Amazon Private Label vs Online Arbitrage – What is the difference?
For sellers who start their business on Amazon, selecting from various business models is quite a task. When you choose between online arbitrage and private label, you must consider your business strategy, sales targets, and resources.
In this post, we will tell about the upsides and downsides of online arbitrage and private label and help you select the suitable model for your business.
What Is Online Arbitrage?
Online arbitrage (OA) is a business model when merchants resell for profit products they find in online stores. The profit is generated from the lower price in that online store and the higher price on Amazon.
Online arbitrage is a straightforward model. Its principle is: buy low, sell high. To find products for online arbitrage, you must ensure that they will be profitable and will not create any issues in the sales process.
Sellers find deals to resell using product research. That provides the items they offer Amazon buyers to generate high margins. Sellers source their products in online stores, discount aggregator websites, and elsewhere on the internet and resell them on Amazon.
Pros of Online Arbitrage
Fast and easy to set up
Online arbitrage is fast and relatively easy to start. It can be launched in 2-3 weeks. You can begin selling as soon as you select a profitable product. Unlike private label products, you don’t need to deal with manufacturing because you list ready-to-sell items. Also, you don’t have to register a trademark to protect your brand, which saves time.
To start an online arbitrage business, you don’t need much money. You can launch it with as little as $500. You don’t have to invest significant funds upfront in product manufacturing. The products you resell can be inexpensive either: their cost can start from $10-15, and you will still be able to make a profit.
Online arbitrage is a low-risk model. Even if you’ve researched the wrong product and failed with it, you will not lose much money. Also, you don’t have to invest much funds upfront and risk that money, like with PL. Low risk is one of the reasons why many merchants start to sell on Amazon with online arbitrage.
Diversity of product ideas
There are endless opportunities to find profitable items online. Online arbitrage sellers can source their products on online shopping platforms, e-commerce stores, discount aggregators, or elsewhere on the internet. In addition, you can purchase researched deals.
Tip: Sellers who want to scale their business fast can purchase deals on the Seller Assistant Deals marketplace. This option allows you to safely get high-margin deals sourced by professional researchers and verified by the marketplace. Their profitability is verified, and the quality is ensured by the money-back guarantee.
Cons of Online Arbitrage
Challenging product research
Finding profitable products is a complicated task for OA sellers. They must find products that generate profit and don’t generate problems when sold. They must not be restricted, trigger IP complaints, or other seller account health problems. Seller Assistant App is a seller tool that helps you automate this task.
You don’t own the brand
With online arbitrage, you resell other brands. Some brands may complain to Amazon that you violate their intellectual property (IP) rights if you sell their products. That may result in Amazon account suspension. Therefore, you must check the products you sell for IP complaints to proactively avoid brands that file IP complaints and their products. You can do it with Seller Assistant App’s IP Alert feature.
Because it’s relatively easy to start online arbitrage, many sellers do this business. Therefore, there is high competition in online arbitrage. If many merchants sell one product, they often initiate price wars and dump the prices. In that case, profit margins are very thin, if not close to zero.
What Is Private Label?
With a private label (PL), you place your brand on a product. You can manufacture the products yourself or order a company to make them for you. Since a PL seller is the brand owner, they control how the product is designed, manufactured, and packaged.
Pros of Private Label
PL brand is an asset
With the private label model, you own a brand and a product. That is the advantage of PL. If your Amazon business is a success, you can sell it. Amazon business aggregators give preference to PL businesses when buying them, and the purchase price is higher.
A private label product is trademarked, and you hold the rights. Therefore, online arbitrage sellers or other brands can’t sell such products. That is why you are alone in the Buy Box with almost no competition. That means you can set a higher price, and the profit margins in this business may be higher.
Full product control
PL product is in complete control of the seller. They own a brand and decide on the design, packaging, and pricing. On the contrary, OA products’ drawbacks can’t be improved or changed.
Cons of Private Label
Long startup time
Compared to online arbitrage, the private label takes far more time and effort to start. You must select a product and order its manufacturing. Also, since private label merchants sell new products on Amazon, they need to create new listings, which also takes time. In addition, it may take time until the product starts to bring money because it’s unknown to the customers. Typically, it takes around three months to start.
You must invest essential money to produce a private label product and promote it.
On average, Amazon sellers spend $2,500 and up to launch private label products.
Since a private label product is new to the market and has no sales history, you never know how well it will sell. Therefore, you risk when you invest money in PL business. On the other hand, there’s no risk of Amazon account suspension due to intellectual property rights violations because you own your brand.
Complicated product research
With the private label model, you must do sophisticated product research. You must select a product that will generate high sales volumes because you invest essential money. You must niche it down and identify its sales potential to ensure it will bring profit.
Related: Amazon Inventory Management
What Is Better For Your Business — Online Arbitrage Or Private Label?
Private label and online arbitrage are perfect for different targets. With a private label, you own the brand and do a long-term business that will generate sustainable profit in the long run, but it takes time and money to start. Online arbitrage can be launched with little money and in a shorter time, but there’s higher competition. You must select the one that better fits you.
If you are a beginner on Amazon, starting with online arbitrage may be a good idea because, with this model, you risk little money and can learn to sell. In turn, PL has excellent potential to scale business for existing Amazon sellers.
To make the right choice between online arbitrage and private label, you must look into how each of them works for your business. In many cases, merchants start selling with online arbitrage and later launch PL products. In your Amazon business, you can combine both models as well.
Growing sales is every Amazon seller’s target. Seller Assistant App can help you with that.
Seller Assistant App is a popular new-generation product research tool that helps with these tasks.
Seller Assistant Аpp is an all-in-one extension incorporating features vital for product research. Advanced IP Alerts can immediately tell you if a product has any sales restrictions or has led to problems with account health in the past. It combines an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker in one tool.