The turn of the millennium heralded a time of great change, change that was fast tracked by rapid advancements in technology. And while there is a lot not to like about these modern times, business-wise, things have never been better.
Technology, of course, has killed many a great business along the way. And jobs. And profit. It has had a debilitating effect on virtually every industry. Travel. Banking and finance. Telecom. Hotel. Transport (from road to air). Manufacturing. Media. Retail. Publishing. Music. [Insert industry here].
But it has not been all doom and gloom.
Tech has spawned and facilitated opportunity aplenty. We live at a time when it has never been easier to start a business – a real business run from home – and watch it flourish; and with a bit of luck, perhaps set the world on fire.
A growing number of people are ditching the traditional way of doing business and opting to try their hand in online business – ecommerce stores, service delivery, affiliate marketing, blog/magazine publishing, self-employment through harnessing of skills like coding, web design, writing etc. The list is long.
For purposes of clarity though, online business in our context will herein refer to ecommerce stores.
The upside to creating an online business is that unlike the capital-intensive businesses of yore, starting out requires very little outlay. This explains why you are increasingly seeing a lot of those “How I built an X million empire with just $1,000: You too can do it!”
But venturing into online business may not be as easy as it may be painted to be. You don’t find the proverbial red carpet rolled out for you, ready for you to step on it and conquer the universe. Otherwise the world would be rich.
This is a path fraught with a myriad challenges, and if anything, making your voice heard amidst all the online cacophony could prove a harder ask than simply running a traditional brick-and-mortar business.
Why Selling on Amazon is Worth Exploring
Being an ecommerce storeowner is no walk in the park, as anyone who has been down this path will tell you. In addition to making sure you have an offering that hooks people in, you have the unenvious task of generating traffic, the biggest challenge of them all.
It’s not a case of “If I build they will come”. It’s never been. Unless you were the fortunate mortal to open the first web storefront. By launching your online store, you see, your website will be joining the hundreds of millions of websites out there. The onus will thus be on you to figure out ways to get a slice of the online traffic pie just so it’s profitable enough for you to thrive.
But this is not the case when you opt to sell products on the Amazon Marketplace.
Simply because it solves the traffic conundrum for you. All you need to do is figure out which products are likely to move, then create your Amazon webstore and start capitalizing on the swarms of traffic already on hand.
To understand the magnanimity of Amazon, it is worth noting that so dominant has the online retail giant become that most consumers looking to purchase any item online go straight to the site instead of searching other online stores. And even when you look up any product on Google, chances are the first listing will be Amazon’s.
In fact, many small businesses have reported an upturn of fortunes by shifting operations to the Amazon Marketplace. It is a symbiotic relationship, with Amazon getting a boost from third-party merchants who sell their wares on the platform, while the merchants benefit from the ecommerce giant’s already established goodwill.
Perhaps it had not even dawned on you that third-party sellers (vendors other than Amazon itself) are allowed to sell products on the giant ecommerce site. But you can. Anyone can. But first, you need to choose a business model.
The 5 Amazon Business Models
Amazon has five business models through which you can become a vendor on the site. These are:
Amazon Wholesale – Let’s save this for a little later.
Online Arbitrage (OA) – OA is simply buying products from a person, store or online retailer at low prices and then reselling for profit. Yes, like flipping. It is flipping actually. You can either source your products from a physical store or deal solely with online goods. The idea is to identify products being sold at lower prices compared to the current price on Amazon.
Retail Arbitrage (RA) – The dynamics of retail arbitrage resemble those of its close cousin, online arbitrage: you purchase wares in retail stores (both online and offline) with the aim of reselling, only that in RA, you operate in brick-and-mortar shops.
Private Label (PL) – Private labeling involves sourcing items from manufacturers and rebranding them as your own. It is a very lucrative venture since you can build a brand entirely around products that are not your brainchild (they could be as well). You are simply using products that are already created and rebranding them under a different name, and you are allowed to tweak them as suits your fancy. The cost of entry is large in most cases, but you stand to benefit from the low competition.
Dropshipping – A business model that involves the retailer referring customer orders and shipment details to either the manufacturer, wholesaler or another retailer who then ships the item(s) directly to the customer. We have covered Dropshipping in detail here.
Each business model has its benefits and downsides, but that is a story for another day.
FBA vs. FBM
It would be remiss to talk Amazon business models and fail to mention that all these models are what is known in Amazon lingo as Fulfilment by Amazon (FBA), save for dropshipping which is Fulfilment by Merchant (FBM).
These are basically the two methods through which you can sell wares on Amazon; the third being a mix of a little bit of each.
Fulfilment by Amazon means Amazon will do most of the dirty work for you. Provided you ship your item to them, they will unpack and store it in one of their many warehouses for you, and when a customer makes a purchase, Amazon employees will find and ship the product(s) to the customer.
Your work is only to source for profitable products, list them on your Amazon storefront, then prepare and ship these items to Amazon warehouses from where they are distributed by Amazon to the customer following a purchase.
Fulfilment by Merchant, on the other hand, affords you more control over your inventory, granting you more hands-on access. Unlike FBA where storage and shipping are catered for by Amazon, FBM allows you to take charge of these duties, at least in the eyes of the customer.
We say this because with a business like dropshipping, you don’t necessarily have to handle the product yourself as the manufacturer/wholesaler/retailer does the shipping directly on your behalf.
Understanding Amazon Wholesale
The Amazon wholesale model is not much different from regular wholesale of products. It is a type of business that involves sourcing items in bulk directly from the manufacturer or through a distributor (which is not wholesale proper) and then selling them at a markup. All you are doing is simply acting as the middleman to products that can potentially be very rewarding.
Wholesaling is one of the most profitable ways to run a business on Amazon. If you search well, you can find many items that would fetch a nice return because you will be buying them at a wholesale price (which is characteristically low) and selling at a more attractive fee compared to sellers who are buying the same products from retail sources. This is one of the reasons it is always a good idea to cut out the middleman whenever you’re sourcing your products.
Besides, considering you are technically reselling another brand’s products, it is worth sourcing your items from the main company to avoid legal issues to do with counterfeit selling. Reselling a brand’s products without its consent could not only land you in legal trouble, but also may result in your Amazon business being shut down.
As previously pointed out, Amazon wholesaling is a Fulfilment by Amazon type of business. What this essentially means is that wholesaling on Amazon can free you lots of time by cutting out the logistic headaches of storing products (in bulk at that), packing and shipping to every individual customer who buys from you.
Amazon wholesale automatically enrolls your inventory for Prime which makes your products a tad more costly than those being fulfilled by merchant. However, don’t for one minute think all customers will go for the cheaper option. Many people choose to spend a few extra dollars on the promise of fast shipping, with orders being fulfilled within a two-day window (or thereabouts).
This partly explains why a seller would price items higher than the competition yet manage to beat the cheaper listings to that coveted Buy Box (whereby your products are featured for the millions of eyeballs to see).
Obviously, Amazon doing the legwork for you means higher, if not complicated, fees: monthly storage, product picking and packing, order fulfilment, and weight handling – all of which vary from one item to the next. By and large though, you find that these charges are less costly for you compared to running everything from your own account or by yourself.
The whole essence of wholesale is to buy in bulk at a low cost. However, when wholesaling on Amazon, it is advisable to limit your stock – at least until you learn the market or see how certain products are moving – before going all in in terms of stocking.
Reason is because should you be faced with a case of dead stock, not only will this hold up much-needed operating capital, but also you risk incurring long-term storage fees for items that have been warehoused for longer than 6 and 12 months. The workaround is to remove older inventory from Amazon’s warehouse. But still…
Getting Started with Amazon Wholesale
To become a wholesaler on Amazon, all you need is to open a marketplace seller account and wait for approval.
Step 1: Sign up for an Amazon Seller Account.
Amazon provides various self-service options for registration.
- You can go directly to the Amazon homepage and click the “Sell” button. It’s one of the tabs just below the Amazon search bar.
- Navigate to amazon.com, then click on the checkbox indicated either “Sell on Amazon” or “Selling on Amazon”.
- Navigate to amazon.com and select the “Selling on Amazon” option on the bottom-left of the page.
Doesn’t matter which registration option you decide to go with as it will just take you through the same process.
Information that you will be asked for includes your business name and address (this will appear on your product page); credit card info (needed for automatic deduction of Professional Seller account fees – see below); identity verification (via SMS or phone call); and tax information (name, SSN etc. needed for submission to IRS in the event you move 200+ items a year or sell $20,000+ worth of goods a year).
Step 2: Choose a Seller account
You will need to choose between an Individual Seller account and Professional Seller account. Your choice should be guided by a couple of important trade-offs between the two accounts mostly revolving around 5 key things:
- Monthly fee – Professional accounts cost $39.99 a month while their individual counterparts are free.
- Listing fees – Individual sellers are charged $0.99 for every listing that sells, a fee professional sellers don’t incur.
- Shipping rates – Professional sellers have the luxury of setting their own shipping rates which can be helpful if you intend to make shipping a profit center for you.
- Listing new products – Only professional sellers can list new products that have never appeared on Amazon before which gives them an obvious edge.
- Gated categories – Only professional sellers can are eligible to sell in ten or so categories of products currently gated (requiring approval) on the site. Examples include Beauty, Clothing, Shoes, Collectibles, Automotive and more.
Step 3: Find Products to Sell
And here comes the hard part. Your success as an Amazon wholesaler will hinge a lot on the products you decide to sell. There is no definite answer to the hottest moving items as this is a very dynamic element.
The best way to find out is to scan virtually everything. That’s right – every “feasible” item that will not prove a big headache to source.
Step 4: Get your Products to Amazon Warehouses
The next piece of the Amazon wholesale jigsaw is to figure out how to get your inventory (which is in bulk, mind you) from the factory to the FBA warehouses.
It might appear like a dragged-out affair on the face of it, especially bearing in mind the different customs processes of different countries and the fact that Amazon itself has some pretty strict requirements for how they want you to deliver the items.
Luckily, there are many companies established with the sole purpose of helping you deal with this hassle: customs brokers and freight forwarders, heard of them?
This is one of two ways you can get your products delivered to Amazon warehouses. For a fee, the factory delivers the stock to the freight forwarder, who then gets it into your destination country and handles all the paperwork and taxes. Next the freight forwarded hands over the stock to Amazon-partnered couriers who then go on to book the stock into the FBA warehouses.
The alternative to using freight forwarders is to do this yourself. First, when your inventory arrives from the supplier, you need to make sure the products are well packed before shipping to Amazon. You can get their prepping requirements on this link.
This method of shipping to Amazon can further be broken down into two categories. The first involves packing the items DIY, doing everything yourself, from packing, to organizing pickup with the likes of UPS which offers free pickup. The alternative is to hire the services of a prepping company to do it for you. The latter is especially handy when your Amazon wholesale business starts to grow and packing becomes a time drain.
Sounds complicated? Only in writing. It isn’t really once you get the hang of it.
Step 5: Sell
Once the inventory reaches Amazon and you get confirmation, all that remains now is to adjust your prices as needed, and then finish off with that all important part – SELL.
Amazon will sort out everything else on your behalf.
Sourcing Products for Wholesale
We did allude to the point that wholesaling is best done by circumnavigating the middleman.
The best way to get true wholesale prices is to deal directly with a manufacturer or supplier. This will mean getting away from the comforts of your seat, although this is still part of the game – whether it’s a little digging you need to do on the web, or finding suppliers from the Alibaba factories website. Or eBay. Or Craiglist. Or checking up lists of Certified Product Wholesalers.
The downside to the online approach is that you risk falling prey to wholesale products scams.
Fortunately, it is not the only way. Getting good wholesale prices could also mean going out there in person. Visit a thrift shop (or several). Look up and pay suppliers a visit. Attend expos. Grace trade show booths.
The bonus of meeting your sources in person is that you not only get a firsthand experience of what they are all about as a company, but also get the chance to strike lasting relationships with them. We may be living in 2020, but there is no way like the old way to establish trust.
As well, try the big stores that allow for reselling – for example, Best Buy, Gamestop or Dollar Tree; Kohl’s probably. Some have a limit on the amount you can buy per item.
Pros of Amazon Wholesaling
To summarize a few of the positives of creating a wholesale business on Amazon:
- You don’t have to painstakingly build a brand from scratch.
- Buying directly from manufacturers enables you to buy in bulk at discount.
- Unlike most other Amazon business models, wholesaling allows you to scale your business easily. It is absolutely possible to increase your inventory as the business grows without the need to hire an extra pair of hands. More so if you make use of services like a prepping company to help you in the processing.
- You also have the alternative to build a team and free up your time as a business owner.
- Wholesaling saves you a ton of time not just on the prepping aspect alone. It also absolves you of the need to source many one-off items to resell as you would in arbitrage. All it takes is just a few hours to find a great source and simply reorder whenever you run out of supplies.
- You have the option to stay in control of your business by taking care of things warehousing, packing and shipping, if you want.
- As well, FBA in itself is immense in terms of the benefits you get to enjoy as a business owner.
- There is little price fluctuation from the manufacturer. This can at times give you an edge over other wholesalers (if you source the products at a lower price than them) as well as arbitrage business owners.
Cons of Amazon Wholesaling
The path to Amazon wholesaling is not all roses and fairy dust. It has its fair share of shortcomings too, most notable of which include:
- Low margin products.
- Getting a hold of manufacturers who are not directly marketing on Amazon.
- High costs to establish your own warehouse should you choose to go down this route.
- It might be a challenge getting your foot in the door to become an approved reseller. You need great negotiation skills as well as exercising your buying and selling power.
- Competition could be fierce in some categories. There is also always the chance of competition for the Amazon Buy Box from other resellers.
Becoming an Amazon wholesaler could be a boon for some resellers and a bust for others. There is a plethora of variables to think about, including the type of products to deal in, how fierce the competition is in your category, marketplace restrictions and fees, just to mention but a few.
All things considered though, you could say the Amazon wholesale business model has opened up a golden opportunity for ordinary folks to prosper in business. For decades, the most challenging part for the average Joe to succeed in business was to put products in front of customers, least of all as a wholesaler.
Pre-ecommerce, it required boatloads of cash to set up a well-stocked store, never mind marketing and promotion funds to get customers into the store and buying.
And even with the advent of the ecommerce business model, it became an even bigger challenge to get your business noticed, what with the hundreds of thousands of online storefronts all clamoring for attention. Small businesses could sink thousands of dollars into paid campaigns without getting the ideal results they would have preferred to see – and more so today than ever.