Certain business models are very “easy” to start but much harder to make money with. Other models are extremely profitable but have a much steeper learning curve or upfront investment. On one hand, starting an ecommerce business can be simple, relatively risk free, and doesn’t require a lot of start up capital. But on the other hand, running a successful business still requires a lot of hard work, perseverance, and maybe even a little bit of luck.

So what is the right business model to pursue, for you?

Retail Arbitrage on Amazon

Retail Arbitrage on Amazon is a relatively simple concept. A retail store is selling a product. You purchase that product and sell it to someone else for a higher price, while pocketing the profit.

Most liquidation stores often sell products at rock bottom prices, often far lower than Amazon retail prices. By buying up all of the clearance and liquidation merchandise from stores like Marshalls, TJ Maxx, Big Lots, etc., you can profit by selling these goods either directly from your home or business, or even Amazon FBA, at much higher prices. The reason this model works so well is because a lot of consumers don’t have access to liquidation outlets and are willing to pay the full price on Amazon.

What’s nice about this business model is:

• You don’t need to build a website.
• You can leverage Amazon’s huge marketplace for instant sales.
• There are few startup costs aside from your inventory.

You can begin selling on Amazon with Retail Arbitrage methods very inexpensively. It is possible to start with an investment of under $500 and scale into a full time operation. This is nearly impossible to do with Private Label products on Amazon, since you’ll need to pay for bulk inventory, branding, packaging, and advertising. Even with the smallest minimum orders and zero education costs, you would still be looking at a sizeable investment to start. Most new Amazon sellers start with Retail Arbitrage to get the hang of the platform, before diving into selling their own products.

The major downside is that your business is completely at the mercy of Amazon. You will need to constantly find new products to list on the platform. This means that retail arbitrage can be very difficult to scale since you end up spending most of your time hunting for bargains, preparing the listings, and shipping products to your customers.

In addition, Amazon has introduced new rules that strongly discourage this business model going forward. For example, Amazon has been preventing sellers from selling certain brands without express approval from the manufacturer. So let’s say you just invested $2000 in a killer clearance sale of Legos. “Lego” is a brand that Amazon recently banned sellers from selling. All of a sudden, you’re now stuck with $2,000 worth of inventory that you can’t get rid of because you can no longer sell these products on Amazon. In fact, all it takes is one such incident to shut your business down.

Online Arbitrage

The neat thing about arbitrage is that it can go both ways. If you deal with retail arbitrage, there’s no reason why you can’t source your items online, and vice versa. But when it really comes down to it, we probably like online arbitrage better just because of its sheer reach.

Instead of having to rely on shoppers walking into your store, you can market to people all over the world instantaneously and use so many more tools at your disposal. You can pick up items either in person or online, and then sell them to buyers in different countries at varying prices. The downside with buying items at brick-and-mortar stores is you have to deal with higher overhead costs (which, in turn, jack up prices), but you can also score some pretty awesome deals (i.e. yard sales, clearance sales) and examine items in person instead of going at it blind online.

But if you deal solely with online goods, then hey, you can really make some good money! Looking at sources like Alibaba where you can buy in bulk for super low prices is an awesome idea, especially when you can turn around and resell those items at a good profit. Plus, you can hook up with as many retailers as you want, buy as much or as little as you want, buy exactly when you want, and sell when and where you want.

Tips for Using Arbitrage on Amazon

So, Amazon is a very unique animal in which specific conditions may apply. We already outlined some of the rules that apply to arbitrage in general, but what about when it happens on Amazon? Here are some things to remember. You’re not reselling because that involves using sources like wholesalers, distributors and manufacturers. Rather, you’re acting like a customer at regular stores and then as a business on Amazon so keep in mind Amazon’s selling rules (like their fees) and how to factor in a profit for yourself.

You’ll want to be using Egrow to keep close tabs on an item’s price and rank history so you can capitalize as sharply as possible. You can use our platform to analyze millions of products in the Amazon marketplace and aggregate sales data in easy-to-understand charts and panels. It will save you lots of time with your market analysis and help you find products that you can easily sell. Access millions of daily scanned products from Amazon. Sort, filter, and spy on successful sales, seize great opportunities and identify the right niche for starting your business. Try to avoid items with abnormal or quick spikes in prices because that’ll usually translate to fewer or thinner profit margins on Amazon.

Start with arbitrage on Amazon the way you would with lending money: don’t invest anything — at the start, anyway, until you build up familiarity and trust — that you’re not prepared to lose. Focus first on amassing many positive reviews instead of many sales. When you go after great feedback first, the sales will follow (especially when you first start out). Really practice the saying of ‘measure twice, cut once’ principle when it comes to research. The more studying you do, the likelier your chances of success will be. Using this tool you can find keywords that have a low competition but a sufficient sales volume – it will help you to rank your products faster, easier and cheaper. This is a fusion of traditional keyword generators and niche hunter tools.

When you’re ready for an extra challenge, selling via arbitrage on Amazon can be a fantastic next step. And whether you want that challenge or not, using RepricerExpress to take a huge chunk of the monotony out of the business of selling is a no-brainer. To make your life easier, hop on the easy train with Egrow by signing up for free.

How to Start Retail Arbitrage with Amazon

You quickly open a free Amazon Seller account. (Since I was selling less than 40 items a month, I chose the “free” option. That was a no-brainer.)

Scanning my items into my Amazon Seller account was absolutely painless. I just used the iPhone app and created a shipment to an Amazon fulfillment center. You can enjoy the benefits of bulk shipping to Amazon FBA fulfillment centers for very low shipping rates, or you may decide to list your products as Merchant Fulfilled if you still prefer.

Experimenting with retail arbitrage can teach you how to:
• Create and use an Amazon Seller account
• Ship products to Amazon fulfillment centers
• Label products to sell on Amazon
• Set up my bank account to accept payments from Amazon
• See how other sellers react when I add my products to Amazon
• Understand the importance of Amazon Prime

The real-world hands-on education you can gain just by taking a very small financial risk and leaping into action is worth thousands of dollars in itself. Have you ever been curious about selling products on Amazon? Retail arbitrage is a great way to get started with very little risk.

Ease Of Launch – 8

All you need to do is sign up for an Amazon seller account and go shopping.

Path to Profit – 5

You can make money right away, but it’s not easily scalable since your profits will depend on what items are available from stores nearby, as well as the cost required to purchase inventory.

Sustainability & Risk – 2

Amazon’s new policies make this model risky, because you will have to compete with other sellers with the same products, and may not be able to sell in all categories.

Level Of Competition – 5

Low margins and competition from other sellers selling identical product makes it a challenge to maintain consistent profits.

Private Label Products On Amazon

Private labeling is the act of placing your own brand or label on a product that you manufacture yourself. And the way this business model works is that you first have to find a manufacturer to produce products for you in bulk where they allow you to use your own brand. In most cases, this vendor can be found overseas or in China via Alibaba.

Perform your initial keyword research for product ideas using real-time keyword scanning and pull data from Amazon by using Egrow. You won’t need any other external browser extensions or tools, and you can continue to track all of your selected products within a database with many categories or groups based on keywords, the number of sales, or many other important metrics. Can’t find the product you are looking for in our database? You can request its daily scanning. Simply add it to the Egrow Product Tracker and in 24 hours the dashboard will start populating the relevant data.

Once you’ve produced your product, you then ship your goods off to Amazon FBA and take advantage of Amazon’s huge marketplace to sell your goods. Because you are manufacturing and buying your products in bulk, there is a much larger upfront cost. As a result, it’s recommended that you be willing to invest a minimum of $500-$1000 on your initial inventory.

But what’s nice about private labeling is that you own your brand. You own your products and the margins are super high (>66%). The main downside is that you’re dependent on Amazon and you are subject to all the negatives of selling on their marketplace, as any reasonably successful listing will attract piggybackers and hijackers.

You will also have to constantly monitor your products for negative feedback and product quality issues because Amazon could ban your products or your account at any time. Also because you’re investing a large sum up front for inventory, getting banned on Amazon could cause you to get stuck with a lot of unsellable products.

Advertising

The basic business model involves giving away free products to get reviews, which improves the item’s visibility as it slowly makes its way to the first page of the search results where it can start getting organic traffic. It might be easier to use a corporation’s advertising department to spend millions of dollars on commercials to grab market share, and then just ride their coattails by selling their products instead of creating your own, instead.

Scaling Your Business

One of the comments you’ll hear from private label sellers is that they prefer the business model because it allows for them to scale their business, which they claim cannot be done if your business depends on you’re running around and scanning items. Let’s acknowledge that this isn’t a concern until you’re selling several hundred thousands of dollars a year in inventory. If you’re selling $300,000-$500,000 a year by yourself, and you just can’t see a way to scale it to $3-5 million with this business model, then you may need to consider adding other revenue streams to make it more viable. But this is not where 99.9% of the sellers are at.

Most people are trying to make some extra money, make a part time wage, or support a family. All of these and more can be done by yourself and by using the Online Arbitrage business model.

Insurance

All of your personal assets could be at risk if you’re not properly protected by an LLC or don’t understand how the laws operate in your state / country. The United States is a litigious country where people sue first and ask questions later. They name everyone they can think of in a suit, and when it is your brand in the USA versus a manufacturer on another continent, then there is reasonable concern that this could be a problem.

But overall, selling private label products is very attractive because you own the brand, you own the product and you have the option of selling on your own website. Selling a private label product is by far the most sustainable way of making money on Amazon of any of the other models presented in this article.

To some people, the idea of researching a market, finding a niche that is large enough to support demand without being too crowded, researching, negotiating, and inspecting suppliers 6000 miles away, designing products, designing packaging, creating listings, creating advertising campaigns, generating reviews, optimizing search keywords, improving ranking, policing hijackers, etc., is just not something they can handle or would be able to profit at quickly.

Ease Of Launch – 6

You need to find a manufacturer and invest a decent chunk of change on inventory

Path to Profit – 10

You can make sales as soon as your product is available for sale on Amazon

Sustainability & Risk – 7

There’s a possibility of getting banned by Amazon but you own the brand.

Level Of Competition – 8

Outside of product sourcing and niche selection, there’s not much to it.

Now that you have an overview of the different ecommerce business models, it’s important to note that there’s nothing that excludes you from combining the different models. For example, just because I run my own site does not mean that I can’t sell on Amazon as well. Just because I sell my own private label products does not mean that I can’t drop ship a couple of products on my site too. And just because I sell private label products on Amazon does not mean that I can’t sell wholesale products on Amazon too. I suggest that you give all of these business models a try to see which one fits your personality.

Overall, I always recommend selling private label products both on Amazon and on your own online store. Because if you’re going to spend the effort launching an online store, you may as well choose a business model that is sustainable in the long run.

For our ecommerce business, we sell private label products on Amazon, we sell private label products on our own store and we also sell a few wholesale products as well. In the past, we’ve also dropshipped a few items to fill out our store. The key thing to remember is that the more effort you place on your business, the more defensible it will be. If there’s one key takeaway here, it’s that you don’t want to be tempted into doing something quick and easy because chances are it won’t be sustainable.

With retail arbitrage, Amazon is already changing the rules by preventing any arbitrary seller from selling certain brands. Just be conscious of your cash flow needs and decide whether you’ll be satisfied with temporary cash vs something built to last. We use Egrow to track every change on Amazon in bestseller rankings, sales, prices and much more on a daily basis for up to 90 days. It allows you to look up changes of product rankings for various categories and keywords of your choice without leaving Egrow. It also lets you calculate most of your metrics upfront so you don’t have too many surprises when you go out to look for new products online or in-store, and you can maintain an awareness of other bestselling items and what other sellers are doing.

One of the main reasons people prefer running an online store that sells private label products is because the barriers to entry are higher. Since you will have to source products and establish relationships with vendors, that is one extra task that a competitor will also have to do in order to copy your business idea. If you manufacture many of your own products and control your own website, it’s much more difficult for someone else to carry the exact same products that you carry and drive down prices. The additional barriers to entry mean that once your business is off its feet, it has more staying power in the long run.