On Amazon, there are a few common business models that sellers adopt. Anyone in the Amazon FBA space has heard these words floating around – private label, wholesale, retail arbitrage, online arbitrage, and dropshipping. All of them are unique selling methods with their own benefits & limitations. Wholesale vs private label vs arbitrage vs dropshipping – what works for one seller might not work for another!
Still, out of these business models, private label and wholesale are by far the most popular. JungleScout‘s statistics indicated at least 67% of Amazon sellers sell private label products, and 26% sell wholesale products, this includes sellers who may use both. With both methods being so popular, they are constantly pitted against each other in a neverending Amazon Wholesale vs Private Label debate.
We will guide you on how wholesale and private label work, their pros & cons, and provide a brief comparison. By the end of this article, you will be able to make a clear decision on which business model will work for you!
What is Wholesale?
Wholesaling is a business model where sellers purchase goods in bulk, usually at a discount, and then sell the individual units in a retail marketplace or online marketplace like Amazon. Wholesale products are usually existing products, they tend to already have listings on Amazon. Wholesale Amazon FBA sellers add their own products to existing listings and act as resellers for them.
How much does it cost to start wholesaling? Is wholesaling profitable on Amazon?
According to one survey, nearly half of Amazon wholesale sellers spent less than $2500 in business start-up costs. Around 61% of them ended up earning over $5000 per month. This makes it quite a profitable business, for a relatively low start-up cost.
Pros & Cons
Despite the numbers and percentages, like every type of business model, wholesaling on Amazon has its pros and cons.
Wholesale definitely has some attractive advantages. Reselling products cuts some major costs including advertising, and cost of time. You don’t have to expend energy into building a brand, or even ASINs and optimized listings. You can simply start once you have your permit.
Still, sellers get lured in by the advantages and forget how difficult it is to find a wholesale supplier in the first place.
Established brands on Amazon already have sellers, and are unlikely to take on new sellers. Meanwhile, established brands that are NOT on Amazon are few and far between, now that Amazon holds 9.2% share in the US retail market. Sellers with past wholesaling experience and relevant connections will find it much easier to wholesale than new, inexperienced Amazon sellers. It’s important to keep this in mind!
That’s not to say it’s not worth doing! Wholesaling is extremely profitable once you get a foothold in the market. When you provide success to one brand, others quickly take note. Amazon wholesale is a fast way to scale if you do it right.
How do I Start?
So how do you start wholesaling on Amazon? How long does it take? What kind of products should you sell?
First, you need to get your wholesaling license to be a reseller. If you’re doing this in the US, you need to register your business and apply for an EIN (Employee Identification Number) with the IRS. This is totally free, but it will take 4-5 weeks. In those 4-5 weeks, you can start reaching out to brands, so once you have that permit, you’re ready to go.
So the answer to “How long does it take to start a wholesale business?” is… you guessed it, 4 to 5 weeks.
As for “What kind of products should I sell?”, this depends. Currently, the top 5 categories on Amazon for wholesalers are Home & Kitchen, Toys & Games, Sports & Outdoors, Beauty & Personal Care and Health, Household & Baby Care.
Do some market research, find a good, high-demand product, crunch some numbers and then reach out to brand owners. That’s the biggest hurdle you’ll face, but once a brand signs you on after all your cold emails and cold calls, it’s easy. You can start selling immediately and some brands even ship to Amazon for you, further cutting your costs.
Some tips to make yourself sound attractive to brands:
- Do your homework – show them examples of how you can improve their listings, their photos, or any other issues raised by customers in reviews
- Provide actionable insights – state your skillets and then identify areas where you can help them, a lot of established brands have difficulty selling on Amazon despite their size
- Don’t give up – keep following up every week or so, if you show your dedication a brand owner that said “no” at first may change their mind
What is Private Label?
Private labelling is a business model where sellers purchase products manufactured by a third-party manufacturer and then sell it under their own brand name(s) on Amazon. In this case, the manufacturer may produce your product but don’t have any rights over the “label.” This is why it’s called “private label.” Private label sellers have to create their product listings on Amazon, each of their products must have a GTIN, UPC, SKU, FNSKU and ASIN.
How much does it cost to start a private label brand? How profitable is it?
According to a survey, 61% of private label sellers spent $2,500 or more to get started. Similar to wholesaling, about 56% of sellers made $5000 or more per month. Looking at purely the numbers, there’s not much difference between private label & wholesaling.
Pros & Cons
Whether private labelling is a good business model for you again comes down to evaluating its pros & cons.
Private label in its essence is very high risk, high reward. It is different from wholesale in the sense that while there are a lot of costs, the seller has full autonomy over their business. An experienced Amazon FBA seller can easily launch & manage over 50 private label products under one brand. Private label sellers can also easily expand to other Amazon marketplaces.
Do not let the disadvantages of private label dissuade you. Building your own brand is time-intensive, but the payoff for a successful brand is huge!
In the past, building your own brand required a brick & mortar store with rent & overhead, and even an online one required you to manage packing, shipping, and customer service. Amazon FBA provides private label sellers the unique advantage of an established supply chain!
It is much easier to launch your own brand on Amazon than anywhere else!
How do I Start?
So how do you start private labelling on Amazon? How long does it take? What kind of products should you sell?
Initially to start a private label business on Amazon, you need to legally establish your business. After this, you can simply register as an Amazon seller and begin. Since private label is essentially building your business from scratch, it’s much more time intensive. To answer the question of “how long does it take to start a private label brand on Amazon?” – most sellers reported 3 months or less.
The question of “what kinds of products should I sell?” is not so cut and dry. Private label hinges on EXTENSIVE product research to find the perfect untapped niche to sell in. Most private label sellers use Amazon tools like JungleScout or Helium10 to find product opportunities. Currently, the most popular Amazon categories for private label sellers are Home & Kitchen, Kitchen & Dining, Sports & Outdoors, Beauty & Personal Care and Health, Household & Baby.
Selling private label products on Amazon FBA involves the key steps of starting any Amazon FBA business:
- Register as an Amazon Seller, before this you need to legally register your business
- Create a brand name, logo, and other marketing materials
- Conduct extensive product research, find a niche, calculate costs, prospective demand, revenue, profits, etc.
- Create ASINs/product listings and product detail pages for your product(s)
- Source your product, locally or externally by getting in touch with suppliers
- Make your first order, prepare your products & assign inventory to FBA
- Ship your products to an Amazon fulfillment center, and now you’ve officially started selling on Amazon!
Important note for Private Label sellers- Amazon PPC is an absolute must. Once you’ve setup your business, you’re not done yet. You have to manage your advertising very well to create a profitable private label business. With so much time already invested into creative processes, many private label sellers use Amazon PPC Management Software like ours to automate the bid management process for them!
Wholesale vs Private Label
Now, we come down to the final question – Wholesale vs Private Label, which is better?
It depends on a few factors, and also on your own strengths & skillsets as a seller.
Comparison of Wholesale vs Private Label
A basic comparison of Amazon wholesale vs private label is as follows:
As you can see, it’s pretty fairly balanced. There are pros and cons for both methods, and it boils down to one thing- which model works for you, as a seller. If you’re an Amazon FBA seller who works better alone and wants to scale your business in the future, private label is for you. If you’re an Amazon FBA seller just looking for a predictable, stable income, then wholesaling is the way to go.
Which is Better? Wholesale or Private Label?
To answer the question of wholesale vs private label, which is better? There’s no absolute winner.
It can be argued that wholesaling on Amazon is getting harder due to most brands already having a digital presence. However, many brand owners are on the lookout for people who understand selling on Amazon better than them. Similarly, many say that Amazon private label is saturated, no matter what product you sell, competitors pop up the next day.
Overall, both methods hold promise, it just depends on your goals and priorities as an Amazon seller.
Private label and wholesale are two the most popular business models adopted by Amazon sellers. Both methods have their benefits and limitations, and it can’t be said that one is definitely better than the other. We hope our comprehensive breakdown of the pros & cons of each method and the clear comparison between them helps you decide which is best for you – wholesale or private label?
If you have questions or insights to share, please feel free to post them via the comments section. Please also consider joining our Facebook Group where we discuss any questions you may have about running an Amazon business.
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