The 3 Types of Sellers on Amazon and How They Make a Profit
Amazon is the biggest online retailer in the world but it’s actually just a fulfillment center offering a delivery service to businesses
It wasn’t long ago when we used to take a trip into town to shop around for all the latest items, nip to the library to read a new book, or even buy groceries.
Now most of us, if not all, can do this on our phones whilst in bed. Most of the time we can get everything we need the next day! In fact, over 100 million people use Amazon globally to make purchases both for personal and business. That’s an astonishing number of people that have stopped visiting their local businesses and towns to shop.
So when we buy through Amazon, who is the seller? Is it Amazon or someone else like you and me?
Well, let’s find out.
Amazon is the biggest Online Retailer in the world but what if I told you that Amazon is just a fulfilment centre and offers a delivery service to businesses?
No, I didn’t realise that either!
Amazon is a platform that allows Businesses to list items, store them in their warehouses across the world, and deliver them the next day for free (As long as the customer has Prime of course). You’ll find huge brands across their website utilizing the 100 million customers already visiting the site.
The truth is that most of these brands are sold by resellers, people buying stock from discount stores across the country and reselling them for profit. Brands have their own page on Amazon but there is nothing stopping people like you and me from buying a discounted product and selling it.
There are 3 different types of sellers on Amazon and I’ve listed them below:
- Retail Arbitrage
- Private Label
- Wholesale
Let’s break these down.
Retail Arbitrage is becoming a very popular way for sellers to make money on Amazon. If you get the chance, search on YouTube ‘Amazon Retail Arbitrage’ and you’ll see a host of people calling themselves ‘Gurus’ offering to teach you how to find profitable products to sell.
You probably haven’t noticed but anytime you have bought let’s say a Disney Product from Amazon, you’ll see a drop-down labelled ‘New & Used from’. If you select that tab you’ll be taken to a new page showing how many different sellers there are for that 1 product.
Normally you would buy the product thinking it was coming directly from Disney or Amazon however, you are buying from a re-seller. This is very similar to how people operate on eBay buying and selling products online for a profit.
Sellers utilizing the Retail Arbitrage method will spend most of their days searching online and visiting their local stores daily for discounted products that sell on Amazon. There are various software’s such as BuyBotPro which helps the sellers work out if their product is profitable or not.
Next time you are in your local discount store, open the Amazon app, find a product and scan the barcode on the back. You’ll be fascinated by the results…
There are a few downsides to Retail Arbitrage:
- It can take hours to find a profitable product.
- Amazon has gated categories that require sellers to gain approval before they can sell specific items.
- Price wars can arise from other sellers trying to undercut each other to win the buy box.
- Items such as LEGO require approval from brands to sell their products.
Retail Arbitrage can be a hugely profitable business method, you can find and join hundreds of groups on social media with people showcasing their earnings. It can also be a time-consuming task that’s a little more complicated than just buying and selling…
Let’s talk about Wholesale.
Wholesale on Amazon is not as popular as the other methods but can still be a very profitable business. To sell Amazon wholesale, you’ll need to do a fair bit of research contacting different distributors/wholesalers to find the best deals for bulk prices. It’s quite similar to Retail Arbitrage however you are buying cheaper products in larger quantities to make a profit.
Purchasing products in bulk will mean more capital will be required which is why more people opt for Retail Arbitrage. Most wholesalers on Amazon will have contacts with their suppliers which allows them to have more competitive prices.
The attractive part of buying wholesale on Amazon means you can send the products into their warehouses in exchange for a small fee which is deducted from every sale. This allows for people like you and me to set up a wholesale business from your bedroom without having to worry about storing thousands of items of stock!
You can find all the wholesalers on Amazon by simply searching for a product and looking at all the sellers, there’s more than you think…
Finally it’s time for the big one, Private Label.
If you want a perfect example of what private labelling is, go to Amazon, search ‘Water Bottle’ and you’ll see thousands of different results. You’ll also notice most of the bottles are the same just with different labelling. Each listing will be slightly different with the seller trying to compete against their competitors to win your sale.
So how exactly do sellers private label products and sell them on Amazon?
Creating Private Label products and selling them on Amazon is actually quite an easy task and pretty much anyone can do it, I’ll break it down for you below:
Market Research — The first thing a seller will do is search the whole of Amazon looking for opportunities, they’ll use software such as Jungle Scout which helps to track and identify products with low competitors. Sellers will follow different items over a week or two to see if there are consistent sales and if there is an opportunity to compete. Once they have found that golden ticket item, they will start looking to source the product.
Sourcing Products — The main place Amazon sellers find products to sell is on Alibaba, Alibaba is China’s biggest commerce company which provides a platform for people to buy and sell products at good prices. If you are looking to private label a product, Alibaba is the go-to place.
You can have any product manufactured in China at low prices and shipped directly into an Amazon warehouse. Alibaba provides a platform for anyone to have direct contact with the manufactures and have your business idea developed and manufactured.
When conducting your product research through Amazon you’ll notice a lot of the products are very similar, and the prices will be around the same. Head over to Alibaba and you’ll find the same product but without the private labelling at cost price…
Manufacturing Your Product — At this stage sellers will have made contact with manufacturers through Alibaba to start looking for the best deals. Manufactures in China have Minimum order quantities of around 1000 units, Some suppliers are more flexible than others. It’s at this point where sellers will order samples from different suppliers to look at the quality of the product and make any changes to provide a better solution than their competitors.
That’s what helps them stand out from the crowd.
Amazon FBA (Fulfilment By Amazon) — Once a seller is happy with their final product, they’ll go ahead and order through Alibaba with the manufacturer. Private label sellers who ship their products to Amazon have a huge selling advantage over their rivals. Amazon Prime offers customers the chance of free next-day delivery with their prime membership.
I’m pretty sure everyone reading this knows that already!
When a customer purchases an item on Amazon, one of the first things they look for is that Prime label, Any sellers not offering Prime are at a disadvantage from the get-go. It was estimated that around 150 million people have Amazon Prime worldwide, If you aren’t selling utilizing Prime then you are missing out on hassle-free delivery service and millions of customers!
So how do they sell their products via Amazon Prime?
It’s quite simple, Sellers will send their product into an Amazon warehouse depending on which warehouse Amazon requests. Once Amazon receives, accepts, and verifies your product, you’ll instantly be accepted onto Amazon Prime!
It’s as easy as that!
So if it’s that easy why aren’t more people selling Via Amazon?
When I first stumbled across Amazon FBA, it was by an Ad on YouTube whilst looking into Dropshipping. If it wasn’t for searching for opportunities to make money online, I wouldn’t have known about it. Amazon doesn’t promote FBA because it doesn’t need to, Amazon has such an amazing following you’ll only see adverts showcasing how quick and easy their delivery service is.
Why do you never see a Lamborghini or Ferrari advert on Television, the same reasons as to why Amazon doesn’t promote FBA , they don’t need to…
There are thousands of YouTubers teaching people how to sell on Amazon and showing case studies of their ‘students’ progress. Although Amazon looks easy to sell on and it seems everyone can make money, most YouTubers won’t tell you the difficulties of selling Via Amazon.
- Before you can sell on Amazon, you must have a ‘Unique Tax Reference Number’ otherwise Amazon won’t accept you. You’ll need to do this before you order your product.
- Amazon has become quite saturated and the chances of succeeding in 2021 are harder than ever, but it’s not impossible.
- Shipping products from China can be expensive, Shipping by sea freight is cheaper but takes longer to deliver.
- Start-up costs on Amazon mean to make a successful business, ideally, you’ll need around £2000 — £4000. To get your listing ranked on the first 2 pages, you’ll have to sell as many products as your rivals. If a competitor is selling 30 units a day, every day, you’ll have to give away the same amount to rank alongside when you are first starting.
- Getting reviews on Amazon can be difficult and most you see are fake paid reviews. Reviews are just as important as using Amazon Prime. one bad review early on can have a huge impact.
- Creating ads for your product can be expensive especially if you don’t have experience in marketing.
There are many more things to consider when selling via Amazon however you can create a successful business even by the simplest of products, as long as you are offering something different.
So should you consider selling on Amazon or ignore it and look for other options?
YES, you should consider it, but Amazon FBA isn’t for everyone!
Thank you,
Owen
Source: Insider.com
