Artem Hihach
Which of Amazon’s online business models are the most profitable and which are the riskiest, and how much does it cost to start such a business?
One of the secrets of Amazon’s success is that the marketplace allows others to make money. In the second quarter of 2021, third-party vendors sold 56% of the total number of products on the site. And this trend is progressing. For comparison: in the second quarter of 2013, sellers accounted for only 40% of store sales.
Basic models of Amazon business:
- Retail arbitration
- Online arbitration
- Wholesale on Amazon
- Private Label business
Retail arbitration:
Retail arbitrage looks like this: a retailer finds a product and resells it to Amazon at a higher price. The golden season for such a business is the fourth quarter of the year when sales are growing and people are ready to overpay for the dream gift to children or themselves.
Profit: the difference between the purchase price and the sale price minus the Amazon commission. Up to half of the Amazon entrepreneurs in the United States started working this way, because $ 500-1000 is enough to start, and the product is most often bought at sales in neighboring Walmart.
Jungle Scout conducted a survey of sellers and found that 25% of those who choose this business model earn less than $ 500 a month, 65% manage to earn up to $ 5,000.
Online arbitration:
In fact, online arbitration is the same as retail arbitration, but without shopping. The product is bought online at the same Walmart, eBay, Etsy, or any other online platforms, then sold on Amazon at a higher price.
Profit is made there: from the difference in the price of goods minus the marketplace commission. But according to a Jungle Scout survey, more than $ 500-2500 is usually spent on starting such a business. Profits do not differ significantly: 55% of respondents earn up to $ 5,000 per month, spending at least 20 hours a week.
Is it possible to conduct such business remotely from Ukraine? So. You buy goods online in the US, send them to the address of the so-called pre-centers (preparation centers), which accept goods from the online store, glue special barcodes for Amazon, and send the goods to warehouse warehouses. There are disadvantages, but they are all solved with the help of special programs or algorithms.
Wholesale:
Wholesale trade is very similar to online arbitrage, but it is already a question of purchasing minimal consignments of goods in bulk from a manufacturer or intermediary. The purpose of wholesale procurement is to minimize the purchase price and increase profits. Risk: if you do not guess the demand, freeze money or will be forced to sell everything to zero.
Starting a business requires funds from $ 3,000 and a set of software (online services, Chrome plug-ins) to automate and simplify the search process. Do you have a company in the USA? This will be a plus because manufacturers are reluctant to cooperate with individuals.
According to a Jungle Scout survey, 61% of wholesale entrepreneurs earn more than $ 5,000 a month. 49% spend up to 20 hours a week on this business and only 18% work 40 hours or more.
Private Label:
In general, this model involves applying your own brand logo to a specific product. If a little more complicated: in Private Label, you can have full control over the production of goods, their delivery to Amazon warehouses, marketing, and sales. Additional benefits for business – own company and trademark registration for their Private Label.
It is worth noting that this is the most expensive business model. Start-up investments can range from $ 5,000 to 10,000, and sometimes twice or three times as much. It will take three months to start a business, and you will be able to get your first profit within six months.
Conclusion:
Whether it is worth starting an Amazon business in 2022, the answer is clear: it is worth it. Amazon remains the most popular online store in the United States, and its popularity will grow during the COVID pandemic. According to the 2019 Feedvisor poll, 89% of buyers said they buy more on Amazon than on other online platforms.
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