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10 Different Amazon FBA Business Models Explained in 2024: Pros, Cons, and Tips

June 21, 2024

The 10 different Amazon FBA business models include:

  1. Wholesale
  2. Private label
  3. Retail arbitrage
  4. Online arbitrage
  5. Amazon Handmade

Many factors affect an Amazon FBA business model's nature and profitability. These include product sourcing, competitor analysis, supply chain management, and shipping plans. You also need to consider FBA fees for storage, handling, refunds, and marketing. Some variations of the FBA business model include liquidations, passion product, and dropshipping. There are also popular ones like Kindle Direct Publishing and Amazon Merch on Demand.

Amazon FBA is a service by Amazon that lets sellers simplify their order fulfillment process. This includes third-party sellers and existing store owners. Amazon FBA works by allowing you to sell potential products without the hassle of processing orders and shipments. It's also the main reason why aspiring business owners try out this business model. According to Amazon's Small Business Empowerment Report of 2023, sellers in the U.S. averaged around $250,000 yearly. It shows the potential and profitability of Amazon FBA.

Many Redditors suggest starting with online arbitrage or retail arbitrage. This Reddit user commented that transitioning to the wholesale business model is inevitable. This is because your inventory will grow along with your sales. The more sales you have, the more product investment you have. Another Redditor mentioned how he has built a 7-figure Amazon FBA wholesale business. In 2023, he made around $120,000 in profit.

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Private label is another Amazon FBA business model with more potential for growth. This Redditor said that it's the best one for creating your own product. You choose your suppliers and manufacturers. However, some sellers don't succeed at a specific business model. Another Redditor commented on not getting any sales despite operating for four months.

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Succeeding in building your Amazon FBA business entails proper planning. You need to perform A/B testing, demand forecasting, and off-Amazon marketing. This way, you can fit your business goals with the model you have. There are lots of global competitors with Amazon FBA. You need to invest significant time and effort to make more sales. Plus, product demands are sometimes seasonal.

Is Amazon FBA worth it in 2024? This article dives into the 10 different Amazon FBA business models you can start. We provided each type's pros and cons. We also included valuable tips and the startup costs involved.

1. Wholesale

In this model, sellers purchase branded products in bulk at wholesale prices directly from suppliers. They sell it as individual units on Amazon for a higher price. These are brands that customers are already looking for. So, offer the best price, and you'll get sales without marketing.

According to JungleScout, 47% of sellers spend less than $2,500 to get started in this business model. 47% of wholesale sellers are in the home and kitchen space. 32% sell toys and games.

Some sellers invest a minimum of $5,000+ because bulk orders come with bigger discounts. The catch is that you need access to special vendors. You must also negotiate deals that get you prices that competitors don't have. This requires a lot of contacts by putting yourself out there.

However, some Redditors mentioned that you should start low. They said that a $500 investment is enough to test the waters and invest in specific items. You need to monitor what items are sellable and profitable before making a big investment. Another Redditor also shared how he made $13M in sales in 2020.

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Pros

It's the easiest FBA model to scale.

It leverages the trust of brands.

It has easier competition than private label products.

It has fewer variables to worry about and no need to become experts in marketing.

Once you create a system, it can become relatively passive.

Cons

It's difficult to manage financial records.

Sellers must put up a large initial investment.

Finding a dependable supplier is tough.

If you don’t plan properly, unsold stock leads to massive losses.

Brands could start selling on Amazon eventually and cut you out as the middleman.

Who is Wholesale Amazon FBA for?

  • Sellers with money. Those with the capability of amassing a large investment might do well at wholesale. You need to have this initial investment and the means to survive without profit for months. 
  • A numbers person. People who are good with numbers do well. It is essential that sellers can follow the numbers and the wholesale process. It's for people who don't want to mess with all the creative things required to build brands.
  • The researcher. It also helps if you have experience in product and market research.
  • The People Person. The secret in wholesale is building connections with suppliers and distributors. These suppliers should have the best prices. You must also nurture those relationships over time. Plus, you need to go to trade shows or do cold calling/emailing. That's why you cannot be afraid of rejection. Having exclusive accounts with those suppliers is the lifeline of this business model.

2. Retail Arbitrage

Retail arbitrage involves finding low-cost products in physical stores. Then, you sell them on Amazon at a higher cost. You must go into stores and sift through clearance sales. You can fully utilize this model with Amazon FBA. Sellers ship the product to Amazon for distribution. They can also use Amazon FBM to sell directly to their customers.

Sellers can also benefit from panic buying and products in outrageous demand. Do note that it's not that easy to find clearance sales and discounted items. These Reddit comments show how some individuals aren't lucky enough to find these deals. Plus, you need invoices to sell with specific brands. Amazon is getting more strict because of counterfeit products.

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Pros

It has a higher ROI than wholesale or private label.

It's possible to do at a very basic level.

You get the chance to spend a little cash but get a ton back.

You have control over your inventory.

It's affordable. You can start with any size of investment.

You can learn the Amazon FBA process without a large investment.

You may sell quickly. 41% of retail arbitrage sellers sold in 6 weeks or less.

Cons

It can’t generate a lot of revenue in a short time.

It's difficult to find consistent deals and/or suppliers.

You’ll need storage space, regardless of FBA or FBM.

You may need to pay someone to pack your products and ship them. This minimizes your take-home.

It's one of the least scalable business models overall. 62% earn less than $5,000 a month, and 35% earn less than $500.

Who is Retail Arbitrage for?

  • Those on a budget. Spend whatever you want and get a lot more back. According to Jungle Scout's survey, 49% of retail arbitrage sellers spend less than $1,000 getting started. A third of sellers started with less than $500.
  • The beginner. This is a low-cost way to learn the Amazon system. It’s a great way to get started and learn without an enormous investment on the line.
  • Someone with a personal vehicle. You need to drive to physical locations.
  • Those who don’t already have a full-time job. This takes a lot of time. To succeed, you won’t be able to manage a full-time job on top of everything involved.

3. Online Arbitrage

Online arbitrage is just like retail arbitrage. But you order products online instead of in stores. Some sellers also buy low-priced items on another e-commerce platform or marketplace. The product is resold at a higher cost on Amazon. This is the next logical step from retail arbitrage towards a wholesale business.

Some Redditors mentioned that dropshippers are the direct competitors for online arbitrage. Because they don't own inventory, they can easily list at very low margins. But, other individuals suggest getting creative. You must find rare products. Then, create marketing campaigns or ads that engage your target market. One Redditor mentioned how he prices his products at $50 to $200. The lower the price, the better.

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Pros

No vehicle is needed.

You can work remotely and flexibly.

It's easier to compare prices directly with Amazon than with retail arbitrage.

It's simple to get started. 36% of sellers started in less than 6 weeks.

It's also affordable. 58% of online arbitrage sellers spent less than $2,500 to start. 29% spent less than $500.

Cons

Listing optimization is difficult.

It's hard to find consistent suppliers.

Online Arbitrage is another business model that is hard to scale. 55% of sellers earn less than $5,000 per month.

You must consider the shipping costs charged by each marketplace. Otherwise, your bulk buying may not be profitable.

Who is Online Arbitrage for?

  • The beginner, who is ready for the next step. Like retail arbitrage, it’s easy to get your feet wet with online arbitrage. 
  • The person who wants to learn, but doesn’t have a vehicle.
  • Someone ready to put up a slightly higher investment. Perhaps you made a bit of money on retail arbitrage. Use that to invest in an online haul next.

4. Liquidations

Liquidations is very similar to both kinds of arbitrage. Instead of hunting for clearance or low-cost products, you hunt for bulk liquidations. You can do this at physical locations or websites like 888lots or Bulq. There are many platforms that help you find items marked for liquidation. This is not a long-term business. But, it gives the seller a chance to turn a small investment into a large amount of money quickly.

Quora users also mentioned that sellers should be careful with liquidated products. Most of these are not sellable or counterfeit. Some products even have damages. So, it's best to check the seller and stocks first before buying liquidated items or pallets. If you accidentally buy damaged or fake products, your customers will know. Amazon can suspend your account.

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Pros

You can enjoy a high and fast ROI.

Brand name items can be sold.

It gives those well-versed in arbitrage another way to scale.

Cons

Many sites require a reseller permit and have minimum order requirements.

You have to consider it a full-time job.

Shipping costs take away from profitability.

Who is Liquidations for?

  • Those who are starting out. It's another way to learn Amazon FBA without a big investment.
  • Those without a lot of money. You can start with a single order and work up from there.

5. Private Label

Private label sellers source unbranded products from a third-party supplier. Then, they brand the products as their own. They sell the newly branded products at a higher price to make a profit. This is the best way to create your own products without manufacturing them yourself. Your little brand will compete against the big guys. For example, Amazon Basics and Amazon Essentials are private labels.

Some successful private label sellers also posted positive things on Reddit. One Redditor revealed how he started with $5,500. Now he earns $3K to $5K monthly as an additional income. Another Reddit user shared how he made $250,000 in profit in 2023. The key to private label is putting ton of effort in starting it. It becomes easier once your business grows.

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Pros

You’re in charge of your own products.

You can differentiate yourself from the competition by innovating your products.

If you have a following or already have an established store, this can maximize your sales.

You can sell your brand once successful, often at 3x-5x its annual revenue.

Cons

It takes a long time to scale.

It carries tremendous risk because of the high initial investment.

It has plenty of steps to mess up like branding, packaging, marketing, and product choice.

PPC is brutal if you don’t have a lot of money.

You need to start from scratch. You can’t maximize off of anyone else’s reputation.

Who is Private Label for?

  • Those able to wait for money to come in. 35% received a profit within 6 months of selling.
  • Those who have a talent for marketing and branding.
  • People or businesses that already have a following.

6. Passion Product

The passion product FBA model is a variation on the private label business. You manufacture your own unique product instead of buying a product with no brand. With passion product, research begins at the heart. Think of what you love. Research how other sellers have met that need. Make a better product. Add functionality and features.

By choosing something you believe in, you will understand your customers more. Then, start a product launch group. You will need to crowdfund through a Kickstarter campaign to get the money to launch.

Reddit and Quora users stressed the importance of selling products that you're passionate about. You must first understand how you can cater to your potential market's needs. Then, create ones that have value. They should be better than the market alternatives.

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Pros

You may enjoy what you are doing.

If you find a manufacturer you trust, you can build a relationship with them. That way, they will send inventory to Amazon with just a message from you.

You can set yourself apart from the competition because you're naturally more knowledgeable.

Cons

You might need crowdfunding to raise your needed capital.

It's risky. You need to grow a following before you can even order inventory. You might spend hours upon hours working on this for nothing.

Sometimes your passion can cloud your judgement and lead to poor business choices.

Who is Passion Product for?

  • Someone who is passionate about their product. Other sellers say this can be a big negative. But, this can be a good thing because of its originality.
  • The social butterfly. A Kickstarter requires that social connection and visible passion. It may even require you to be the face of your brand, which you may not like. 
  • Someone with no cash, but will ask for it. It sounds good to say you don’t need cash upfront to start your passion product. But in reality, you do. It just won’t be your money. You will have to ask for it and then deliver on your promises.

7. Amazon Handmade

 Amazon Homemade allows you to make your own product with your own hands and sell it. In exchange for their services and reputation, Amazon takes a 15% referral fee per sale. While it is good for people with skills, it's one of the least popular ways of making money on Amazon. Also, there is a lengthy application process.

It's challenging to make stable sales with this Amazon FBA business model. You might not get a lot of purchases at first. It's because your original, handmade items aren't gaining traction yet. However, there are some who make a good amount of money. One Redditor mentioned how he makes $300 to $400 monthly with a single product. But, it's also hard to keep up with the orders since the production process is lengthy. Another Redditor commented that it's so difficult to search for handmade products on Amazon.

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Pros

Other people can help you make your product. 

Good margins: 52% earn profit margins between 11% and 25%.

It’s one of the least expensive models to start. 53% spent less than $2,500 at the beginning.

You can develop a custom shop profile. This allows you to show the story of the person behind the art.

Tracking financials may be simpler for you. You will know exactly how much you spend on materials and how much time goes into your process.

Cons

It's not as well laid out as Etsy.

You can only sell in a few categories.

You need a suitable workspace.

It's not very scalable. 50% earn less than $5k and 30% earn less than $1k.

Only 20 people can help you make your product. You cannot manufacture it.

Getting paid takes a while. You get paid when the order has shipped, not when the customer pays.

It can take up to 2 weeks to get approved. You will need photos of the product and proof that you are a seller.

Because you are making a quality product, there’s an enormous time commitment. 20% spend over 40 hours per week on their business.

Who is Amazon Handmade for?

  • Established sellers. Actual artisans only. All products must be handmade, hand altered, or hand assembled.
  • Creatives at heart. Consider Handmade if you love the idea of creating a product, but don’t want to get into the world of private labels and big manufacturers.
  • Those who are scaling their business off of Etsy.

8. Amazon Merch on Demand

Amazon Merch on Demand (previously Merch by Amazon) is an on-demand t-shirt printing service. You create an original design, choose a color, and set a price. Amazon sells your design, and you earn royalties. To do Merch by Amazon, you must request an invite. This takes you to an application. You must prove that you will bring established value to Amazon. You can do this by signing up with an established website or portfolio. Amazon will look at this most.

This application can take weeks to get approved. Once approved, you'll go on a waitlist. Your wait can be up to 6 months before you can list a single shirt.

Here are one seller’s profits. She has sold over 12,000 t-shirts and has made $29,595.59 in profit. In a Quora post, user Ben Smith revealed how sellers can make 15% to 25% profit margins. The secret is to start pricing with a low margin (about 5%). Once your designs gain popularity, you can increase it to 15% or more.

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Pros

You list for free.

There are no upfront costs.

You can put up the same design on a t-shirt, tank top, or sweatshirt. This still counts as one design.

Amazon handles everything. You don’t have to worry about suppliers, shipping, inventory risk, customer service, or quality assurance.

Cons

The platform is invite-only.

You will need to worry about copyright infringement.

You won’t be able to start from scratch. 

You are at the mercy of Amazon’s royalties. They range between 13% and 37%, but they can change.

You can only sell 10 designs until you sell 10 shirts, then 25, then 100, then 500. Sometimes you need to buy your own shirts to climb the tiers.

Who is Amazon Merch on Demand for?

  • Those looking to start an Amazon FBA business with no money.
  • Established artists and graphic designers
  • Those with a large social media following. This can help prove that you will bring value to the platform. It will also help with sales.
  • If Handmade is appealing, but you don’t have the time. Merch handles the creation of the physical product, packing, shipping, and more. You reap the benefits.

9. Kindle Direct Publishing

Kindle Direct Publishing (KDP) is Amazon’s self-publishing platform. It lets you create your book, journal, comic book, or calendar. Upload it to KDP, and sell. Even if you are not an author, you can use KDP for almost any digital product. From there, you will publish it as an e-book or physical book. You get paid a royalty from your sales. Royalties are different depending on the options you choose and which country you are in.

Lots of Reddit users mentioned how cumbersome the process is in writing a book for KDP. You need to write, edit, and format your book. Then, you must create the design yourself and promote it on different platforms. Some Redditors even revealed using ads to boost their marketing campaigns. Another Reddit user commented on how he made around $30,000 net in profit in 2021. He published five books and two short stories.

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Pros

You don’t have to think about inventory or quality assurance.

You can buy author copies at a discount.

The KDP select program offers special benefits for e-books. 

Getting into KDP is extremely easy. There is no application process, though your product needs to be approved.

Cons

You can’t make a ton of money.

You split the revenue with Amazon.

A low barrier to entry means there is a lot of competition.

Who is KDP for?

  • Digital creators and authors.
  • Those looking for the easiest way to get known on Amazon. With no barrier to entry, this model allows you to see the backside of Amazon with no risk.
  • Those who aren’t looking to make big bucks. You probably won’t make much with KDP. But with good keywords, you can make extra cash.
  • Those with a following. Course creators often write books for KDP to scale their social media presence. This lets them turn it into another income stream.

10. Dropshipping

Dropshipping on Amazon means the seller does not keep their own product inventory. Rather, they transfer customers’ orders directly to the manufacturer. Doing this with Amazon requires a ton of setup. But it does remove the typical Amazon FBA hassle with inventory. All you need is to market the products and gain more purchases.

However, many Redditors commented on how difficult it is to make continuous sales with dropshipping. Customers want to get their package right away. So, most of them go to more direct means instead. Another Redditor mentioned how he built his dropshipping business for 2 years. He ended up paying more for third-party services for marketing and stuff.

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Pros

There are no Amazon FBA warehouse fees.

You won't need to spend time and money starting a brand, creating a product, or buying items in bulk.

It's completely online. There's no need to store your products.

The use of Amazon makes customers trust you.

You don't need to make a website or find your own customers

The cost of shipping is often covered by suppliers.

Cons

Amazon doesn't release your funds for 2-3 weeks.

You will have to watch metrics closely, which comes with a learning curve.

Amazon limits the suppliers you can use. For instance, they don't like it when you dropship from another retailer, like Walmart.

Amazon has strict rules for dropshipping. If you break them, or they think you broke them, your store can be suspended.

Who is Dropshipping for?

  • Those who want extra income. Most sellers use Amazon for dropshipping to earn extra cash.
  • Part-timers. People with more time can start a dropshipping business to make up for doing part-time jobs.
  • Influencers. Having a huge following can help you promote your products.

How To Make the Most of Your Amazon FBA Business

  • Improve the products you sell. Think of new ways your products can help your customers. You can also pair them with other low-performing products. This way, you create new value for your offerings while slashing stored inventory.
  • Add more products. You can diversify by selling new products. Adding to your existing line of products is a smart move. It opens you to new customer segments. Your existing market will also like that you have a wider array of products. Choose the ones that have long-term sales potential.
  • Develop your paid traffic principles to optimize your advertisements. If you're using paid ads, it's crucial to integrate new techniques. The Amazon FBA industry is always changing. And, your customer's needs and wants also change. That's why tailoring your marketing campaigns is important. It allows you to adopt more engaging and relevant campaigns.
  • Build your brand and your following. You need to grow your customers and existing audience to broaden your brand exposure. Do omnichannel advertising. Use social media platforms and partner with influencers.

How Much Does It Cost To Start an Amazon FBA Business?

It costs around $100 to $20,000 to start an Amazon FBA business. This can vary depending on the business model you choose. You can start retail and online arbitrage using $100-$500. It requires less initial investment because you buy items at discounted prices. Wholesale costs around $500-$5,000. This lets you buy in bulk from suppliers and sell them at a higher price. The most expensive business model is a private label. Starting costs run from $5,000 to $20,000.

You also need to consider mandatory Amazon FBA startup costs. These include the monthly plan of your Amazon Professional Seller Account. There are also import duties and taxes, UPC barcodes, storage fees, and many more.

This Redditor mentioned how he launched an Amazon FBA business in 2023 with only $500. But, this amount doesn't include the fees needed to create and maintain an Amazon store. Another Reddit user mentioned how he spent around $3,000 to white label some of his products. But, he also added that starting an FBA business with less than $3k is still possible.

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Can You Do Amazon FBA on a Part-Time Basis?

Yes, you can do Amazon FBA on a part-time basis. It lets you earn additional income for fewer work hours. According to Jungle Scout, 50% of sellers doing Amazon FBA spend less than 10 hours of work weekly. However, if you plan to earn more than usual, you need to spend around 21-30 hours weekly like 12% of sellers.

Many Reddit and Quora comments show the profitability of Amazon FBA despite being a part-time job. One individual mentioned how aspiring sellers need to consider many things. These include marketing, listing, and sourcing. Another commenter mentioned hiring a virtual assistant to handle his FBA business. You can come up with your own strategy to make your operations seamless.

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Amazon FBA is still profitable. However, it's definitely more competitive than it was 3-4 years ago. There are more big-time distributors and suppliers doing FBA themselves. They drive the price down of many product categories.

To be successful today, you need to put maximum effort into every aspect of the business. You must improve listing photos, branding, and packaging. Some sellers even innovate or bundle products that have not existed before. The edge you have against the big suppliers is that you can give a lot more attention to detail and go the extra mile. 

How To Start an Amazon FBA Business

  • Pick the business model you like and is profitable in the long term. You need to choose an Amazon FBA business model that fits your budget. If you have less capital, you can go with online or retail arbitrage. You can also do dropshipping because you don't need inventory. If you want something more profitable, go with wholesale or private label.
  • Look for products with high demand. You can use tools like Dropship Spy, Jungle Scout, and Niche Scraper. These tools help you find potential products through specific keywords. They show competitors, pricing analysis, product demand, and many more.
  • Find reliable suppliers to source your products. You need to secure reputable suppliers that can ship on time. They should also have quality products. You can choose from manufacturers, distributors, wholesale suppliers, and many more. Some examples include AliExpress, Wholesale Central, and Alibaba.
  • Create your Amazon Seller Account. You can sign up at Amazon Seller Central. It will just take a few minutes and require some specific information. Then, you can choose between an Individual or Professional selling plan.
  • Enroll in Amazon FBA and add your products. This lets you subscribe to Amazon's fulfillment service. You can find this option when adding your products to the inventory.
  • Ship your products to Amazon's warehouse/fulfillment center. After partnering with a supplier, you can now ship your products to Amazon. Make sure the shipments follow the proper packaging and operational standards.
  • Develop engaging marketing campaigns to advertise your products. You can use SEO or PPC to create your marketing campaigns. This depends on your budget. Many Redditors and Quora users suggest doing both since the returns will be huge. But, you can still start with organic marketing.

Why Local Lead Generation is More Sustainable Than Amazon FBA

Local lead generation is more sustainable than Amazon FBA because of its localized niches and scalable nature. Amazon FBA is still a viable business. New Amazon sellers make an average of $42,000 each year. But, a lot of this success depends on what business model you choose. It also considers your situation and your own strengths and weaknesses. Sometimes, it just gets down to luck.

With enough tenacity, you can always turn a failure into a learning experience. But most people fail Amazon FBA because they quit too early. Most Amazon coaches talk about a two-year learning curve. This is when people can expect to face many struggles and maybe not see any profit.

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Alternatively, local lead generation is simpler and more straightforward. You deal with local businesses looking for possible leads. You just need to pick local areas and services with high demand and potential. Then, create a website for each local service niche. This means that you have fewer competitors. Plus, you can acquire more potential customers because local markets have limited suppliers. Finally, you need to rank organically on search engines like Google to start generating free leads. Each site can offer over $10,000 monthly. That translates to 85%-90% of profit margins.

Before you choose which Amazon FBA business model to follow, look into all your options. I sold on Amazon FBA for years. But I found more consistency in the local lead generation business.

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