As one of the largest e-commerce platforms, Amazon, which brings sellers together with users, offers many different business models to entrepreneurs using its platform. If you want to sell on Amazon, you must choose the right business model. This will be the most important step for you to make a successful e-commerce.
Let’s examine the popular business models used on Amazon together and try to find answers to your questions. In particular, we would like to inform you about “Dropshipping”, “Online Arbitrage”, “Retail Arbitrage”, “Private Label” and “FBA and FBM Shipping Models”, and we would like to present you an article with important details about these business models for those who are new to e-commerce on Amazon or those who want to start.
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What is Dropshipping?
Dropshippingis offered by Amazon as a business model that allows you to sell even if you do not have a product in stock. It is a business model that encourages even entrepreneurs without high capital to step into e-commerce. In this business model, you buy products from your supplier and send them directly to your customer without keeping them in the warehouse, without displaying them in the store and without the need for stock. Before we start, let’s talk briefly about the advantages and disadvantages.
Main Advantages of Dropshipping:
- Since there is no need for warehousing, it saves you from stock costs, warehouse expenses and extra personnel costs.
- You don’t need to keep products in stock, so the initial capital is low. It encourages you to start with a small but efficient capital.
- When storage and inventory costs are eliminated, you can use the capital you have to expand your product range and reach a wider customer base.
Notable Disadvantages of Dropshipping:
- Working with a supplier with whom you will have problems in terms of timing and product quality may negatively affect customer satisfaction. We recommend that you get a supplier that is more compatible with your process, do enough research and analysis, and start Dropshipping after establishing connections.
- Since you are not a manufacturer and you are working with a supplier, your profit margin will usually be low.
- Since there is a supplier in addition to Amazon-Seller-Customer, you may experience problems in the product return process. This will negatively affect customer satisfaction. However, this disadvantage can be minimized by working with the right supplier.
If you want to work with the “Dropshipping” business model on Amazon, you should definitely consider these advantages and disadvantages. The most important step you should take is to work with suppliers who comply with Amazon’s policies. One of the very important reasons to work with reliable suppliers is that Amazon prohibits the disclosure of supplier information to the customer. As a result, the customer will only see the Seller as an interlocutor. For these reasons, finding the right supplier is an indispensable starting move for those who want to do “Dropshipping” on Amazon.
What is Online Arbitrage?
Online Arbitrage is an Amazon strategy that allows you to make a profit by selling products you bought at a low price at a higher price. In this business model, you usually buy products from other online stores.
Advantages of Online Arbitrage:
- You don’t have to visit a physical store.
- You will have a wider choice of products.
- Your working hours are flexible and online.
What Should You Pay Attention To?
- If you want to sell in Amazon’s “gated” or restricted categories, you may need permission.
- You must make sure that the products are genuine. Selling counterfeit products may result in your account being closed.
For those who want to sell with online arbitrage, using online tools can make things easier. For example, tools like Jungle Scout or Helium 10 can help you find profitable products.
What is Retail Arbitrage?
Retail Arbitrage is a business model where products are purchased from physical stores and sold on Amazon. It usually targets the sale of discounted products.
Advantages of Retail Arbitrage:
- It is a suitable business model for you to start with low capital.
- You can make your sales efficient by finding profitable products during discount periods.
- You can physically inspect and purchase products, so you can master the quality-price metric.
Disadvantages of Retail Arbitrage:
- This business model will take a little more time than the previous ones.
- Inventory management can be difficult as you need to physically hold the products.
This business model offers great opportunities for sellers who want to take advantage of seasonal discount periods. However, you may need to barcode the products before sending them to Amazon’s warehouses, which is time-consuming and costly. It requires proper planning and calculation.
What is Private Label?
Private Label is a business model that allows you to create your own brand. In this business model, you create your own brand with products you source from countries like China, where production is usually intensive and diverse.
Private Label is a business model often used in conjunction with Amazon FBA. Amazon FBA provides a great advantage to sellers by simplifying the process of storing and shipping products to Amazon.
Advantages of Private Label:
- You can build brand loyalty between you and your customer.
- As an advantage of branding, profit margins will generally be higher than in other models.
- You will be in full control of every issue and detail about the product.
Disadvantages of Private Label:
- You will need a higher initial capital as the costs of the branding process will be added.
- Before focusing on sales, you should always complete a competitive analysis and plan your product development process. This will mean that you will need to spend extra time.
- In order to enter e-commerce with a successful product, you will need a good marketing strategy. If you do not have the time to spare for this, we recommend you to get professional service by allocating some of your budget.
Amazon Shipping Models: What are FBA and FBM?
FBA (Fulfillment by Amazon):
Amazon FBA In the FBA model, you send your products to Amazon’s warehouses and all logistics operations (storage, packaging, shipping) are done by Amazon in these warehouses. As with every model, FBA has its advantages and disadvantages.
FBA Advantages:
- Fast delivery service (Prime advantage)
- Provides customer service support.
- When you work with FBA, you don’t need to spend time on warehousing and shipping.
FBA Disadvantages:
- Storage fees are high, you should make a good cost calculation.
- Separate FBA fees are charged for each product, you should decide by budget planning.
FBM (Fulfillment by Merchant):
In the FBM model, you are responsible for all logistics processes. You store, pack and ship the products with your own means. Of course, this business model has its advantages and disadvantages. Let’s look at them together.
FBM Advantages:
- It can be an advantage in the start-up phase because it is more cost-effective.
- You are in full control of your products. So you can be sure of customer satisfaction.
FBM Disadvantages:
- The shipping process may take extra time compared to FBA. It may negatively affect customer satisfaction.
- You may need to provide customer service support. This requires both staff costs and time planning.
The FBA model is often recommended for e-commerce beginners on Amazon. Because you benefit from Amazon’s strong logistics network, which makes things easier and saves you time. However, if you sell high volumes of products, FBM may be more cost-effective. You should consider the advantages and disadvantages of both business models and decide according to your current circumstances.
Conclusion
Amazon business models come with many options for different entrepreneurs. Dropshipping offers an opportunity for those who can start with low capital. Private Label offers the possibility of branding in the long run, but you need to start with more capital. Online Arbitrage and Retail Arbitrage are effective models that provide short-term gains. FBA and FBM allow you to gain flexibility in logistics processes by taking advantage of Amazon’s capabilities.
Before choosing a business model to be successful on Amazon, you should prioritize market analysis, the right product selection and customer satisfaction and act accordingly. Developing the right strategies and working patiently to realize them will lead those who want to do e-commerce on Amazon to success. The most important point you should always keep in mind is that every business model works with different advantages and disadvantages, the important thing is that you make the right analysis and choose the one that best suits your goals and budget.
