The Amazon FBA Side Hustle —Retail and Online Arbitrage vs Private Label
What is Amazon FBA?
Amazon is full of third-party sellers thousands of which have Amazon FBA as a side hustle. In 2022 third-party Amazon sellers account for over 50% of all the products sold on Amazon. People like you and me can open an Amazon seller account and list products to be sold on Amazon.
There are a few ways to sell on amazon, in this article we are going to focus on Amazon FBA.
Amazon’s FBA program is very similar to selling something on Shopify or eBay, with one key difference. When a seller sells something through Amazon FBA, Amazon handles the shipping, customer service, and returns on behalf of you, the Amazon seller.
This is often the most time-consuming/frustrating part of selling anything online and Amazon handles it for you through their fulfillment by Amazon service (FBA).
Amazon FBA Business Models:
There are many different ways to sell on Amazon FBA, below we will go into the two most popular business models and discuss the pros and cons of each side hustle.
Private Label Products Business Model
- Earning potential: £100,000+
- Recommended Initial Capital Required: £1000-£5000
- Minimum Initial Capital: £500
- Complexity: Medium/Hard
- Type Of Income: Passive Income (once setup)
Private label products are products that have been manufactured by a third-party supplier. This product is then sold under your brand name as your own product.
For example, you could go to a manufacturer in China with an idea to manufacture a new product, you would specify everything about the product including the packaging, design, and branding. They would then manufacture the product for you to sell.
Higher Profit Margins:
Private label products on Amazon tend to have higher profit margins than other methods of selling like retail arbitrage. This is because you are buying the product in bulk from wholesale distributors, this normally means you pay less per unit.
As it is your product, you are in control of the price meaning you can consistently keep a higher price compared to if multiple sellers were selling the same product. All of the above equals more money!
Passive Income Once Setup Properly:
Once you have found your private label product, purchased the physical inventory, shipped the product to Amazon, and listed it on the Amazon marketplace through Amazon seller central.
The only thing left to do is keep the product in stock, which if done correctly will only take a few hours every month. This can mean that it becomes a very hands-off business and a great way to generate passive income.
Amazon seller central has some great tools to advise you on how much quantity you should buy based on previous sales.
Amazon sellers tend to start selling on Amazon with one product. As they grow, they add multiple private label products to their online store within Amazon. This increases the longevity of the seller and is a great long-term business model. Private label products do tend to make more money than retail and online arbitrage products as they normally have higher margins.
It’s Your Own Brand Name
Selling private label products on Amazon is a great way to start your own brand. As the products are yours, you can do with them as you want. If after selling products on Amazon FBA you want to create your own online store for your private label brand and sell the same products there too, you can.
Side Hustle Can Soon Become Full-Time Jobs
Private label sellers often start an Amazon business as a side hustle to make money on the side but as they sell private label products, they learn more about the platform, generate more money and create more products to the point where selling on amazon becomes their full-time business.
Selling private label products requires a bigger upfront investment than other FBA business models. This is because you need to buy the initial inventory upfront in bulk to avoid paying a higher price per unit. This means that the barrier to entry is higher.
How many units you need to purchase is highly dependent on the type/demand for your product. Most sellers struggle with either overstocking or understocking when setting up a private label. This can lead to either high storage fees or your product being out of stock for months.
Private Label Product Research:
Finding the right product to sell on amazon is time-consuming and can be expensive if you’re buying samples.
Finding good a product research tool/tools can be a great way to speed this process up.
The Amazon marketplace itself is a great free tool to perform product research, you can research other private label sellers to see their existing products.
Reviews Can Make Or Break Your Product
Positive reviews are extremely beneficial for your new product, they help build trust in your brand/product and a lot of potential customers look at the reviews of Amazon products before making a buying decision.
That being said a negative review can have quite the opposite effect. A negative review on a new private label product can dramatically affect performance and make your product extremely hard to sell.
Retail Arbitrage & Online Arbitrage Business Model
- Earning potential: £100,000+
- Recommended Initial Capital Required: £500
- Minimum Initial Capital: £50
- Complexity: Easy
- Type Of Income: Active Income (constantly need to be looking for products to sell)
- Time Required: 1 Day A Week
Retail arbitrage and online arbitrage (RA & OA) is a very different Amazon business to private labeling.
Retail arbitrage is when you visit local retail stores and look for great deals on products created by other brands. This could either be a discounted product or just a product that is selling in the retail store for cheaper than it is selling for on Amazon.
Online arbitrage is very similar to retail arbitrage, with the only difference being that you find great deals/discounted products online rather than in a store.
For retail arbitrage and online arbitrage to work, the product needs to have a listing on Amazon created by other sellers, if not you can create one yourself (this takes longer). It also needs to be selling for less in the retail or online store than it is on Amazon, the price difference needs to be big enough that you make a decent profit after Amazon fees.
Low Startup Costs:
To sell products on Amazon using retail arbitrage or online arbitrage, you need a lot less money upfront. This is because you are only buying what the retail store or online store has in stock at any one time.
For example, let’s say you find a discounted product in your local retail store that will make you some profit selling on Amazon. If there are only 7 items left in stock then that is all you can buy of that one product meaning you don’t have to spend that much to make money.
Great Entry To Selling On Amazon:
Retail arbitrage and online arbitrage are great ways to sell on Amazon and also a great way to earn money.
It doesn’t take long to start making money by using these methods and it is really easy to do once you know how.
You Become Knowledgable Quickly
I focused on retail arbitrage and online arbitrage for a number of years and became very clued up with what products did well on Amazon, where to find them and how to sell them.
To start with you are trawling around every shop scanning every product to see if there were any opportunities to sell for a higher price on Amazon, it was extremely time-consuming, however, the more you scan, the more you learn.
I quickly discovered key product types to look for across different shops that would always be making money on Amazon and selling frequently.
In the end, I could walk into a shop, scan the shelves for 10 minutes and walk out with a handful of products that I would sell on Amazon within a month.
Can Find Some Great Deals:
From my experience, the profit margins from selling via retail arbitrage and online arbitrage, tend to be lower than a private label. However, sometimes you find a golden opportunity where one product that is high in demand and high in stock, these products can make money hand over fist.
This guy on Youtube is a prime example of this, he found a great deal on outdoor heaters and made $34,800 flipping them on Amazon in 24 hours.
The retail arbitrage and online arbitrage processes are simple, once you get your head around where to find the products and how to list them on the Amazon sellers app, the process is then repeated.
As you’re buying smaller quantities of products, if that product doesn’t sell, it’s not the end of the world. Compared to private label sellers, who if they bulk buy thousands of units of their own products that don’t end up selling, it can be a big problem.
The Same Strategy Can Be Used On Multiple Selling Websites
Retail arbitrage and online arbitrage aren’t restricted to just Amazon. Sellers can sell products they find on eBay, Facebook Marketplace and other selling websites. This is a great way to scale retail arbitrage and online arbitrage and also diversify across multiple platforms.
For the same reason that retail arbitrage and online arbitrage don’t require much money to start, it also means that to make money in sizeable amounts takes a lot longer and requires you to be more hands-on with your Amazon business.
This is because more often than not, you are only buying products in small quantities as this is all the retail/online stores have in stock.
Retail arbitrage and online arbitrage are both definitely not methods to make money passively. This is because you have to physically go to the retail stores/or search online stores to find great deals for your Amazon business.
This is something that can definitely be done in your spare time so don’t be put off by it, however, it is a lot more hands-on. Once you have an Amazon store filled with items that you have sourced, at this point it can become passive as Amazon is dealing with all the order fulfillment etc, but when stock runs dry, you need to be back out looking for deals.
You’re Not Building A Reputable Brand:
The products you are selling are from other brands that have their own products, all you are doing is joining the listing on Amazon with other third-party sellers to sell the same product.
Your stock is purely dependent on whether or not the retail or online store has that product in stock, once it’s gone, it’s gone.
Meaning if the store has sold out and you’ve sold out, you have to either find the product elsewhere or stop selling the product.
For this reason, retail arbitrage and online arbitrage aren’t really suitable methods to grow reputable brands on Amazon. However, they are great ways to make extra money as a side hustle.
Can Be Competitive:
Retail arbitrage and online arbitrage can be extremely competitive. If many sellers are selling products on the same listing, oftentimes there is a battle for the buy box. This sometimes leads to the product being discounted by the other sellers on the listing meaning you also have to discount the product to stay competitive.
You can then say goodbye to those higher profit margins as your listings become low-quality and highly competitive.
This is quite common in retail arbitrage and online arbitrage, however, there are multiple ways to avoid this, so don’t be put off.
So which is better?
Both methods of selling on Amazon have their pros and cons, but it all comes down to what type of Amazon seller you want to be. Here are a few questions to ask yourself to help with the decision:
- How much do I want to invest to start my Amazon business?
- How much time can I commit to starting and running my Amazon business?
- Do I want to start my own brand or am I happy selling other brand’s products?
- Do I want to sell on Amazon as a side hustle or full-time job?
- Do I want to create a long-term business or just make money now as a nice side hustle?
How I Started On Amazon FBA
I started on Amazon FBA through retail arbitrage and online arbitrage, it was perfect for me as I didn’t have much money to buy thousands of units and I also had no clue what would sell and what wouldn’t. I just wanted a side hustle to make me some extra money.
I started making money pretty quickly (not hundreds but enough to get me hooked) and soon learned the ins and outs of Amazon and found it easy to source products that sell for a higher price on Amazon than they did in the stores/online.
Over time I started to look more into private label as I was spending a lot of time trawling around shops looking for products to sell. I had gotten a lot quicker and more efficient at this, but it was still time-consuming.
With the base knowledge, I had of Amazon FBA and knowing what to look for when deciding what to sell on amazon, I started sourcing and selling only private label products. This brings us to the present day, my Amazon store is on track to do 6 figures this year and I am hoping to scale this further.
This may seem like a longer process than just starting with private labeling from the get-go, but trust me when I say this — you make mistakes. These mistakes tend to be a lot smaller when selling through retail and online arbitrage, this is the reason I suggest following the same methods that I did.
Amazon Seller Tools & Software To Start With
I’m going to leave you with these two golden nuggets. These two tools in my opinion are essential to starting out on Amazon, they minimize mistakes and increase profit.
BuyBotPro will soon become your best friend when starting out on the retail and online arbitrage journey. There is both an app and a Chrome extension for BuyBotPro.
How it works is simple: once you have found a potential product to sell, you scan it through the app or Chrome extension (depending on whether you are doing RO or OA). You then enter the buy and sell price.
BuyBotPro then gives you a whole host of information — the most useful being:
- BSR Rating (Amazon Best Seller Rank)
- If you are eligible to sell the item (You will have previously synced your Amazon seller app)
- If the item is HAZMAT (Hazardous material — deodorant for example)
- Profit margins, profit and ROI
- If Amazon themselves are selling the same product
- A BuyBotPro score — BBP tells you if you should sell the item based on all its data
- Estimated sales data (previous & current) months
- Competitors analysis — stock levels etc
The software is ace and we are only scraping the surface of what it can do. It is the swiss army knife for retail and online arbitrage sellers.
Created by the same company as BuyBotPro, ProfitProtectorPro does exactly what it says on the tin. Protects your profits.
When there are multiple Amazon sellers selling the same product, you compete for what’s called the “Buy Box”. Often times the two things that increase the chances of getting the buy box > making more sales are your product being FBA and the price of the product.
Amazon sellers selling the same product will constantly adjust their price to give them a higher chance of getting the buy box, this can be extremely frustrating if you do it manually.
‘Your saving grace walks in the room’ — ProfitProtectorPro (PPP).
PPP’s job is simple, to compete for the buy box for you. You give PPP the information like the minimum and maximum price you want to sell the product for as well as how aggressive you want to compete for the buy box. Press the on button and away you go. PPP then reprices your product all day every day based on how you want to sell. Simple as that.
PPP is a great piece of software that is a bullet-proof way to compete against other sellers.
Some of the links in the article are affiliate links — got to pay for the energy bill somehow!