Amazon Business Models: How to Choose the Right One in 2023?

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 a 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 a 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 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 Amazon business models and Amazon business models guide examples.

What Are Amazon Business Models?

A 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 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 are:

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

Why is Business Model important?

This is because choosing a business model influences ASIN’s price, hence profits. Profit is why you sell, at the end of the day.

The business model, together with the cost of goods and fulfillment method are the main components of the price policy. All other important things like PPC campaigns, fighting for the Buy Box, growing product ranking, and more, are the means to increase sales and outperform the competition. 

For example, if you’ve made up your mind to sell wholesale, your purpose is to find distributors and manufacturers and negotiate down the price for big lots of products. Bulk deals are attractive for suppliers, thus you can get a good price and profit margin. However, you’ll have to invest essential funds upfront. In addition, you’ll need to manage a lot of inventory and store it somewhere.

On the contrary, if you don’t have a lot of money to spend on your Amazon sales right away, the wholesale model is probably not a good choice for you. 

This situation is very typical for a lot of beginners on Amazon. They are not ready to throw a lot of cash into the Amazon business from the start and don’t want to deal with inventory management. In that case, they can go for drop-shipping. Many 7-figure Amazon sellers started from there. This model is relatively easy to set up. However, it implies a number of risks since you have almost no control of the fulfillment process.

That said, you see that to launch a successful product you need to both find a profitable product and figure out how you’re going to sell it. In other words, select one of the Amazon business models.

Amazon Business Models Guide 

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

For instance, 67% of sellers use private label, 26% - wholesale; 19% - retail arbitrage; and 17% - online arbitrage. The least popular are dropshipping with 9% and handmade with 6%. 

Some of the sellers use more than one business model in their store.

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

Private label

What is private label?

A private label is basically a re-branding model. With this model, a seller finds an unbranded product, oftentimes from China, or an unknown brand, and creates their own brand out of it. 

This model is used by many retail corporations that operate chains of hypermarkets. These are, for instance, Walmart with its Great Value private-label brand, or Costco with its Kirkland Signature.

Alongside the re-branding, some sellers 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 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.

Private label model: pros and cons

1. Pros:

• almost no 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.

2. Cons:

• you have to create and optimize 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.

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 three months to start.

How to launch private label product step by step

Step 1. Create a Professional Amazon Seller account. 
Step 2. Enroll in the FBA program for Amazon to take care of picking, packing, and shipping the product (optional).
Step 3. Make product research to find high-demand or low-competition niches.
Step 4. Check the product’s cost of goods. Make sure it’s profitable.
Step 5. Negotiate with a supplier to brand (and modify) the product.
Step 6. Create a new product page.
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.

Wholesaling

What is wholesaling?

Wholesale selling is a reselling model. It refers to buying products in bulk from the supplier at a discounted wholesale price. Once done, the wholesaler sells its items to retailers with a profit margin.

With this model, a merchant who buys wholesale has to procure big lots of inventory to get favorable price conditions from the supplier. As far as the per-item price is low, wholesalers are able to squeeze out increased profit margins when they resell inventory to retailers.

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 the wholesaler 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 wholesaler resells 200 T-shirts to the retailer for $15 per unit and earns $5 on each unit. In this model, all three parties are making a profit.

As a rule, suppliers give priority to bulk orders. Therefore, wholesale sellers are in a good position in terms of pricing and delivery terms.

In addition, this model involves less risk compared to, say, private label. This is because wholesalers mostly sell popular products 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 ASIN’s promotion. 

To track producr’s 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. Read more in our article “Amazon Restricted Products – Complete Guide for Sellers”.
Checking whether you can or can’t sell every single product is a headache unless you use a Seller Assistant App Bulk Restriction checker. 

Wholesale model: pros and cons

1. Pros:

• better chance to sell established brands (not restricted on Amazon);
• fast to get up and running;
• 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.

2. Cons:

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

Time and cost to launch a wholesale product

To start wholesaling, 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 wholesale product step by step

Step 1. Create a Professional Amazon Seller account. 

Step 2. Enroll in the FBA program for Amazon to take care of picking, packing, and shipping the product (optional).

Step 3. Make product research for popular profitable products.

Step 4. Find a reliable supplier who offers a good price.

Step 5. Check the products’ profitability via Seller Assistant App.

Step 6. List your products and start selling.

Retail arbitrage

What is retail arbitrage?

Retail arbitrage is a model when a merchant finds discounted or cheaper-priced products in brick-and-mortar retail stores and resells them on Amazon with 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. Despite 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 get 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. 

Retail arbitrage model: pros and cons

1. 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.

2. Cons:

• very time-consuming model - you have to physically find and restock inventory;
• relatively low-profit margins;
• takes time to get 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.

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 retail arbitrage product step by step

Step 1. Create an Amazon Seller account. 
Step 2. Enroll in the FBA program for Amazon to take care of picking, packing, and shipping the product (optional).
Step 3. Make product research for discounted products (“buy low sell high”).
Step 4. Negotiate with the store for a good price.
Step 5. Check the products’ profitability via Seller Assistant App.
Step 6. List your product and start selling.

Online arbitrage

What is online arbitrage?

The principle behind online arbitrage is similar to retail arbitrage - buy low, sell high. Yet, compared to the latter, online arbitrage sellers find their products on the internet, as the name suggests. Thus, this method lacks one of the biggest disadvantages of retail arbitrage – you don’t have to physically roam the brick-and-mortar stores.

There are a lot of places to find online arbitrage products. It can be online selling platforms like eBay, Etsy, and more. You can use Google trends, platforms with hot deals like Brickseek, internet stores of hypermarket chains like Walmart, or AliExpress’s best-sellers list. Also, you can browse single websites of different brands. In addition, Amazon itself is a good source for product ideas. 

Typically, for the online retailer, the most time-consuming thing is product research. Not only do you need to find a profitable product. You have to check if you can sell it on Amazon or not so that it’s not restricted. You need to see to it that the item isn’t bulk or oversize that involves extra shipping fees. You should to consider a lot of other things and make notes on every product in a hundred when you surf the internet and find them.

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

Online arbitrage model: pros and cons

1. 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.

2. 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.

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 online arbitrage product step by step

Step 1. Create an Amazon Seller account. 
Step 2. Enroll in the FBA program for Amazon to take care of picking, packing, and shipping the product (optional).
Step 3. Make product research via Seller Assistant App for discounted products (“buy low sell high”).
Step 4. Check the product’s profitability via Seller Assistant App. 
Step 5. Source the product.
Step 6. List your product and start selling.

Dropshipping

What is dropshipping?

Drop-shipping Amazon is a model when 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 wholesale price of the supplier and the retail price of a drop shipper.

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

Drop-shipping model: pros and cons

3. Pros:

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

4. Cons:

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

Time and cost to launch drop shipping product

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

How to launch dropshipping product step by step

Step 1. Create an Amazon seller account.

Step 2. Make product research via Seller Assistant App.

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

Step 4. List a product on Amazon.

Step 5. Start selling.

Handmade

What is handmade?

Handmade is a model when sellers create their own products “by hand” and list them on Amazon.

‍Products can range from home decor to jewelry.

Handmade model: pros and cons

1. 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.

2. Cons:

• you need to create and optimize 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.

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

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 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 select a business model

Step 1. Write down all the business models.
Step 2. See what 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 FBM&FBA calculator to define if it’s profitable or not with the model you selected. If yes, proceed to step 5.
Step 5. List a product and start selling.

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, it 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 so that it’s not restricted. You need to check that the item isn’t bulk or oversize to avoid extra shipping fees. 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 in one tool.

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