyone.
In our Getting Started On Amazon Guide we use the retail arbitrage model. You can still use the guide as a reference, even if you end up going with another business model.
In this post, we are going to help you sort through the choices by providing a definition of the most popular selling formats and the pros/cons of each one.
By the time you’re finished reading this article, you should have a good understanding of what model is the best fit for you, as well as where you can go to get started!
What Are The Different Ways Of Starting An Amazon Business?
Retail arbitrage is when you purchase a product at a retail store for one price and then sell it at a higher price on Amazon. It’s essentially “flipping” merchandise, or what is often described as taking advantage of market inefficiencies.
Usually, we manage this by finding clearance items at the local retail stores and then selling them on Amazon for closer to the regular retail price.
Less often, we are looking for items marked at regular price that we can sell for 3x or more on Amazon. This happens most in the “4th quarter.” The time of year when people are in buying frenzies and desperate to find that “one hot toy” and will pay any price for it.
Remember the Hatchimal Craze of 2016? The simple toy that was on every child's wish list and at regular stores (well, sometimes) for less than $60…
It was often selling on Amazon for over $200!
The way it works in the normal time of year is you might find an MP3 player on clearance at Walmart for $15 that sells on Amazon for $35. After Amazon fees and their cut, you might make a profit of about $10.
Pros of Retail Arbitrage:
- This can be a really inexpensive way to get started selling on Amazon
- No minimum investment into inventory to start
- Easy business model to understand
- Very “entry level”
Cons of Retail Arbitrage:
- This can be the most time-consuming of the Amazon business models, as you have to physically find and restock inventory all of the time
- Related to the above, this is not a passive source of income
- Mileage; you have to drive around a lot, going from store to store
Retail arbitrage is our specialty! It’s where we got started and originally found success — Jessica was able to replace her income in a few months and then bring Cliff home from his job in about a year’s time.
How To Get Started With Retail Arbitrage
If retail arbitrage sounds like the perfect Amazon business model for you, then you are in the right place! Our site is made for sellers who do retail arbitrage!!! Whoop whoop.
We have a free Amazon FBA Starter Course for those of you wanting to get all the details about starting on Amazon using Retail Arbitrage.
If you'd rather jump in with both feet, then our Amazon Boot Camp is perfect for you!
In this video course we take you step-by-step through the process of starting your Amazon business. Things you need to know before buying your first product, setting up your account, buying inventory and making sales.
All from the experience of growing our own six-figure Amazon Retail Arbitrage Business.
The course includes video modules, custom printables and checklists and a bonus section. More than 4,000 people have taken the course so you are in good company!
We also have an accompanying private Facebook seller group where you can ask questions and share your successes with thousands of other members.
For a much more in depth look at how retail arbitrage works, check out our Retail Arbitrage 101 post.
Online arbitrage is very similar to retail arbitrage.
Instead of heading to your local Walmart store, you would instead go to walmart.com. Then on the website, you are looking for items on clearance, just like if you were in the store.
Then, instead of scanning those products with your scanning app, you would compare the prices direct to the Amazon website to see if they are going to be profitable. There are even lots of tools for making online sourcing easier.
There are hundreds of websites available to source from, from large chain stores whose names you may recognize to a bunch you may never have heard of.
One of my favorite things about online sourcing is the ability to buy from stores that we do not have locally, but have great deals we can flip on Amazon!
For example, we don't have Farm and Fleet here in California. But I've ordered from there many times.
Once I get the products delivered to my doorstep, we can prep those items and get them right back out the door to the Amazon fulfillment center.
Pros of Online Sourcing:
- A true work-from-home business model
- More sourcing opportunities available, as you don’t have to physically drive from one store to another
- Product is shipped to you, so you don’t have to lug it in your car — plus you usually receive boxes and packing materials that you can re-use when you ship your inventory to Amazon
- Source at any time, not just during store hours
- Good way to complement your retail arbitrage business and add more products to your Amazon store
Cons of Online Sourcing:
- This is a little more difficult to learn at first because there is so much product available and you can spend a lot of time looking in the wrong places
- It can be easy to buy too much inventory, since the online quantities available are usually much larger than in store
- Sometimes more difficult to tell whether the product on the retailer’s website matches the Amazon listing, so you can be more prone to error when purchasing
Over the last few years, we’ve added online sourcing as a major way to find inventory during the first three-quarters of the year.
It allows us more flexibility to spend time with our young son, plus it complements the products we find when we do head to the store to do retail arbitrage.
We can also buy in larger quantities than we can in store.
How To Get Started With Online Arbitrage
Here is a list of our top tools for online sourcing that can really help you as you add this business model.
We also have a list of stores that we recommend sourcing from.
If you want to take a more hands-off approach to online sourcing, I recommend checking out the automated scanning service called Source Mogul. This service makes it so you can scan an entire online store with the touch of a button!
With wholesale, you typically buy direct from the manufacturer – or from a middleman – and buy in larger quantities in order to get a lower price than you would at a retail store.
This is usually a business model you'd tackle after selling on Amazon for awhile. With wholesale, it's extremely important to understand things like sales ranks and sales history.
With retail arbitrage and even online arbitrage, you'll hear us talk a lot about going wide instead of deep. What this means is that we'll recommend that you buy 3-5 of an item and test them out before buying more.
So you might buy 10 different products and get four of each — that's “going wide.”
But when you get into wholesale, you'll enter the world of “going deep.” In this Amazon business model, you'll often be required to place a minimum order worth hundreds of dollars.
The risk in wholesale is higher than in retail arbitrage because you tend to buy in bulk, so experience counts. You'd hate to buy 200 of an item and then be stuck with it!
Your research is similar to retail and online arbitrage, but again, you need to be extra careful and very confident of your purchases. It's important to fully understand how to interpret a Keepa and a Camel Camel Camel graph.
To learn more or for a refresher, check out How To Read A Keepa Chart.
You may also wind up creating new listings with this type of selling, either for a single product or by combining two or more products into a bundle.
This is a way to reduce or eliminate competition, but it also takes some knowledge. Read our Top 4 Tips For Creating A Profitable Product Page On Amazon to learn more.
- Lower purchase price means higher profit
- As you find profitable items, you can reorder them over and over, thus increasing your product line every time you find a winner
- When your purchase price is lower than other sellers, you have a better chance at winning the Buy Box because you can go lower on your sales price if needed
- Buying in larger quantities allows your business to be more passive. It takes less effort to sell 100 of the same item than it does to sell one of 100 different items.
- You can scale your business
- Larger investment of capital
- Bigger risk than retail arbitrage because you are buying larger quantities. There is always a chance you get stuck with large amounts of a product you can’t sell.
How To Get Started Buying Wholesale For Amazon
Even though we haven't personally decided to go this route, we are seeing many have huge success with Wholesale!
If you are ready to jump in right now, we recommend checking out our Wholesale 101 guide (FREE).
Private label refers to the practice of purchasing a product and then putting your own branding onto it. Many times, Amazon sellers will purchase a product from China and then attach their own brand, logo and marketing to it.
This is one Amazon business model, along with wholesale, that has gotten more attention recently, as the list of restricted items got larger and some sellers found themselves suspended (usually temporarily) for selling those restricted brands.
With Private Label, you own the brand!
You don't have to worry about getting in trouble for listing products that are banned. And you can pretty much wipe out your competition because you branded the product yourself and created the listing.
No more finding people undercutting your prices!
With this type of selling on Amazon, you'll need to learn about marketing in addition to becoming good at creating listings. It takes some work to launch a new product, but a lot of sellers think it's worth the effort.
The risk with Private Label is that you won't have a sales history or historical ranking to rely upon when you make a purchasing decision. So your research will be a little different and definitely more advanced than with retail arbitrage, online arbitrage, or wholesale.
You are basing most of your decisions on how well other listings appear to be doing, by using tools like Jungle Scout.
- Little to no competition because you are the brand owner
- More control over price
- No worries about items becoming restricted
- You are building a sellable brand
- Can have multiple product lines in one brand as you find winners
- Riskier than retail arbitrage and wholesale because the product typically has no ranking or sales history to draw upon
- You have to market your products
- You typically must purchase in larger quantities
How To Get Started Doing Private Label
If you want to get started with Private Label we recommend checking out our Private Label 101 guide (FREE).
When sellers drop-ship, they purchase from a retailer or wholesaler and then have the order sent to the customer.
This is the one business model listed that we actually DO NOT RECOMMEND!
Some sellers like this Amazon business model because they don't have to handle product. They feel there is a time savings for not having to prep and possibly a money-saver, too, if you've ordered enough product that you'd need to hire someone to help prep and ship it.
We stay away from it because we like to be more hands-on. With drop-shipping, you never get to inspect product before it gets shipped to the customer and you don't pack and ship it yourself, according to your standards.
You also run the risk of a customer making a purchase and then you aren't able to find that product if it happens to be out of stock wherever you meant to buy it from.
We've heard of many sellers getting suspended because of having to cancel to many unfulfillable orders, and customers who get mad once they realize the item is shipped to them from somewhere like Walmart when they ordered from Amazon.
- Sellers don’t handle the merchandise
- No upfront cost
- Lack of quality control; seller doesn’t have the opportunity to inspect the product, nor to ensure that packing and shipping is handled in a way you would approve of
- You run the risk of a product being out of stock and not being able to fulfill a customer's order
- Many of the companies promoting “DropShipping” are actually running as MLM companies
This is not an area we have used or explored, so we don't have any recommendations for further learning at this time.
Let's Talk About It!
What is your favorite Amazon business model?