Every way to sell on Amazon for 2023: The pros and cons of the most popular Amazon FBA business models
Video: Every way to sell on Amazon, explained
If you spend any time on YouTube or Amazon seller forums, it can be completely debilitating trying to understand every approach to Amazon selling.
Every “guru” will tell you why their approach is the best, and if you aren’t a seasoned seller, you’re going to have no idea which one is telling the truth (spoiler: They all are – it just depends what kind of business you want to run).
I wrote this article to answer these questions:
- What are the top (most popular) ways to sell on Amazon?
- What makes each approach different?
- What are the pros and cons of each model?
What is an “Amazon Business Model”?
Essentially, when we talk about business models, we’re just talking about different ways to get your hands on inventory.
Amazon is just a giant platform to sell (almost) anything. Within that platform, the various ways to sell are differentiated by where your inventory comes from. From wholesale sourcing (buying cheap inventory below retail price and reselling for a profit) to private label (creating your own products from scratch, or putting your own label on an existing product) and beyond – the only variable is where a seller gets their inventory.
Every one of these ways to sell on Amazon has pros and cons. The one you choose will probably come down to one of these three factors:
- How much money do you have to invest? Some of these models require significantly more money to get started than others.
- How much are you willing to learn before jumping in? Some of these approaches allow you to hit the ground running without a serious research phase, and you can just learn as you go. Others (like private label) have a much steeper learning curve.
- How well do they suit your personality type? This actually matters. Some people would be driven crazy by sourcing all their inventory online, and need to be out “in the field.” Others relish the idea of sourcing inventory online and never having to get out of their pajamas.
Do you have to choose just one way to sell?
You don’t have to, but you should.
In theory, there’s no reason you couldn’t juggle multiple models and profit from each.
In practice, the fastest way to do nothing is to try and do everything.
My advice: Pick one, master it, then scale it. And only then consider branching out and conquering the others.
Once you get a basic understanding of the FBA models explained below, one or two should jump out at you as a good fit. Pick one, and go all-in.
The Top 6 Ways To Sell On Amazon – Explained
Let’s get into it…
Amazon Business Model #1: Second Hand Sourcing
This is the only way to sell on Amazon that doesn’t really have a catchy name. I’m calling it “second hand sourcing” here (though that’s not really a term you’ll hear used a lot). What it describes is essentially selling used items on Amazon, sourced from the second-hand market.
(This happens to be the model I talk about most on FBA Mastery.)
Where do sellers applying this model get their inventory?
Thrift stores, estate sales, garage sales, flea markets, etc – anywhere they can get their hands on cheap, second hand products to sell at a higher price on Amazon.
Sellers will go into a second hand environment (usually with a scanning app like Scoutly), scan products (this is easiest when sourcing items with barcodes), finding items that can be resold at a profit, and selling on Amazon.
The second hand market is pretty vast, and includes dozens of different source types. It can get into some pretty weird territory, like university surplus auctions, etc.
What category of products does this work best for?
The most popular item for second-hand sellers is Books (again, also the one I cover most on FBA Mastery). But you’ll meet sellers who focus on other niches (like DVDs). There are also tons of opportunistic sellers who sell anything on Amazon they get their hands on with no focus.
What are the pros of this model?
Low startup cost. The biggest one is that it’s cheap to get started. You can start buying books for 50 cents (and even less). The second hand market is inherently cheap, making this approach ideal if you don’t have a lot of money to start.
High ROI. Related to the cheap cost of inventory is the return on your investment (ROI). It’s very easy to maintain a 3x returns when you’re paying so little per unit – i.e. put $1 in, get $3 out (hopefully more). All the major categories to sell second hand (CDs, vinyl, DVDs, books, etc) have low value in the second hand market, but frequently have nigh value on Amazon.
More fun. The last major “pro” is that it’s just more fun. This is a little subjective, but sourcing inventory in the other approaches described below can be repetitive, and just not that adventurous. Sourcing second hand gets you out into some exotic territory – from estate sales to dumpsters (if you’re really adventurous) – and tends to be more interesting.
What are the cons of this model?
Harder to scale. Generally the volume of your sourcing is left to forces outside your control, and you’ll run out of inventory before you run out of money. This is not the case if you get creative with your sources. But for the average or newer seller, scaling will be the biggest challenge.
Note: This is not to be confused with Retail Arbitrage (explained below).
Amazon Business Model #2: Retail Arbitrage
Where do sellers applying this model get their inventory?
Retail arbitrage is the practice of going to retail stores that sell new merchandise (as opposed to second-hand merchandise, explained above). These sellers then scan products, identify those that have a price differential between their retail price and their FBA price, and then profit the difference.
Generally sellers doing retail arbitrage focus on products that are discounted in a retail environment (such as discontinued products), but this can also be profitable paying full retail price.
Sellers applying the retail arbitrage model will hit stores like Wal Mart, TJ Max, Big Lots, and even grocery stores; identify (usually) discounted products, scan them, find the profitable ones, and resell on Amazon.
Sidenote: In recent years, a lot of sellers have misused the term “retail arbitrage” to apply to any sourcing from a brick-and-mortar environment. Retail arbitrage is not to be confused with second hand sourcing, which is a different model. Retail arbitrage pertains specifically to buying new condition products from a retail environment that only sells new products (not second hand).
What are the pros of this model?
Abundance of sources. Retail stores are, of course, everywhere. And they outnumber second hand sources, so if you live in an area with a sizable population, you’re likely to have more inventory source options than you do time.
Low startup costs. Unlike some of the other approaches to selling on Amazon, you can start with small purchases and build from there. You’re not required to invest in pallets of product, or bear the burden of shipping costs (like with online arbitrage). However the costs will still be higher (generally) than with second hand sourcing.
Lower learning curve. Retail arbitrage doesn’t force you to get too far outside anyone’s comfort zone. Everyone frequents retail environments, so there’s nothing too exotic going on here. With other approaches, like going to weird estate sales or talking to factories in China, you’re forced into situations you may not be familiar with. With retail arbitrage, you just head out to familiar environments with a scanning app, and you’re set.
What are the cons of this model?
You may run out of sourcing options. I hesitate to describe this as “harder to scale,” since you hear about a lot of sellers scaling this model successfully. But your sources are still finite – just less so than with the second hand model.
Amazon Business Model #3: Drop Shipping
Where do sellers applying this model get their inventory?
Drop shipping is selling products on Amazon that you don’t actually own, and sending any orders to a supplier to fulfilled the order.
What are the pros of this model?
Totally virtual. You can run it from anywhere. Since you don’t actually hold any inventory yourself (even at an FBA warehouse), you can manage the entire business from anywhere.
You don’t have any inventory. You won’t have any money tied up in inventory, since you don’t pay for anything until it sells. That’s a huge draw for a lot of sellers.
No startup cost. Related to above: you’re not investing in anything until a sale is made. That means unless you’re running paid ads (which a lot of drop shipping sellers do), you aren’t spending any money until you get paid.
What are the cons of this model?
Super competitive. This approach has gotten extremely popular in the last few years, and you’re fighting profitable opportunities and a limited number of suppliers with many other Amazon sellers. Because of this, the margins of profitable products can get squeezed out pretty quick. This results in many drop shipping sellers to move from product to product without a lot of stability.
Note: It’s a myth that drop-shipping is not allowed by Amazon. They have strict rules about what you are and aren’t allowed to do. But when you hear about a seller being banned by Amazon for drop shipping, it means the seller wasn’t mindful of those rules – not that drop shipping is disallowed.
Amazon Business Model #4: Wholesale
Where do sellers applying this model get their inventory?
Wholesale sourcing is simply purchasing inventory from the manufacturer or a middleman at a wholesale discount, listing on Amazon, and profiting the difference.
What are the pros of this model?
Easy replens. This Amazon seller code for “replenishable.” Meaning, once it sells, you can place another order for the same product and replenish your supply – without having to chase down a new source. (Books do not offer easy replens on profitable titles, which is a downside).
Diversity of inventory. You’re essentially not limited by any product category, only your ability to find a wholesale source with prices that allow room for profit.
What are the cons of this model?
Competitive.Wholesale sourcing shares much of the challenges as drop shipping, one of which that it has become increasingly popular in recent years. This has made wholesale sources increasingly competitive.
Unstable. As with drop shipping, there’s less stability than with other models (in general). Middleman sources can change their prices or product availability, manufactures can stop selling to 3rd party Amazon sellers, and other sellers can crowd your listings and force prices down.
Amazon Business Model #5: Private Label
Where do sellers applying this model get their inventory?
Private labeling is the most “advanced” FBA model covered here, with the highest potential for profit.
With private label, you’re creating your own product, working with a manufacturer to produce it, designing and applying your own label and branding, and selling on your own product page / ASIN that you create on Amazon.
This can involve either designing and creating a product entirely from scratch, or apply your own label/branding to an existing “white label” product. Often private label sellers work with factories in China and have their inventory shipped to the US.
There’s some overlap here with drop shipping, where you can private label a product and then only sell it on a drop shipping basis, vs selling FBA.
What are the pros of this model?
You build a moat around your product. When you create a product and build a brand around it, you own that brand. You’re the only seller. And while others can copy your product, you own that ASIN – and the brand you’ve built around it. This creates a massively greater potential for product by eliminating direct competition.
What are the cons of this model?
Learning curve. Because the investment is greater than other FBA models, much of the work involved is on the product research side. This involves identifying products there is a demand for that have an unmet need in the market. Learning this research process – along with all the associated work like product creation, finding a manufacturer, etc – give private labeling the steepest learning curve of any Amazon business model covered here.
Start up costs. When producing a product, you’re going to be required to make a larger upfront investment than any other way to sell on Amazon.
Amazon Business Model #6: Online Arbitrage
Where do sellers applying this model get their inventory?
Online arbitrage is the practice of sourcing inventory entirely online. You find products on one site, relist them on Amazon, and profit the difference. The entire model is built around finding products that are selling for a lower price on one site, and a higher FBA price on one site. If you find a product that leaves profit after all fees and costs, then that’s a candidate for online arbitrage.
A slight variation to this is the Merchant-Fulfilled-to-FBA arbitrage model. With this approach, you are sourcing and selling entirely within Amazon, and capitalizing on the difference between the MF price and the FBA price.
(On a related note: I started an online arbitrage tool focused specifically on books back in 2016, called Zen Arbitrage. They are doing an extremely limited upgrade of Zen Arbitrage which will only be available on an upcoming webinar. Register for that here.)
What are the pros of this model?
Totally virtual. You can run an entire online arbitrage business in your pajamas, from anywhere in the world. And when you combine with a prep service – you never have to see or touch inventory.
Low startup costs. You can start with as little as one item, resell it, and build from there. With online arbitrage, you’re not dealing with minimum purchase orders. You have total control over how large or small your inventory purchases are.
What are the cons of this model?
Competition. There are still very low competition niches that never got too trendy in the online arbitrage space (like books). On the flip side, you’ll see a lot of sellers doing online arbitrage crowding to the same sites (particularly during well-publicized sales, etc) and items that seemed profitable when purchases suddenly find their prices plummet once everyone’s inventory hits the FBA warehouse.
Low profit margins. It’s not uncommon for many sellers doing online arbitrage to be comfortable with 10% to 15% margins – much smaller than most Amazon sellers will tolerate.
Recapping every major Amazon business model
- Second hand sourcing
- Retail arbitrage
- Drop shipping
- Wholesale
- Private label
- Online arbitrage
After reviewing the pros and cons, at least one of these should jump out at your as being a good fit.
Where do you go from here?
Every one of these models has multiple “guru” figures who specialize in helping sellers get success. Best thing to do (after you pick a model – don’t flail around dabbling in all of them) is to research a course or coaching program with successful students who will testify to the quality of the material.
A key detail is that these should be sellers you can actually talk to (a lot of testimonials online are unfortunately fake). Head over to an Amazon seller forum, talk to people, and get credible feedback about a course or coaching program before taking the leap.
One high-quality course can change your life. But one bad one can deplete your bank account.
The quality of these courses and material can very wildly (I’ve gone through some really bad ones). But when a course is good – again, it can be life-changing.
-Peter Valley
I kid you not. Last night I dreamed that you had a girlfriend and I took her away from you, lol.
That wasn’t a dream. Give her back.
On a more serious note, I’ve done the #1 model—and only that one—for several years; but, ALL my thrift stores have basically dried up to nothing; mostly because they either don’t have a regular book person to put anything out, or because they have someone but who only puts out total junk (tons of 80’s computer books, for example). Also, none of these sources will allow backroom access. And so, I’m kind of at a standstill, not knowing if any of the options #2-#6 would even be viable for me.
If they’re not putting books on the floor, that’s a big opportunity for you to buy them in bulk. There’s a 100% chance any second hand source is receiving book donations.
Seems like tons of book/media sellers in my various groups are switching from FBA to totally or mostly FBM. Reasons I’ve read include ever-increasing fees, of course; longer time, it seems at least, in shipments getting processed through the system and Available for sale; greatly decreased difference between FBA and FBM shipping times for orders; etc.