Are you considering starting an Amazon wholesale business? Do your research, first! These are our pros and cons to wholesaling on Amazon.
January 19, 2023
Amazon is undoubtedly the best place to start an e-commerce business in today's online marketplace. There are many models you can use to start your online store - including wholesaling on Amazon. Is an Amazon wholesale business model the right one for you? Let's check out the pros and cons together. 👇
Advantages And Disadvantages Of An Amazon Wholesale Business For Sellers
To start selling on Amazon, you must decide which business model you want to use. There are many ways you can create your store on this platform.
Some of the most popular business models on Amazon include:
- Amazon FBA Private Label
- Retail Arbitrage
- Amazon Wholesale Business
- Handmade Goods
- Merch On Demand
Each of these models has significant money-making potential - but they each come with advantages and disadvantages. Today, we'll evaluate the pros and cons of the Amazon wholesale model.
What Is An Amazon Wholesale Business?
An Amazon wholesale business is a new take on an old trick. Wholesaling is the practice of buying a large number of goods from a recognized brand at a discounted price and then selling them individually for a profit.
Most popular retailers stock their shelves with wholesale deals with big brands. When you go to Walmart, Target, or any other department store, they sell your favorite products to you at a higher price per unit than they paid for the whole lot. They make a little extra for every sale - which adds up when you consider how many sales they make daily.
An Amazon wholesale business uses this same model by partnering with well-known brands to acquire a medium- to high-piece-count order at a low price per unit. They obtain permission to list those items individually on Amazon and sell them at a higher price per unit.
Pros Of An Amazon Wholesale Business
There are some advantages to sell wholesale on Amazon! Multiple sellers use this model as a successful side gig or primary source of income (if they have scaled it sufficiently).
Here are four pros to the Amazon wholesale business model:
- Brand recognition. Wholesalers sell brands that are popular and loved by customers. Since any product you sell as a wholesaler on Amazon will already be recognized by your audience, you will have less work to do in the marketing department. People will already be looking for your product.
- Easy to start. You do not have to spend much mental or creative energy developing a new product, building a brand, or figuring out how to get your product off the ground. The brand you partner with has already done that work - you get to focus on selling after creating your wholesale account.
- Scalability. Since less energy is spent on branding, marketing, and product development, you have more energy to focus on scaling your business. You can get one wholesale deal under your belt and then focus on acquiring a new partner or on consistently winning the Buy Box for more sales.
- Easy for those with physical storefronts. If you already have a physical storefront, you likely already have permission from specific brands to sell their products. It's much easier in this scenario to expand your sales outlets to include Amazon since you already have permission to sell products from existing brands.
Cons Of An Amazon Wholesale Business
While there are positives to wholesaling on Amazon, there are also some challenges.
Here are five cons to the Amazon wholesale business model:
- Competition. Every wholesale seller on Amazon is looking for well-known brands to list. Your ability to generate profits depends on how frequently you win the buy-box - which requires you to have the best value on the market and a healthy seller reputation. Slashing your prices constantly to stay competitive also cuts your profits.
- Getting permission is hard. The brands you want to partner with are successful, popular, and busy. They don't pay attention to every letter they receive and typically only want to work with larger sellers. Getting the permission you need to sell the products you wish to sell takes work.
- Instability. More brands are starting to sell on Amazon without the help of wholesalers. Once they start selling, they kick off the third parties pushing out their product for them and, as a result, dominate the marketplace. You never know when a brand could decide to do this, which makes Amazon wholesaling unstable compared to other methods.
- Low margins. Wholesalers share profits with the parent company. When you create your own product, you get to pocket the full difference between the cost of goods and the price of sale. A decent product will achieve at least a 20% profit margin. Wholesalers will only get around 10% of that profit margin. This means slow (but hopefully steady) profits.
- Little flexibility. If you start selling wholesale products, you have little room for flexibility or creativity. You are selling someone else's product - so you have to play by their rules. Additionally, you aren't building something for yourself. You are helping pad someone else's pockets by benefiting their brand.
Alternatives To Selling Wholesale On Amazon
Wholesale selling on Amazon works for some people. If you aren't creative and can't stand the idea of building your own brand from the ground up, the pros may outweigh the cons for you.
However, many sellers should note the cons of wholesaling on Amazon before jumping into this business model. The low margins, high competition, finding wholesale suppliers, and instability are all serious risks to consider.
If you prefer something with a higher potential profit margin and less direct competition, start an Amazon FBA private label business. Create a seller account and get started.
Under this model, you will find an existing product that performs well, modify it to give it a unique spin, build a brand, and launch your product as a new brand on Amazon. This business model does take a lot more work on the front end - but there is more potential for reward on the back end.
Selling private label products on Amazon can be complicated. Our team of Amazon experts can help you navigate the complex process of product ideation, sourcing, creation, and launching.
The Amazon FBA wholesale business has its pros and cons. If you're looking for something simple to start with minimal marketing hassle, wholesaling on Amazon may be for you. However, if you want to build something that will last for you - consider private label instead. Ready to get started? Let our team of experts walk you through the process.
Julia Grant is a copywriter specializing in e-commerce and small business, helping businesses expand their reach with copy that clearly communicates their message and converts. She is a certified translator and interpreter and prides herself on providing culturally relevant content in both English and Spanish.See more posts from this author