The Basics of Amazon Business Models: A Beginner’s Guide

Amazon is a well-trusted global eCommerce marketplace. Amazon has seller and buyer accounts from many major countries like America, India, European countries, Dubai, etc. There are multiple business models to do on Amazon. A basic list of business models are:

●       Private label

●       Wholesale

●       Retail/online arbitrage

●       Dropshipping

Let's take a look at each business model closely.

Private label

A private label is referred to as one’s own personal brand. In a PL business, amazon sellers only sell products that have their own brand name and logo on them. The first step to starting a private label business is conducting market research for your preferred business products.

Market research starts with finding a product on amazon that has high sales but relatively fewer reviews. You can source your products from manufacturers in China. After finalising the product you can order the PL inventory from the manufacturer and start selling it on Amazon. Make sure to advertise your products because that is necessary for PL projects. PPC ads are run in order to increase organic sales.

Wholesale

Wholesale is a simpler business model as it requires only getting products from the wholesale supplier or manufacturer in bulk amounts and selling it on amazon. Wholesale products have multiple sellers listed on one product. So in order to make sure that you receive equivalent sales, you need to opt for a product that suits you in terms of seller competition, buy-box rotation, profit, and pricing.

The seller can choose to sell wholesale items with both FBA and FBM strategies.

Retail/online arbitrage

Retail arbitrage means that you purchase a certain amount of inventory from a retailer at a cheaper cost, and sell it on amazon at a higher or full price. For instance, if your local store is selling shampoo at a 50% discount, you purchase it from there and list it on amazon for the complete price.

Online arbitrage is the same as retail arbitrage except the seller does not purchase p[bysically from a store but buys it from retailers online at a significantly lower price and sells it on amazon.

This business model is not encouraged to be practised in the longer run. Arbitrage is relatively a microscale model, and the ultimate goal is to shift to wholesale. It can be practised for a small period of time to start generating sales at breakeven or profits on a new account.

Dropshipping

Dropshipping is a method for order fulfilment that enables eCommerce companies to contract with a third party to acquire, store, and transport their items. Entrepreneurs looking for cheap overhead and minimum capital expenditures like this technique of order fulfilment, although it can be expensive.

Dropshipping enables you, the seller, to contract with a supplier or other outside entity to handle the fulfilment process. Manufacturing, warehousing, transportation, and delivery of the goods to the client are all handled by the manufacturer or a third-party provider.

Fulfilment services

Two main types of fulfilment services are FBA and FBM.

Fulfilled By Amazon vs. Fulfilled By Merchant

These are two fulfilment strategies used by amazon sellers. Sellers can choose their preferred fulfilment strategy according to their business model and convenience.

In FBA, the service is employed by sellers, in which Amazon receives their inventory, processes orders, and manages returns and customer service while charging a fee, which depends on the type of product. Can be used for wholesale, private label, and arbitrage.

In FBM, the amazon merchant is in charge of delivering the items that customers have ordered on Amazon. FBM has direct access to a seller and is in charge of the full processing and shipment procedure. No fulfilment fee is charged. Can be used for wholesale, private label, arbitrage and dropshipping.

Final words

This article is the gist of everything that you need to know about amazon's business models. If you are looking to start your business on amazon, look carefully at what suits you best according to your budget and style of selling.

Analyse which fulfilment strategy fits best according to your business model and you can become a successful seller. 

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