Amazon FBA Wholesale VS Private Label: Which Business Model to Choose?
Guest post from AmazinEcommerce CEO M. Farrukh Iqbal comparing Amazon FBA wholesale and private label business models.
The choice between Amazon FBA wholesale and a private label business model depends on what you want to accomplish as an eCommerce entrepreneur. Each of these business models comes with its advantages and limitations.
There are other ways of selling on Amazon too. However, the most prevalent choice of the Amazon entrepreneur is either wholesale or private label. Comparing the two means looking at the sales, steps involved, payback and managing brand reputation.
This blog post aims to help you understand the main differences and benefits. Keep reading to decide which model best suits you.
Advantages and Limitations of Private Label
What are private label products?
These are the products that third-party manufacturers produce and you sell them under your brand name. The manufacturer does not have a right over the sales and you can decide on designing, labeling, packaging and brand identity.
Let’s have a look at the key advantages of starting a private label on Amazon.
Advantages of Amazon Private Label
The first benefit is you can execute your brand launch and earn large profit margins. You have to be choosy in selecting a product with high demand and lower competition.
The second advantage is that you can establish your brand identity the way you like. The private label provides you the freedom to build your brand from the start. PL lets you create your brand identity and accordingly set the values and reputation around it.
There is more flexibility in adding products under the same brand name. If you can see demand for additional products, you can add them to the same category. You can also ask the manufacturer to suggest products that you can sell.
There is no direct competition on the Buy Box for your ASIN, which you have to win in the wholesale business model.
You have more control over the supply chain, enabling you to work directly with the manufacturer to order units you want to produce as per customer demand. You can change the inventory according to the market situation, unlike wholesale where you do not control production.
Limitations of the Amazon Private Label Business Model
PL is a model that requires a high upfront investment for placing an order of the initial inventory. Besides inventory, you also need to spend money on advertisements for launching private label products.
There is a lot of effort and time required to create Amazon ASINs. You will work on product detail pages and ensure the addition of relevant branding elements.
Wait for the products is sometimes longer. Once you place an order, your manufacturer produces inventory for you. You will need additional time when sourcing from other countries like China.
Also, it is hard to forecast the demand for the products and accordingly place production orders.
You are solely responsible for generating positive reviews. Positive reviews play a significant role in driving more organic traffic and sales for your products.
You need to have a detailed quality assurance process to deliver high-quality products to customers. Poor quality products quickly pile up bad customer reviews and severely damage your brand reputation.
Advantages and Limitations of Wholesale
When you aim to sell products wholesale on Amazon, you will have to place large inventory orders. Source from brand manufacturers or distributors for selling products to the customers.
Advantages of Wholesale
Unlike a private label, there is no need to create ASINs or product listings. You do not need to put a lot of effort into building a brand from the ground up.
You can start sourcing products from a few manufacturers, and as you proceed, you can add more brands to your list. There is no need to remain limited to just one particular brand like in private label. This freedom of working with any product brand enables you to make the wholesale business model a lot more scalable.
The barriers to entry are low. There is no need for a brand registry. Find reliable manufacturers with large catalogs who allow you to sell your products on Amazon.
The payback period is smaller in wholesale. Private label profitability can take months before you break even and start making money.
The private label requires a large MOQ (Minimum Order Quantity) because of the involvement of the production process. Your MOQ is a lot less in wholesale, which means a relatively lower upfront investment in inventory.
The brand owner is solely responsible for ensuring no infringement of copyrights or intellectual property rights on any competing brands.
There is no need to allocate a fixed amount annually for advertising. The products you are going to sell on wholesale already have a demand on Amazon. You are not trying to create a brand new market for a new product. In most cases, you are selling a product with a sales rank and the upfront risk of launching a product is pretty low.
There is less lead time in the launch of a wholesale business as opposed to private label products. Private label launches can take even more time when you are sourcing from abroad.
Limitations of the Amazon FBA Wholesale Business Model
Now let’s discuss some of the disadvantages of doing wholesale business on Amazon.
The first requirement for starting your wholesale venture on Amazon is obtaining a license. You require the license to sell wholesale products in most US states legally. The license is also known as a resale certificate or permit license. This license gives you tax exemption on your procurement, depending on the state. Still, you may need to charge sales tax to customers. It involves a lengthy process as you also need to have an EIN (Employer Identification Number) from the IRS (Internal Revenue Service). This entire procedure may take from four to five weeks.
There is no uniqueness about the products that you are selling as a wholesaler. The products you will sell are sold by other resellers too. Thus, you cannot add any brand identity or product differentiation to make the product stand out. It is not easy to find wholesale categories in which Amazon does not sell. If you enter into Amazon’s dominant categories, you will find it challenging to compete and make profits.
Amazon wholesale is a very competitive marketplace where you will have to make a lot of effort for your Buy Box share. This effort also involves winning the trust of the brand manufacturer, which takes time and patience. You will have to prove your value to their business and also share your experience. They may ask you to share your sales history to exhibit what you can do for their brand. Even if you can partner up with wholesalers, you will still need to put a lot of effort into maintaining a mutually profitable relationship.
If you know the right product to sell on Amazon, you may find it challenging to source it. Compare the different points for the Amazon wholesale and private label selling models to make an informed decision. The above factors are some of the considerations to think about. Also, you need to determine your budget, payback considerations and your strengths as an individual or a business owner.
M. Farrukh Iqbal is the CEO of AmazinEcommerce.com, a top Amazon virtual assistant services provider on private label, micro-private label, listing optimization (SEO), product photography, 3D rendering, & videography more.