How to Choose the Right Amazon Business Model For You

If you are considering starting or acquiring an Amazon business, it is essential to understand each Amazon business model available to you. The route you choose will have important implications for how you run your business, as well as what your experience will be like if you decide to sell it in the future.

In this article, we discuss:

• The different Amazon business models
• The benefits of selling on Amazon
• How to choose a profitable product niche on Amazon
• How to successfully list your products

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The Different Amazon Business Models

Running an Amazon business can be a hugely profitable endeavor. In addition, it can provide you with a large amount of autonomy and control over when and where you work. By choosing the right Amazon business model for your needs, you can help ensure your greatest chance of success. 

An overview of the Amazon business model

In the past, running a physical-product business required either maintaining a brick-and-mortar storefront or navigating the complex logistics of managing an ecommerce store. By providing a combination of services, Amazon has made it infinitely easier to start and manage a profitable online business.

When you start a business on Amazon, you gain instant access to their vast market of customers. Amazon has over 200 million Prime members worldwide and 147 million in the United States alone. 

Amazon also provides a number of tools to help you start, manage, and grow your business. In exchange, you pay a certain percentage of your revenue to Amazon.

When you’re selling on Amazon, you are responsible for sourcing your product. Amazon provides you with a place to list and market your product. In addition, you can choose to have Amazon take care of the storage and fulfillment for your business, or you can do it yourself. We will get into more detail about this below. 

There are several different Amazon business models you can choose from when starting your Amazon business. While the underlying Amazon business model is similar for all of them, there are several key differences that are important to understand. These four options include:

• Private label
• Wholesale
• Amazon FBA
• Amazon FBM

Private-label Amazon business model

One of the first choices you need to make when starting your Amazon business is whether to create and sell a private-label product or sell wholesale goods. Private label is the most popular option amongst Amazon business owners, accounting for 67 percent of sellers. 

With the private-label model, you are responsible for sourcing a product from a third-party manufacturer. Then, you must have it packaged with your branded packaging and shipped to your storage and fulfillment destination (more on this later). When you sell your product on Amazon, you are selling it under your own brand name. 

Ultimately, choosing the private-label option provides you with more control and ownership over your business. Other benefits include:

• Higher profit margins
• The ability to choose a less competitive market
• More control over your product listing and marketing
• The ability to choose your branding, packaging, and logo

Sourcing a product, creating packaging, branding, and marketing all take extra work, however. As such, this option may require more time compared to Amazon wholesale. In addition, you will need to stay proactive in defending your product from copyright infringement. 

If you want more control over your product, branding, pricing, and business direction and don’t mind putting in the work, Amazon private label could be a good option for you. 

Wholesale Amazon business model

The wholesale Amazon business model is quite straightforward. You purchase bulk products at wholesale prices and then resell individual units on Amazon at retail prices. With wholesale, you are purchasing already-established brands and products as opposed to creating your own brand from scratch. 

Amazon wholesale can save you a lot of time and effort since you don’t need to worry about branding, testing products, packaging, or creating a logo. This all contributes to a shorter lead time when launching new products. 

Since you are ordering products in bulk, however, this route may require significant up-front capital investment. In addition, you will need to obtain a wholesaler permit in order to resell products. Your profit margins will also likely be smaller compared to selling private-label products, requiring you to sell greater quantities in order to do well financially. 

Lastly, wholesale businesses (also known as resellers), are typically valued at much lower multiples compared to private-label brands. This could have a significant negative impact on the price you receive for your business when you do decide to sell it. 

“When choosing between FBA and FBM, you must compare the extra time and energy required to handle your own fulfillment with the cost associated with letting Amazon take care of it for you.”

Amazon FBA

Another important decision when creating your Amazon business is to choose how your inventory is stored and how your product will be shipped to your customers. The two options available to you are Amazon FBA and Amazon FBM. 

With Amazon FBA, or Fulfilled By Amazon, your product is shipped directly from your supplier or packaging partner to an Amazon fulfillment center. It sits with Amazon until a customer orders it. Once an order has been placed, Amazon’s logistics team boxes your product and ships it to your customer. 

Amazon FBA removes the need for you to ever store your product or fulfill customer orders. As such, it saves you and your team an incredible amount of time and energy. In exchange, you pay a fee to Amazon for every package that is shipped. The fee depends on the nature of the product being shipped and can range from just a few dollars to upwards of $150. 

Amazon FBM

With Amazon FBM, or Fulfilled By Merchant, your product is shipped directly to you. You are responsible for storing and managing your inventory as well as shipping it out to customers in a timely manner. The upside is you avoid paying Amazon’s fulfillment fees, boosting your profit margin. 

The downside is maintaining inventory and fulfilling orders can be a very time-intensive process. In addition, it is highly important that you consistently ship your orders quickly in order to maintain high customer satisfaction.

When choosing between FBA and FBM, you must compare the extra time and energy required to handle your own fulfillment with the cost associated with letting Amazon take care of it for you. There is no right or wrong answer; it all depends on which route best suits your needs. 

The Benefits of Amazon Business Models

By successfully starting an Amazon business, you unlock several exciting lifestyle benefits that may not have been available to you before. These include:

• Location independence
• Profitability
• More control over your time

Location independence

Many entrepreneurs start an online business because they want to be able to work from a location of their choosing. Depending on the route you choose, the Amazon business model makes this possible. 

Whether you want to work from home to be able to spend more time with your family or you plan to use your location independence to travel, being able to work remotely opens up a world of possibilities. 

It is worth noting that if you choose Amazon FBM you may be limited in your location flexibility. If you are required to fulfill customer orders every day you will need to stay close to your inventory. You can work around this, however, by hiring an individual or team to handle your fulfillment for you. Of course, this will add cost and may make it preferable to move to Amazon FBA. 

Profitability

Successful Amazon companies can be hugely profitable. While it may take time to get to a point where you are able to withdraw large amounts of cash from the business for personal use, the payout can certainly be worth it. 

In addition, the majority of the value you derive from your company will come when you sell it. By building a profitable business, you are creating an immensely valuable asset that could set you up for a lifetime of financial independence. 

More control over your time

Building an Amazon business takes a lot of hard work, time, and risk. While the rewards can be significant, it is important to be realistic about the effort required for success. 

That said, running an Amazon business provides you with a high degree of ownership of your time and schedule. For the most part, you can choose to work in a way that accommodates your natural schedule. 

In addition, once your company is up and running successfully, you can automate many of your business processes. By building teams or automating tasks, you can work to reduce the amount of time you need to spend to run the business. This frees you up to focus on other things in life while maintaining a healthy income stream. 

“By building a profitable business, you are creating an immensely valuable asset that could set you up for a lifetime of financial independence.”

How to Choose a Profitable Product Niche on Amazon

If you do decide to sell private-label products on Amazon, it is important to carefully select your products and industry niche. Not all niches have the same chance at success, and not all products are well-suited for newcomers. 

There are several steps to take in order to maximize your chances of success when choosing a niche and product, including:

• Assessing market demand
• Evaluating your competition
• Creating a budget
• Running the numbers
• Assessing suppliers and sourcing your product

Assessing market demand

Some entrepreneurs create entirely new products or innovative product category and release it on Amazon. These products are known as Gen products. While they can be hugely profitable if successful, they also often require a large amount of up-front investment to create. 

Another method of finding a successful niche is to look at Amazon—or off Amazon, for that matter—to see what types of products are already selling well. If you can identify high-demand products, it may be a sign that there is additional room in the market for a similar product. 

Armed with your knowledge of the market, you can then source products within your target niche and list them for sale on Amazon. Since you already know that that type of product sells well, you are that much more likely to succeed. 

Evaluating your competition

Once you have identified a niche that has demonstrated high market demand, the next step is to assess the competition. How many sellers are already selling within that niche? How established do they seem to be? How many reviews do they have, and what are the average ratings? What are their prices?

The less competition there is, the better it is for you. If you find a field that has high demand and high competition, you may want to look elsewhere. Ideally, you’ll want to find a product category that has high demand and low competition. 

Tools such as Jungle Scout can help you assess both demand and competition within a product category. Do your research and choose carefully. If a product category shows high sales but has only a few competitors with poor reviews and inflated prices, it may represent a prime opportunity. 

“If you can identify high-demand products, it may be a sign that there is additional room in the market for a similar product.”

Creating a budget

Next, determine how much money you have available to invest into starting your business and launching your first products. Your budget will have a large impact on which product you choose. 

When starting off, it is possible to place a smaller order for your initial inventory. If you choose a product with a high cost per unit, though, even a small order can be expensive. Given this, it may make sense to choose an inexpensive product at first. As you build success, you can place larger orders or move into products with a higher cost per unit. 

Of course, if you have a large budget to start with, you may be able to move directly into higher-cost products. 

Running the numbers

Regardless of your budget, it is necessary to run the numbers to calculate whether or not a product has the potential to be profitable. First, make a realistic assessment of the price at which you plan to sell the product. Then, take into account all of your expenses related to bringing the product to market, including:

• Cost per unit
• Shipping cost per unit
• Amazon fulfillment fees
• Marketing expenses

Once you have an estimate of the total cost per unit, compare it to the price at which you will sell it. If the costs outstrip the price, it’s not a viable product. Be sure to select a product that has an acceptably high profit margin to be able to earn a respectable income. 

Assessing suppliers and sourcing your product

In reality, all of the steps we have discussed so far should be happening in tandem with each other. The last part of the equation is sourcing your products. 

During your product research, reach out to manufacturers to receive quotes for products that you are interested in. Alibaba is a great place to find and connect with potential suppliers. If they meet your cost requirements, you can then order samples to test the products to determine if they meets your needs. 

When assessing a supplier, be sure to pay attention to price and product quality. It is also very important to assess a supplier’s customer service skills as well as their packing and shipping options. 

Once you have identified a supplier you want to work with, place your order and have it delivered to the fulfillment center of your choosing. 

Pro tip: differentiating your products

Your products will be listed on Amazon next to numerous other similar products, even if you do choose a category with less competition. Your chances at success will be much greater if you can differentiate your products from other similar products. 

Differentiation can come in many different forms. You could choose products that serve a similar function as others but have a unique feature. Or the design of the product could be more aesthetically pleasing. Alternatively, the construction could be of better quality. 

The way you market your products within your niche will also serve to distinguish it from your competitors. Next, we will discuss how to successfully list your product on Amazon. 

“Your chances at success will be much greater if you can differentiate your product from other similar products.”

Successfully Listing Your Products

Once you have chosen a product, found a quality supplier, and had your product shipped to a fulfillment center, it is time to create your Amazon product listing. Since your product will be shown along with dozens, even hundreds, of competing products, it is highly important to create a professional listing to attract more customers.

There are several things you can do to create a successful listing, including:

• Creating professional images
• Paying attention to your listing copy
• Boosting your product with sponsored listings

Creating professional images

When searching Amazon for a product you need, are you going to choose a listing that has poor or unattractive product images? It’s not likely. Professional and eye-catching Amazon listing images are paramount for creating a successful listing. 

In order to create professional images, you may want to hire a product photographer or graphic designer. In addition, it is important to pay attention to any Amazon requirements regarding product images, such as the main image having a pure white background. 

“Professional and eye-catching Amazon listing images are paramount for creating a successful listing.”

Paying attention to your listing copy

Creating quality copy is also crucial to a successful product listing. Your product descriptions should be professional, accurate, and intriguing for potential customers. In addition, it is also important to pay attention to SEO best practices when creating your copy. 

As with product images, it may be worth it to hire a professional copywriter to create your Amazon product copy. 

Boosting your product with sponsored listings

In order to gain more sales and boost your ranking, you have the option to pay for sponsored listings. When you buy a sponsored listing, your product shows up above the search results in order to attract more clicks. Sponsored listings are denoted with the word “Sponsored” in the listing. 

Sponsored listings can be quite helpful to gain traction when you are first launching your product. In addition to attracting customers directly from the sponsored listing, the increased traffic helps to boost your organic rankings. For this reason, it is recommended to maintain sponsored listings even after your product gets going. 

The rule of thumb is to spend 7 percent of revenue on sponsored listings in order to hold steady and 10 percent of revenue in order to drive growth. 

By choosing the Amazon business model that works for your needs, planning carefully, and executing well, you can create a profitable business that serves you long into the future.