In Part 1, we talked about the many benefits of being an Amazon third-party seller. By now, your head is probably spinning with new ideas. You know you want to sell on Amazon, and you’re pretty settled on FBA.
Let’s keep going.
Four Ways to Sell on Amazon
Want to know how to sell on Amazon? You certainly have plenty of options to choose from when it comes to how to make money online.
Retail arbitrage involves buying physical goods in stores — think Target and Walmart — and then listing yourself as a seller on the product’s listing on Amazon. This means you need to be able to sniff out one heck of a deal, so that you can actually sell it for a profit online.
For example, you might find Glade PlugIns deeply discounted, so you buy all you can find in your local stores and then resell them on Amazon.
You can start with limited capital, making it great for beginners or anyone short on cash.
It’s low-risk, since you can buy as much or as little inventory as you’d like.
It’s highly labor intensive, since you constantly have to be shopping in stores for profitable products.
Retail arbitrage isn’t Amazon’s favorite thing because there’s less consistency (for the customer) and quality control is harder.
You might be competing against many other sellers (as in over 100).
Stores don’t love it, and some will ask you to leave if they catch on to what you’re doing.
This is similar to retail arbitrage, except you’re purchasing goods online, instead of physically going to the store.
You can start with limited capital
Amazon isn’t a fan
You might be competing against many other sellers
Online stores have also started catching on to resellers, and many have put restrictions in place limiting the quantity you can purchase of each item, making it harder to make significant money as a seller
Private label means you buy an unbranded product from a manufacturer and then brand and sell it under your own label.
For example, you might buy blank water bottles from a manufacturer, which you then brand and list for sale on Amazon.
This means you’re responsible for designing the branding, logo, packaging, and any directions that come with the product. You also need to create the Amazon product listing from scratch.
You’ll have higher gross margins than retail arbitrage and online arbitrage
You can build brand equity
You have more control over the entire process
It involves much more risk
You typically have to purchase thousand of units at a time from the manufacturer
Branding, labeling, and packaging all cost extra
Getting sales going on Amazon might take considerable ad spend
Selling wholesale means you’re buying a large amount of inventory from a brand for a discounted price per unit.
For example, as an Amazon seller, you might buy large quantities of party supplies from a brand (who gives you a discount), which you then list for sale online.
It’s less risky than private label, since you’re not creating a brand from scratch, which costs significant upfront capital
You’ll probably need access to thousands of dollars to purchase large quantities of items (although in most cases you can use a credit card)
Often, there are lower gross margins
You don’t get to build brand equity, since it isn’t your brand
You have less control over the process, since it isn’t your brand
Here’s the (somewhat annoying) answer: it depends. Ask yourself these questions:
How much money do I have right now to invest in this?
How much time do I have right now to invest in this?
How quickly do I want to make money?
The answers will help guide you in the right direction.
For instance, if you have limited capital, your safest bet is to start with retail and/or online arbitrage. This is also a quicker way to make money.
If you have plenty of time and money and you don’t mind the risk, this might come down to a decision between wholesale versus private label. The payoff can be a lot greater than with an arbitrage model, but it might take longer to get there.
A Word of Caution
Sellers will sometimes turn to credit cards and loans to get the capital they need for wholesale and private label.
While this is obviously an option, proceed judiciously, and bear in mind that both private label and wholesale require a lot of money upfront, but with private label in particular, it can take months to start seeing a return on your investment.
Regardless of which selling method(s) you decide to use, one rule holds true: You need to know how to find or create a profitable product.
Sellers sometimes find out all too late that the product they worked so hard to launch isn’t really profitable. Here are some tips for avoiding that.
This isn’t as simple as finding a product you can buy for $10.99 and sell for $11.00 on Amazon. There are other costs to consider.
To make things a little easier on yourself, consider downloading an Amazon seller scanning app on your phone. These apps let you scan the barcode of a product, and they’ll tell you important information, like:
The current price
The sales rank
The estimated profit after you’ve paid the fees
If you’re eligible to sell the product
There are a number of apps that do this, namely the Amazon Seller app (which you’ll probably want anyway).
What to Avoid
It probably goes without saying that if your margins are too slim, walk away.
A second red flag? If a product on Amazon already has 100 sellers all listed around the same price, don’t waste your time.
Lastly, if Amazon is selling a product or has consistently sold a product in the past, steer clear. You likely won’t beat them for the buy box.
Considering the risk involved in private label, you definitely don’t want to go with the wrong product.
What to Look for
You need to find a hole in the market. Is there a product people love and need, but most of what’s available on Amazon has mediocre (or even better, poor) reviews?
Look for products with high sales velocity but not-so-hot reviews. This is your chance to swoop in with your own amazing product and save the day.
What to Avoid
It probably goes without saying that if there’s already a ton of competition and customer reviews, and shoppers are mostly happy, you’ll have a much harder time finding a gap in the market for your own product.
Also avoid products where a few big name brands dominate the market share. It’s an uphill battle trying to outpace them.
Where to Source From
Keeping costs down is crucial, especially since private label already carries a hefty price tag for your initial investment. Many, if not most sellers, turn to AliExpress for a good cost/unit. Remember, though, that there will still be a high minimum order quantity (MOQ).
If you can find a domestic supplier, you’ll be at a significant advantage, because shipping times will be cut down tremendously. However, you can expect to pay more, so do your due diligence in ensuring you’ll still have appropriate margins in the end.
Finding profitable products can feel like a losing battle sometimes. Manufacturers aren’t always eager to work with Amazon sellers, and very often, they aren’t even educated on how the right seller can help them make more money.
On my journey of learning how to sell on Amazon, these tools have helped me streamline and automate processes and cut down on my workload (and my team’s workload).
While your exact margins will of course fluctuate, there’s a general rule of thumb when it comes to selling with FBA: You want to be able to sell a product for roughly three times what it cost you to purchase it.
This is because 1/3 of what you make will go to Amazon fees, and 1/3 goes toward the cost of goods.
The remaining 1/3 is yours. #Profit
It’s probably clear by now that if you want to sell product, you need to have the buy box at least part of the time. There are a few scenarios here.
If you’re doing retail or online arbitrage, it’s safe to say a lot of other people are too. Prepare to battle for the buy box.
If it’s a private label product you created, then the listing — and buy box — are yours. Remember, though, that anyone can jump on a listing at any point, meaning you need to keep a close eye on yours.
If you’re selling wholesale, unless you have an exclusivity deal with a brand (which you should definitely try to obtain), you will very likely be competing against other sellers.
Now, if you’re competing with other sellers, how does the buy box work?
Two big factors determine who wins it:
Typically, the seller offering the best price has a good chance of winning the buy box. However, like I discussed earlier, Amazon favors FBA over FBM. Thus, even if an FBM seller undercuts a bunch of FBA sellers, there’s a high likelihood they still won’t get the buy box (unless the FBM price is significantly lower).
What happens when it comes to competition between FBA sellers, then? Is it as simple as whoever prices the product the cheapest wins? Yes and no.
While you can play the whole “race to the bottom” game (read: reducing your price until you’re the cheapest) in order to get the buy box, this is a losing game for everyone involved. Even if you win the buy box, your margins will be garbage.
Instead, you should aim to match the price of the current buy box winner. When multiple sellers list a product at the same price, Amazon rotates them through the buy box.
Understandably, many sellers aren’t interested in “sharing” the buy box. But sharing is caring, and it sure as heck beats the alternative: tanking the price so that nobody makes money.
Amazon loves when its sellers make money, but Amazon also loves making money directly by selling products itself. Thus, it’s not uncommon for the marketplace to see a hot product doing well and jump on the listing.
This is bad news for other sellers because, as you know by now, you can’t compete with Amazon.
Can you control whether or not this happens? No. But you should take care not to put all of your proverbial eggs in one basket by relying on one product for your business’s revenue.
Want to learn more about how to get started on Amazon? Join our Amazon Insiders community and register for our next free training webinar and then continue on to read Part 3, where we’ll talk about product pages and some tips for success.
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Trent Dyrsmid is a serial entrepreneur, husband, and father. In addition to hosting the Bright Ideas podcast, he is the Founder of Flowster.app; a business process management application that provides customers with proven playbooks for increasing productivity. In 2019, his eCommerce business ranked 254th on the 2019 Inc 5000 of America’s Fastest Growing Private Companies. Full bio here
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