If you want to build a business on Amazon, you need a strong selling strategy. Your business plan should outline how you will source or find your products and prepare them for Amazon’s Marketplace platform.
But what is the best direct-to-consumer selling strategy on Amazon? Should you resell products or manufacture a private label?
Both approaches have their advantages and disadvantages. Choosing whether to resell or build a private label will determine the backbone of your business and customer interactions.
Reselling or “retail arbitrage” is when you “flip” a product. This is when you buy products from major retailers at a deep discount and resell them on Amazon at a slightly higher price.
For example, Ryan Grant became well known for making millions building a retail arbitrage business. He walks into Wal-Mart and scans discounted items using the Amazon Seller app. The app shows him how much the product is worth on Amazon. If it’s worth more on Amazon than he’s paying for it at Wal-Mart, he purchases it, packages it, and lists it on the Amazon Marketplace.
Grant is not alone. A number of sellers have found million-dollar success with the retail arbitrage model.
Retail arbitrage is low risk. You’re usually buying a minimum amount of goods at a discounted price, which means it doesn’t take a significant upfront investment. You’re not buying in bulk and worrying about warehouses filled with unsold inventory.
Ultimately, you don’t have to worry about sourcing or ordering, high overhead, branding, or even customer trends. Retail arbitrage tends to be a lot less operation-focused and more marketing-focused.
Retail arbitrage can have low margins. Most stores today have the technology to track their competitors’ prices. Even if one retailer is undercutting other stores as a means of attracting customers, the price differentiation is likely not going to be that extreme.
Furthermore, you’re not building a brand with retail arbitrage. The best resellers will stick to one industry or category, like Toys & Games. Nevertheless, it’s hard to build a brand around a variety of other business’s products. For example, you may resell a Fischer Price toy, a Mattel game, and a local boutique’s doll. You might be able to upsell these on Amazon, but they’re all separately branded.
You can’t build your own cohesive and unique brand. In the long run, this could hurt your ability to maintain customer loyalty and attract new prospects.
Moreover, you have to constantly be on the lookout for discounts and coupons. This can ultimately eat up a lot of your time if you aren’t a bargain hunting pro.
Hint: Sign up for discount cards at stores where you purchase products frequently. You can earn rewards and get free items to further reduce your costs.
Private labeling is when you buy products directly from the manufacturer and place your own logo or brand on the unit. Generally, you’re buying a generic product and selling it with your own logo on it. You’ll go directly to the manufacturer, source and order a product, and add your label to it.
In some cases, you may also be a private label distributor. In these cases, a company already owns the private label and gives you the rights to distribute that product. For example, HomeRev products are a private label that you can sell on Amazon and other platforms as “your own,” though it’s still under the HomeRev brand.
More than 80% of consumers believe private label products offer good or better quality than their national brand counterparts. They also feel that private label is more personalized, so they can purchase based on the mission of the company as well as the product itself. This gives greater buying control into the hands of the consumer.
Private labeling is similar to owning your own storefront. You build your own business with unique, branded products. Your store offers a specific portfolio of goods that relate back to your brand and overall mission. Your control your brand, logo, and products in a deeper way.
This also allows you to have improved marketing. If you have a specific brand, you can market it with a website, social media, and specific brand voice.
A strong brand, in turn, leads to improved brand loyalty and customer retention, which ultimately boosts your long-term sales. This is great for entrepreneurs who want control over how fast their business can grow.
Generally, private labels have more potential for greater cash flow as well. Private labels ranking in the top 100 of their category make thousands per day in revenue. With the right amount of attention, effort, and marketing, private label products can host a hefty margin. Often this is because you’re ordering a larger quantity of goods (at a lower price) and you can increase the resale price because of the branding.
Often, private labeling can feel like more work—especially if you own your own private label. This is because you’re manufacturing the product, building a brand, and growing a business using the Amazon platform. It takes more time and organization to get a private label product from start to finish.
Moreover, private labeling is usually a higher investment. You have to buy a minimum order quantity of goods, usually from an overseas factory. You have to pay for these products to be made, labeled, packaged, and shipped to you. This higher investment can equate to higher risk if you don’t thoroughly research your customers, industry trends, and competitions.
Distributing established private labels can usually offset these disadvantages.
Retail arbitrage is a viable option for those who know how to find bargains and flip products for resale. However, private labeling usually becomes a longer-term business for most entrepreneurs.
If you want the best of both worlds, become a private label distributor. You get all the credibility and marketing of the private brand, without the high risk and investment of creating your own private label.
Contact us to become a HomeRev seller and start turning a profit on Amazon in no time!