Amazon business models

Amazon Business Models 2020 Guide

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“Something strange and remarkable has happened over the last 20 years,” Jeff Bezos, CEO and founder of Amazon wrote in his 2019 annual shareholder’s letter. “Third-party sellers are kicking our first party butt. Badly.” 

Bezos shared data that showed that 58% of Amazon’s retail sales come from third-party (3P) sellers (rather than from Amazon itself). 

A big part of this growth comes from the flexibility Amazon offers its sellers.

There are six popular Amazon business models sellers use to sell products on the platform (detailed below), and Jungle Scout’s survey of more than 1,000 Amazon sellers reveals the breakdown of which business models most Amazon sellers use to sell on Amazon.

  • Private Label: 71%*
  • Wholesale: 26%
  • Retail Arbitrage: 20%
  • Online Arbitrage: 15%
  • Dropshipping: 8%
  • Handmade: 6%

*Note: some sellers use more than one business model, hence the overlap in percentages.

Let’s take a look at the differences of these six different Amazon business models, as well as what you can do to get started selling on Amazon using each one.

 

Private label on Amazon

Private label is the process of a retailer rebranding/renaming a product that is already being manufactured on their own brand or label. Brands such as Walmart’s Great Value or Target’s Main Stays are both examples of private label products. 

Even Amazon has its own private label products with Amazon Essentials and AmazonBasics.

And according to Jungle Scout’s 2020 Amazon seller survey, this is the most popular Amazon business model, with 71% of sellers saying they used this method to sell on the platform.

How much does it cost to sell private label?

Compared to the other Amazon business models, private label is often the most expensive method. 

On average, 62% of private label sellers spend $2,500 or more to get started. 

How profitable is private label?

55% of private label sellers make $5,000 or more in monthly sales, and 65% of private label sellers realize a profit within the first six months of selling on Amazon.

How long does it take to get started with private label?

Despite not being as fast an Amazon business model of selling as the arbitrage or dropshipping methods described below, 55% of private label sellers have their businesses up and running in three months or less.

How much time do private label sellers spend on their business each week?

57% of private label sellers spend less than 20 hours per week on their business, with 12% of private label sellers spending less than four hours.

What categories do private label sellers sell in on Amazon?

The top 5 most popular categories for private label sellers to sell in are:

  • Home & Kitchen: 41%
  • Sports & Outdoors: 19%
  • Health, Household, & Baby: 19%
  • Kitchen & Dining: 16%
  • Toys & Games: 15%

How to sell private label on Amazon:

Private label requires a little more knowledge to sell on Amazon.  Here are the basics:

  1. Research Amazon’s product database for high-demand/low-competition niches
  2. Contact a manufacturer to create the product
  3. Create a new listing for the product
  4. Launch and promote the product on Amazon

To make this process easier, most people use Amazon’s Fulfillment-by-Amazon (FBA) program, which makes it easier for the seller because Amazon handles all the product storage, shipping, returns, and customer service.

Learn more about how to sell on Amazon FBA.

What challenges do private label sellers face on Amazon?

Like any business, selling private label on Amazon has its challenges. The biggest challenges private label sellers face are:

However, there are plenty of free educational resources that can help sellers tackle these challenges.

 

Retail arbitrage on Amazon

Retail arbitrage is a method of finding low-cost or discount goods in brick-and-mortar retail stores in order to resell online. The profits that retail arbitrage sellers on Amazon earn is the difference between the price for which they can sell the product on Amazon minus Amazon’s fees and the original cost of the product.

How much does it cost to sell retail arbitrage?

51% of retail arbitrage sellers spend less than $1,000 to get started selling on Amazon with over 30% telling us they spent less than $500. Of the six models described in this article, retail arbitrage is the least expensive way to start.

How profitable is retail arbitrage?

While retail arbitrage is the least expensive way to get started selling on Amazon, it is also the least profitable. 58% of retail arbitrage sellers earn less than $5,000 per month on Amazon, and 21% earn less than $500.

Furthermore, 57% of retail arbitrage sellers told us it took them up to six months to realize a profit with their business model, and 57% told us that the profit margins on their products are less than 20%.

How long does it take to get started with retail arbitrage?

56% of retail arbitrage sellers told us that it takes six weeks or less to get started selling, making it one of the fastest Amazon business models when it comes to getting up and running.

How much time do retail arbitrage sellers spend on their business each week?

55% of retail arbitrage sellers spend up to 20 hours per week in their business. That includes looking for products, building listings, and shipping goods.

What categories do retail arbitrage sellers sell on Amazon?

The top 5 most popular categories for retail arbitrage sellers to sell in are:

  • Home & Kitchen: 60%
  • Toys & Games: 52%
  • Books: 39%
  • Health, Household, & Baby: 38%
  • Kitchen & Dining: 37%

How to sell retail arbitrage on Amazon.

Retail arbitrage is perhaps the easiest method to sell products on Amazon.

 All one has to do is first find products to sell in brick-and-mortar stores and then list those products on Amazon.

What challenges do retail arbitrage sellers face on Amazon?

  • Finding products to sell: 53%
  • Finding suppliers for products: 38%
  • Optimizing product listings: 29%

 

Online arbitrage on Amazon

Online arbitrage is a method of finding a low-cost or discount product on one website or online marketplace to resell on another marketplace.  

Like retail arbitrage, the profits online arbitrage sellers on Amazon earn is the difference between the price for which they can sell the product on Amazon minus Amazon’s fees and the original cost of the product.

How much does it cost to sell online arbitrage?

59% of online arbitrage sellers spent less than $2,500 to start selling products on Amazon, and 27% started with less than $500.

How profitable is online arbitrage?

55% of online arbitrage sellers earn less than $5,000 per month selling on Amazon. However, 27% earn at least $1,000 to $5,000. 

59% of online arbitrage sellers see profit margins of 16% or higher.

How long does it take to get started with online arbitrage?

52% of online arbitrage sellers took less than five weeks to get started with Amazon.

How much time do online arbitrage sellers spend on their business each week?

59% of online arbitrage sellers spend less than 20 hours per week on their Amazon businesses.

What categories do online arbitrage sellers sell on Amazon?

The top 5 most popular categories for online arbitrage sellers to sell in are:

  • Home & Kitchen: 63%
  • Toys & Games: 59%
  • Kitchen & Dining: 43%
  • Baby: 40%
  • Beauty & Personal Care: 40%

How to sell online arbitrage on Amazon.

Like retail arbitrage, selling online arbitrage on Amazon is relatively simple. 

First, you must find a product on another website (such as eBay, Etsy, Walmart.com, etc.) and purchase the product. Then, you list the product on Amazon.

What challenges do online arbitrage sellers face on Amazon?

  • Finding products to sell: 55%
  • Finding suppliers for products: 43%
  • Optimizing product listings: 28%

 

Wholesaling on Amazon

Wholesaling is the practice of purchasing low-cost or discounted goods in bulk in order to sell as individual units in a retail marketplace. 

Often, the wholesale products already have listings created on Amazon.

How much does it cost to sell wholesale on Amazon?

51% of wholesalers spent less than $2,500 to get started selling on Amazon.

How profitable is wholesaling on Amazon?

60% of wholesalers earn more than $5,000 per month selling on Amazon. 59% of wholesalers have profit margins less than 20%.

How long does it take to get started with wholesale on Amazon?

55% of wholesalers took six weeks or less to start selling on Amazon.

How much time do wholesalers spend on their business each week?

More than half of wholesalers spend 20 hours or more in their businesses each week, and 19% more than 40 hours in their business.

How to sell wholesale on Amazon.

In many ways, wholesale functions like arbitrage. First, the wholesaler must find a supplier or source for products and purchase the goods. Once the goods are purchased, they list the individual products on Amazon.

What categories do wholesalers sell on Amazon?

The top 5 most popular categories for wholesalers to sell in are:

  • Home & Kitchen: 55%
  • Toys & Games: 43%
  • Beauty & Personal Care: 35%
  • Health, Household, & Baby: 34%
  • Kitchen & Dining: 34%

What challenges do wholesale sellers face on Amazon?

  • Finding products to sell: 51%
  • Finding suppliers for products: 37%
  • Managing Pay-Per-Click ads: 37%

 

Dropshipping on Amazon

Dropshipping is a business model where an Amazon seller does not keep their own product inventory, but instead, transfers their customers’ orders directly to the manufacturer or supplier.

How much does it cost to dropship on Amazon?

62% of dropshippers informed us that they spent less than $2,500 to start selling on Amazon, with 25% spending $500 or less.

How profitable is dropshipping on Amazon?

56% of dropshippers earn $5,000 or less dropshipping products on Amazon with 51% seeing profit margins between 11-25%. 

How long does it take to get started with dropshipping on Amazon?

On average, dropshippers take longer to get started on Amazon, with 52% telling us that it took longer than six weeks.

How much time do dropshippers spend on their business each week?

Dropshippers also spend more time in their business than other Amazon sellers. 55% of dropshippers spend 20 hours or more per week in their Amazon business.

What categories do dropshippers sell on Amazon?

The top 5 most popular categories for dropshippers to sell in are:

  • Home & Kitchen: 50%
  • Electronics: 26%
  • Garden & Outdoor: 25%
  • Kitchen & Dining: 25%
  • Beauty & Personal Care: 25%

How to dropship on Amazon.

Dropshipping requires a little more setup than some of the other Amazon business models (although, it’s not as extensive as private label). For more details on dropshipping, we have an entire article that covers this method

Regardless, here are the basics.

  1. Find a high-demand/low-competition product to sell on Amazon
  2. Create a listing for the product on Amazon
  3. Each time a sale is made, deliver the customer’s shipping information to the manufacturer/supplier so they can fulfill the order

What challenges do dropshippers face on Amazon?

  • Finding products to sell: 43%
  • Managing PPC ads: 37%
  • Getting customer reviews: 37%

 

Handmade products on Amazon

Amazon’s handmade sellers are people who create their own products (“by hand”) to sell on the Amazon marketplace. Examples include jewelry, accessories, home decor, and more. 

How much does it cost to sell handmade on Amazon?

51% of Amazon handmade sellers spent less than $2,500 to start selling on Amazon.

How profitable is handmade on Amazon?

55% of Amazon Handmade sellers earn less than $5,000 per month selling goods on Amazon. And 19% earn less than $500 per month, so in terms of Amazon business models, handmade is the second least profitable behind retail arbitrage.

However, handmade sellers have better margins on average, with 51% earning profit margins between 11-25%.

How long does it take to get started with handmade on Amazon?

Handmade sellers get started on Amazon quickly. 72% of handmade sellers took less than three months to get started, with more than 37% taking less than six weeks. 

However, it took 51% of handmade sellers three months to a year before their Amazon business was profitable.

How much time do handmade sellers spend on their business each week?

56% of handmade sellers spend more than 20 hours per week in their Amazon business, and over 10% spend more than 60 hours per week.

How to sell handmade on Amazon.

Selling handmade on Amazon requires handmade sellers to create listings for the products that they are offering. Then, once a sale is made, they must create and/or fulfill the handmade product. 

What challenges do handmade sellers face on Amazon?

  • Getting product reviews: 50%
  • Managing Pay-Per-Click ads: 44%
  • Running promotions for products: 38%

 

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2 comments on “Amazon Business Models 2020 Guide

  1. hola , hago dropshipping , me gustaria saber si tiene conocimiento sobre SKU GRID monitor de precios y inventario y OAXRAY . busqueda de productos , favor necesito una tutorias / clases en el euso correctos de ests sofware . necesito incrementar los productos y paralelamente las ventas

    Cristian
    [email protected]

  2. Hi Dave,

    Do you have a breakdown of the statistics by average and median? So that “51% of retail arbitrage sellers spend less than $1,000 to get started selling on Amazon” would become “Retail arbitrage sellers average spend is $1,000 and median spend is $900 to get started selling on Amazon.”

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