Amazon Business Models – Different Ways to Sell on Amazon

There aremany ways to sell products on Amazon – you can create and launch your own brand or resell other branded products.

Here are the different types of Amazon Business Models.  

  • Private Label: Creating your own unique products and brand
  • Wholesale: Buying products in bulk directly from a brand or distributors to resell on Amazon
  • Retail Arbitrage: Buying discounted products at other retailers such as Costco and reselling them on Amazon 
  • Online Arbitrage: Buying discounted products from online retailers and reselling them on Amazon
  • Dropshipping: Have a supplier or manufacturer fulfil Amazon orders on your behalf without purchasing products in bulk
  • Handmade: Creating/crafting your products to sell on Amazon

In this article, we focus on creating and launching your own private label product and brand.

Amazon fulfilment methods

You have two options for fulfilment: Fulfilment by Amazon (FBA) or Merchant Fulfilled Network(MFN) also known as Fulfilment by Merchant (FBM):

Fulfilment by Amazon

Through FBA, Amazon handles everything from storage, picking, packing, shipping, and even customer service. When you use FBA, your products are automatically eligible for two-day Prime shipping, which means your products will display the “Prime” badge.

Merchant Fulfilled Network

Through FBM also known as MFN, sellers manage their own storage, shipping, customer support, and order fulfilment. Sellers can still offer 1- to 2-day shipping to their customers through Seller-Fulfilled Prime. To successfully sell on Amazon you need a product that is a strong candidate for 1. Profitability, 2.Demand and 3. Competition. 1. Profitability Before selling any product, you need to be sure you will make a profit on each sale. As a rough estimate, we use the general rule of 3s: ⅓ of the sale goes to fees, ⅓ goes towards your product costs and advertising, and the last ⅓ should go to you as profit. This rule doesn’t apply in ALL circumstances but it is a good rule-of-thumb to use to quickly establish if a product is viable. Product Costs This includes the costs to produce, prepare and ship your products to an Amazon Fulfilment Centre and includes:
  • Cost of goods
  • Inspection fees
  • Shipping costs and fees
  • Taxes and duties
Amazon Fees If you want to sell on Amazon, you have to be familiar with all of the associated costs of selling with FBA:
  • Referral fee –this fee is typically 15% of each sale and is Amazon’s ‘commission fee’
  • Selling plan fee –professional sellers will pay £25 per month, and individual sellers will pay a £0.75 per transaction fee (but no monthly fee)
  • FBA fees – if you sell using FBA, you will be charged a per-product fulfilment fee that covers picking, packing, and shipping your orders – the FBA fee depends on the weight and dimension of your product
  • Storage fees– if you store your products in an Amazon warehouse, Amazon will charge you monthly and long-term storage fees, depending on how long your inventory is in storage.
Advertising costs Most new private label sellers will need to advertise their products to get those initial sales needed. Revenue To sell profitably on Amazon, you need to sell a product at a high enough price point to account for all the associated costs and fees. To allow for healthy profit margins, we recommend selling a product for £15-£55. Sell below £15, and the profit margins may be way too low after all the fees (though Amazon haslauncheda new Low-Price FBA Fee Rate Card for all items under £10). Sell above £55, and customers may not be willing to pay so much for an unknown brand. Of course, this is just a general guideline;just make sure you factor in all the costs before making a decision. 2. Demand Are consumers actively searching for and purchasing your type of product on Amazon? Is there enough demand for you to launch a new product in this market? These are the questions you need to ask yourself when doing your product research. If there is not enough demand for your product, you may not see the sales you were hoping for. 3. Competition  What is the competition like for similar products on Amazon? How many reviews do they have, and what are other customers saying about it? How do their listings look? Evaluating the competition is an important part of product research to determine whether or not there is an opportunity for a new product in this market. The metrics we follow when evaluating competition are the number of competing products, the quality of the listings and their reviews. Contact us today for an objective review of your brand and products – just drop us an email below. Or read our next article ‘Creating your Amazon Product Listing’. You now know how to build your listings on Amazon To see our document on ‘Brand Checklist Tick Sheet’ please enter your details for your free PDF download.