Amazon FBA Wholesale vs. Private Label: Pros and Cons in 2022Mar 02, 2022
So you want to sell on Amazon, but you're unsure which is better: Amazon FBA wholesale vs private label? Both have their own unique set of pros and cons, which can make it difficult to decide which is the best option for your business. In this article, we'll compare and contrast each Amazon business model so that you can make an informed decision about which is right for you. Let's get started!
What Is Amazon FBA Wholesale?
In its simplest form, wholesale is a business model that involves buying branded goods in bulk to resell at a profit. Amazon sellers take advantage of this business model by buying products that are already in demand, sending those products into an Amazon fulfilment centre and creating a listing inside Amazon Seller Central.
If you're new to wholesale you can learn how to use Helium 10 and similar research tools to pinpoint proven demand. Then, reach out to manufacturers and attempt to open a wholesale account so that you can sell their products on Amazon.
Pros Of Amazon Wholesale
Amazon wholesale is a popular business model for good reason. Let's take a look at its top five strengths.
#1: No listing creation. There's usually no need to create an Amazon listing because there will already be one. This means you can simply list your number of units for sale on this same listing and benefit from the existing traffic it is already getting to make immediate sales. It also means you don't need to create images, write copy, or start without reviews.
#2: Less time-intensive. You don't have to go through the process of extensive product research, finding manufacturers, negotiating prices, requesting improvements, designing packaging, carrying out quality control checks, taking photographs (and a hundred other things you need to do when launching a private label brand). This saves you a lot of time up front.
#3: Quick ROI. Due to the shorter lead times associated with sourcing ready-made products locally, you'll be able to list products and sell through them much faster than private label products. With a private label business, you'd usually need to have products manufactured overseas and shipped by sea which can mean you aren't able to extract first profits for several months.
#4: No advertising. Private label selling requires a steep learning curve of digital advertising to market your product to a new audience. With wholesale products, there is an existing customer base and the Amazon listing already has traffic. So you can spend that time (and money) growing your sourcing list to increase revenue.
#5: Smaller budget. Whilst established brands may still command a relatively high MOQ (minimum order quantity), smaller brands can be much more open to small initial orders. Add to this you won't need to ship overseas, pay for a photoshoot and listing creation, register a trademark or fund a product launch like private label sellers do and you can see how you can get started on a much smaller budget.
Cons Of Amazon Wholesale
Like anything, a wholesale business has its downsides too. So let's go through the top five challenges when you sell wholesale.
#1: Minimal assets. An Amazon wholesale business is very much a cash flow play. It is almost entirely centred around selling products and the ability to build a brand and create a valuable asset as a result is largely non-existent. This makes it difficult to realize an attractive sale price for a wholesale business - at least in comparison to the quickly increasing multiples being paid for private label brands.
#2: Buy box share. Amazon owns the product listings on their platform which means you have little control over how many sellers can make their inventory for sale on any given listing's buy box. If you've been able to establish a contract with a supplier and are selling wholesale, it's highly likely someone else can too.
#3: Margin compression. More sellers trying to sell wholesale products means more competition. As a result, some wholesale sellers will reduce their prices to far lower than ideal levels and eat away at the profit you had hoped to make.
#4: Building partnerships. You will need to be a master networker, continually reaching out and building relationships with new wholesale accounts. Successful wholesale products can, for the above reasons, become far less successful over time. This means you need to be constantly adding new products and suppliers to the pipeline which can become tiring.
#5: Required licences. To sell products wholesale you may be required to get a wholesale license - sometimes called a tax-exempt form, resale certificate, business license, something else depending on your location.
What Is Amazon FBA Private Label?
The Amazon private label business model is a method of selling on Amazon which involves creating your own brand, sourcing from manufacturers who will customize products to your unique specifications, and shipping them to Amazon to be sold.
Pros Of Amazon Private Label
Private label is a highly popular business model for a number of reasons, so let's take a look at the top five.
#1: Asset building. A successful private label brand is very attractive to Amazon aggregators, private equity investors and private buyers. In recent times we've seen the sale multiples for brand owners grow substantially and the ability to build towards a life-changing exit is perhaps the greatest opportunity in selling private label products.
#2: Full control. As the brand owner, you have complete control over the direction of your business. You control the branding elements, the supply chain, sales price and much more. You have the ability to chart the course of your private label business without the negative input of competitors.
#3: Buy box ownership. As an existing brand, you can enrol in Amazon Brand Registry to gain protection over the buy box of your Amazon listings. This means you can prevent so-called "hijackers" from selling on your listing and profiting from the traffic you have worked hard to generate.
#4: Line expansion. If you want to grow your business as a private label seller you can easily add complementary products to an existing line. As you own your off-Amazon audiences you can grow your profitability over time with synergistic product offerings to the same customer archetype, further strengthening the long term position of your established brand.
#5: Higher margins. If you work hard to create high-quality branded products that are well differentiated, you can protect your profit margins and make more money. As the only seller on your listing, you won't be forced down on price by other sellers of the same product and can protect your profitability.
Cons Of Amazon Private Label
We're big fans of the private label model at BBU, but that doesn't mean it's perfect. Like most business models there are some challenges, and here are the main five.
#1: More setup. Whereas the Amazon wholesale model is relatively straightforward to launch, private label involves creating branded products with a logo, packaging, instructions and sometimes more. You'll also want to consider creating a website and will need to invest in building your brand reputation over time.
#2: Advertising. Often private label sellers find developing the skillset of advertising on an online marketplace a steep learning curve. Time and money are both required to test campaigns and learn the process in order to drive traffic to a new listing, whereas an existing product already has traffic without the need to advertise.
#3: Time intensive. If you're considering whether to sell on Amazon wholesale or private label, one of the key factors is time. With private label, you will need to research and source products, create listings, build an audience, learn to advertise, run launches, optimize listings and many more tasks that aren't required when selling on Amazon wholesale vs private label.
#4: Long lead time. Most private label sellers will source a branded product from a third party manufacturer overseas. This usually involves a 2-4 week lead time along with 2-6 weeks shipping time (depending on mode of transport). This can create delays in getting started and make managing cash flow more difficult.
#5: Patience required. Launching a private label product certainly takes patience. It can be 3-6 months after launching under your own brand name before you start to see a profit. Private label sellers need to be willing to see the long term goal of building a valuable brand asset and have the patience to push through the initial period.
Amazon FBA Wholesale vs Private Label: Which Is Better For You?
The answer really lies in both your circumstances and your goals. If you have a small starting budget and not a great deal of time, then starting with the wholesale business model may be the best option for you.
If you have the goal of building a brand that becomes an asset but find yourself without the time and capital to do so yet, then starting with wholesale vs private label can be a great way to learn the ropes and build up more capital.
But if you find yourself in a position to invest time and capital ($3-$5,000 ideally) to grow a significant sized business that could fund your retirement in the next 3-5 years then private labeling would be the clear and obvious winner.
If you'd like to learn more about private label selling models then you can read our in-depth article that teaches how to sell on Amazon for beginners.
Or if video is more your kind of thing, check out this free one hour Amazon training.
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