To make it easier for new sellers to choose how to make money on Amazon, this blog post will cover the different ways (or business models) that are available to you.
Could we have predicted decades ago that individuals with no specialized skills and little money could build such profitable, successful businesses as we see our students do all the time?
Probably not.
*Sales Results not typical. All sales shown are gross proceeds. Net results vary from student to student. Our typical student sees between 30% and 50% net profit from sales.
We believe this is the best time to be an entrepreneur and build a business leveraging a platform like amazon.
In this short tutorial, we’ll explain 7 different Amazon business models you can follow.
For each model, you’ll get:
- a short description of each model
- the pros and cons of each model
- access to a short interview about the specific model with someone from our community that is successful with each model
- and some final thoughts with steps on how to pursue this business model if interested
A few words of caution before we start explaining each business model:
Learning anything new takes time. When you learned to ride a bike, it took a few failures and a few scratches before you became really good at it. That’s normal!
We’d be remiss not to mention that you’ll experience some failures and some frustrations as you start an Amazon business.
But compared to starting any other business (buying a franchise, starting your own service business, or the like), an Amazon business is the easiest and the quickest method to go from zero to six-figures per month that we’ve seen.
So, remember that failure is part of building an Amazon business.
For this reason, we recommend only low-risk methods for newbies–that is, only business models that require a low investment to get started.
Please don’t listen to so-called gurus who teach students to invest thousands of dollars in a potential product at any point (especially those focusing on launching private label products). You should avoid investing a large sum of money unless you have good proof that the product will make you money.
With that disclaimer out of the way, let’s get to these 7 business models of making money on Amazon.
Retail Arbitrage: Selling Retail products
There are things you can get in one area that people from other places are willing to pay more for. You’re making money by providing the service of getting this product to those people over there, a product they want or are unable to find in their area.
Let’s say a buyer lives in a large city and has no time to go find the specific product you can source. S/he is willing to pay a premium to get access to a product you can source in your area after you make it available for sale on Amazon.
Example:
Pros:
- Quickest & Easiest: Getting set up for retail arbitrage (a.k.a. RA among sellers) is the quickest way to start business on Amazon which also means fastest ROI and profits. In fact, you could sell your first item within a week.
- Can start with Low Budget: The threshold for a seller to start with retail arbitrage is significantly lower than with any other business models Amazon offers. You can start with as little or as much money as you’re comfortable with. In our group of Amazon sellers, we often hear from successful sellers who started with less than $500, some with even less than $100.
- No marketing cost: with retail arbitrage, there’s no need to set up branding, run ads, and other things like that. The brand has already done the hard work and, as reseller, you are leveraging the power of the item’s brand name to attract buyers (all without ever having to deal with the manufacturers, wholesalers or suppliers). You don’t need to spend a dime on ads, unlike with other models.
- Great Training Ground to Scale: RA serves as a gateway to private labeling or wholesaling. Most sellers gravitate towards retail arbitrage when starting out due to its ease of setting up. Once they get the hang of how the business works, they start to venture towards other business models which do not present the same disadvantages as retail arbitrage.
Cons:
- Low control over inventory: You are limited by your items’ availability and pricing. For retail arbitrage sellers who focus on clearance items, the income becomes inconsistent and hard to predict.
- Price wars and declining profits: Because other people can easily find the same items, it is often harder to find products with better margins and better profits. Often, you might buy a product that sells for a good price at the time of purchase. But when dozens of other sellers jump on the same listing (selling the same items), your profit gets wiped out.
Final thoughts:
Retail arbitrage is an easy model for newbies because of the low budget requirement AND THE LOW RISK factor.
We highly recommend this model for beginners because it allows you to learn the basics of the Amazon platform without the risk of losing thousands of dollars invested in the wrong products.
The good news for anyone interested in Amazon is that our team has discovered a method to build an Amazon business that generates $100,000 per month. It’s the REPLENS course.
The Replens model is not about chasing clearance items or “onesie–twosie” items any longer.
Rather it’s about buying the same items repeatedly from the same simple shopping lists. These items are what we call “replens” (because they are ‘replenishable’).
Nowadays, we recommend to any newbie to start with this Replens Model (a retail arbitrage model that is scalable and leads to long-term profits).
FIND OUT MORE: REPLENS COURSE
Online Arbitrage:
While retail arbitrage is sourcing items from brick and mortar stores for inventory, online arbitrage is finding products online that cost you less than what you’d sell them for on Amazon. The price mismatch between the two online marketplaces often results in the difference being your profit (after counting the fees for selling the items).
Large retailers which you might be buying your groceries from have online stores. Online arbitrage allows you to buy from online stores, get the items delivered to you, and then resell for a profit on Amazon.
You can source discounted items from all kinds of online stores and sell them to Amazon.
Pros:
The pros and cons of online arbitrage are very similar to that of retail arbitrage.
- Not Limited to Local Store Inventory: unlike RA where sourcing your inventory sometimes limits you to the retail stores available near your area, with online arbitrage, you can source inventory anywhere anytime–as long as you have access to Wi-Fi. This is important especially to those sellers living in remote areas and those whose schedules do not allow them to visit stores during business hours. It means that you can have a business even if you cannot leave your home.
- More Options to Increase Profits: online stores sometimes offer more discounts in the form of gift cards, coupons, and cashback sites which sellers can use to get the best possible price. A better price upfront means more profits for your store.
- Tools to increase Success: while we don’t recommend using tools to beginners (because there’s an additional cost associated with them and it takes a while to learn how to use them), there are paid tools available to help you source more products–these make online arbitrage more profitable and more scalable.
- Save on Packaging Costs: since the products you buy online are packaged and shipped to you, you can save money on the packaging that’s needed to ship the items to Amazon warehouse (when you make them available as Prime products).
Cons:
- Competition: unlike retail arbitrage, where availability of products is restricted by space, online levels the playing field for sellers. Many other sellers have access to some of the same websites you have access to. This makes sourcing slower.
- Overwhelming: there are hundreds of online sites you can scout for products. Often students feel overwhelmed at the many options.
- Restrictions: certain stores started to restrict sellers who buy large quantities. It might be easier to get away with buying large quantities in store rather than online.
Final thoughts:
From our experience, online arbitrage takes a bit more “using to” for beginners. This is why we recommend retail arbitrage for most new people.
However, we have students from other countries selling on Amazon.com who are doing over $100,000 per month with online arbitrage. They use the Replens model but find their products online.
Consignment:
This is selling other people’s products. For instance, friends and family have access to tons of books that you can resell on Amazon. As acquaintances discover that you sell online, they will start contacting you when they have items they want to discard (i.e., when they’re moving, cleaning the house, etc.)
Pros:
- Free inventory
- Low risk
Cons:
- Not scalable: because we cannot control when others contact us, this model because a bit harder to scale
- Unsellable inventory: when people give you their items to resell, they often give you a lot of items that are not sellable. So, you might end up with a large quantity of unsellable items that you have to donate or to discard (if they are in bad shape).
Final Thoughts:
If you don’t have any money to get going, this is a great way to start.
Recently, one of our students shared in a private group how he started with zero dollars.
He sold random things on eBay (where a lot of old things sell well), got the profit out of eBay and invested it into Amazon products. This happens all the time in our community, so we know it’s possible. Having zero capital is not a reason not to start. Start selling any used items from around the house or use the consignment model.
Selling Bundles:
A bundle is putting together two products that go together, that buyers would usually want to buy together. For example, selling Peanut butter and jelly together in a single listing instead of selling them separately in separate listings can benefit certain sellers who don’t want to lose time finding both listings and having to click “Buy” twice.
Or look at this bundle of Easter Party supplies – rather than having to buy first the two types of plates, then the napkins, creating a bundle of these items makes it easier for the customers.
The process is much more simple than people make it. Amazon even helps sellers come up with bundle ideas because they tell us when we’re researching on Amazon, “Hey, people that bought this product also bought these products with it frequently and if you go and grab some of those other common products and you create your own bundle.”
For example, in the screenshot below, taken directly from Amazon, you can see that one type of drink mix sells together with two other drink mix flavors.
Based on this suggestion, a possible bundle idea is putting two or three flavors.
Of course, not all your bundles will sell well. That’s why you have to test a lot of different ideas. But when you put complementary products together, you can mark up the price and have a lot more margin built into the products you sell on Amazon.
Pros:
- More control: Coming up with a creative bundle changes the game for you as a seller because there are many things you can do to maintain control of the listing. By adding unique items, you can be the only seller on the listing. And being the only seller on the listing means that you won’t lose the buy box to other sellers all the time. Nor can you get into a price war with other competitors.
- Revenue consistency: When you’re the only seller who has those listings, it’s easy to predict how many sales you’ll get every month. This adds some stability to your income as you add more and more profitable bundles under your seller account. Aside from increased sales, owning the buy box also gives you more control over the pricing of your bundles (fewer chances to lose money).
- Drive sales for less-popular or unknown products: creating a bundle that combines a popular item and a less-known product (ideally, one that other sellers don’t have access to) will drive sales for your less-known product.
- More profit per item: Having your items sold in bundles incur less FBA fees compared to selling the same items individually. Thus, you can make more per item.
Cons:
- Testing required: There’s no guarantee that customers will love the products you put together. If you test small, it’ll be a trial and error approach. This means that you might need to test several bundles before you discover your first profitable one.
- Getting found is hard: When you’re creating a new bundle, that’s a new product on Amazon (a new listing). To get found and to get reviews (essential in increasing sales), you have to do the hard work of researching good keywords and getting traffic.
- Requires different skills than selling on current listing: thinking of products that can be good together (complementary products), creating listings, buying UPC, custom packaging, and more–these are things you have to learn to create your bundles. Plus, Amazon has strict and detailed bundling policies, so make sure to follow them. While we believe anyone can learn these skills (and we have seen many new students learn these skills), there is a learning curve to learning all new things. Account for that in your journey to become a bundle expert.
Final Thoughts:
Because of the control this model gives the seller, it’s a great way to make money on Amazon. There are no price wars; only consistent sales 🙂
However, creating bundles requires additional skills like taking pictures of the bundles, writing the copy to describe the items in the bundle, and even running Amazon ads to get eyeballs on your listing. For this reason, it’s not the best way to start if you’re a beginner. Can you make it work as a beginner? Certainly. But it will take longer. And we’ve learned that many newbies give up if they don’t get quick wins to motivate them to stay the course. Keep this in mind.
Wholesale:
This business model is about buying goods in large (larger) quantities directly from manufacturers or distributors, and then reselling them to consumers on Amazon. The more you buy from a wholesaler, the less per-product you’ll end up having to pay.
Pros:
The benefits of wholesale are that:
- Easy to Reorder: You can sell the same items over and over again. When you are running low on inventory, you can simply order more; many times this is done via an email or a phone call. Very simple.
- Easy to Scale: You can buy as much product from your suppliers as you can afford or sell. You are not limited by the amount a retail store has in stock–which is often a problem for retail arbitrageurs.
- Consistent Profits: You can focus on existing brands with a proven track record (and sales data) or new wholesalers, which open up new types of business models for you.
Cons:
- Competitive: most Amazon sellers want to wholesale brands with proven track records. So, you’re not the only seller looking for these good accounts. In fact you may be the 10th seller and all are competing for the buy box. Yet, you can still make good profits if you invest in the right types of products (the worst case for wholesale products is when Amazon itself joins the picture–avoid products sold by Amazon).
- Finding good accounts is time-consuming: you will need to invest time and do extensive research when deciding on which product/brand to go with. You might have to look and analyse historical graphs to understand the past performance to be able to predict the future of a certain product.
- Higher budget needed: Compared to retail arbitrage, you’ll need more money to get started. There are wholesalers that allow you to start with only a few hundred dollars, but some require a much higher initial order ($1,000 or $5,000). If you’re willing to work hard to find those wholesale accounts that let you start with just a couple of hundred dollars though, this is a great long-term model.
Final thoughts:
Wholesale is a numbers game, meaning you have to reach out to a lot of wholesalers to get a profitable account (some newbies reached out to hundreds of wholesalers before getting that first initial account while others got a great account after only a handful of connections).
Someone with a sales background, who doesn’t worry about hearing ‘no’ a lot, can do quite well with this model.
Private Label:
PL products are those manufactured by one company for sale under another company’s brand. Private-label goods are available in a wide range of industries from food to cosmetics.
You can create a new brand and put your brand name on products made by a factory that specializes in making those types of items.
Let’s take the example of a spatula:
Most spatulas look the same. There are usually no patents on these types of products. So, factories making this type of item will gladly add your brand onto the product or create unique packaging for your brand.
Take the Great Value brand that Walmart is selling. This brand covers all kinds of items (food items, home and kitchen items, etc.). It’s not like Walmart built a factory to can green beans and sell them to their customers. Nor is Walmart into the business of making toilet paper. Yet, Walmart sells both of these types of products under their own brand.
Pros:
- Complete Control on Amazon: creating your own brand gives you full control of your Amazon listing (though this also creates some challenges as we’ll see below). When you market your items well, you can sell the same items over and over again.
- Better Profits: while the initial investment is higher, the product cost is lower per unit for private label items compared to branded items you buy via arbitrage or wholesale models. This means that you will make more money per item. If 20% ROI is a good return for a wholesale item, most PL sellers look for 100% ROI or more.
- Your Brand, A Valuable Asset: You can build customer loyalty with your brand and you can grow this brand into a valuable asset that you can later sell.
Cons:
- You Decide Everything: in private labeling, you are in charge of determining the quality and exact specifications of your products. You have to research well and make sure you choose the right type of product. If you have no experience in the category you’re private labeling, doing good research is essential to making good decisions and launching the right product.
- High Initial Investment: While there are methods to test PL items on a lower budget (and our team teaches how to Private Label the Easy Way), usually, you can expect to spend a significant amount of money on PL items. The brand owner needs to include marketing costs as part of the initial budget (something new PL sellers tend to overlook). Having good capital AND knowing how to use it well will certainly increase your chances of success (but the risk is much higher than any other business model).
- Time-consuming: doing private label is a lengthy process, from product research to supplier sourcing to shipping to making your own listing from scratch. After researching, for instance, you’ll get some samples and you’ll test the product quality. Once you decide to go with a specific item, you’ll have to take pictures for your listing, create a product description on Amazon, and more. All these tasks take time, so plan for time required (it’s often for us entrepreneurs to under-estimate how long it’ll take to do a task).
- Liability Issues: As the brand owner, you can be held liable for your manufacturer’s product quality or any unethical action related to your item. Be careful when choosing your product and your supplier.
Kindle Direct Publishing
Kindle allows writers or designers to publish books or low-content products, and place them in front of Amazon’s millions of readers.
When we refer to “books,” you don’t have to consider full books (i.e., about 100-250 pages). Many Kindle books that sell well are the equivalent of chapters in a complete book.
Here’s an example of a short story that has been published on Kindle (only 18 pages):
And this is another approach to use on Kindle: publishing a series of books like the I Spy books (the author published several books following the same theme of spying certain objects):
Each page follows a very simple approach:
Another option for Kindle publishing is creating low-content products (like a simple journal). The following screenshot is an example of the type of products you can easily create using free tools like Canva.
As you can see, each page contains a quote and a couple of prompts. Do you think you can do something like this? Most people can.
Also, Amazon has a program called KDP Select, which automatically puts a book into Kindle Unlimited. This is a $9.99 subscription service that allows buyers to get access to about 1 million ebooks.
The reason this program can be highly lucrative is because Amazon sets aside a pot of money every month that it divvies up among KDP Select authors. The authors are paid based on how many of their pages have been read each month by Kindle Unlimited subscribers (and readers from the Kindle Owners’ Lending Library). The Amazon global fund set aside each month to pay authors is a big amount each month. Here’s what Amazon paid out to authors in the last few months in 2020:
- December 2020: $34 million
- November 2020: $33.2 million
- October 2020: $32.9 million
- September 2020: $32.7 million
- August 2020: $32.6 million
- July 2020: $32.4 million
- June 2020: $32.3 million
- May 2020: $32.2 million
- April 2020: $30.3 million
- March 2020: $29 million
Publishing on Kindle is rather easy–once you learn the basics.
In terms of the profits you can generate on Kindle, you can choose between two royalty options for each of your eBooks: the 35% royalty option and the 70% royalty option.
There are a few factors that determine your royalty option. For instance, if your book is under 3 megabytes and priced for $0.99, then you’ll receive 35% as royalty. If the book is priced between $2.99 and $9.99, you’ll earn a 70% royalty.
Pros:
- Simplicity: once you learn the basics of publishing on Kindle, the process to get your book or low-content product in front of potential customers is pretty simple.
- Speed to market: With e-books, you can reach your customers on Amazon within minutes, not months, of setting up. If you choose Kindle publishing for your book in paperback format, Amazon’s Print-on-Demand ensures that your book will never be out of stock.
- Exposure to millions of readers: Many self-published Kindle authors have been able to become full-time authors because of the exposure Amazon’s platform offered them.
Cons:
- Competition: Because Amazon is one of the largest online markets for books, that means many authors self-publish on KDP. This decreases the chances of readers finding your book unless you learn how to research your topics well.
- Marketing: usually, when you publish traditionally, your publisher helps you with a marketing strategy to promote your book. With Amazon KDP, you have to develop your own strategy.
- Kindle Unlimited: When enrolling in Kindle’s program, you commit to make your ebook available exclusively through KDP. You cannot sell your ebook on your platforms, but you get access to Amazon’s KDP global fund–and that can be very lucrative for authors.
[BANNER SENDING THEM TO OUR AMAZON FUNNEL?]
