Amazon is the leading online retailer that accounts for over 40% of the online market share in the US and operates in a total of 20 marketplaces worldwide, all open to third-party sellers. These marketplaces, along with Amazon itself, offer over 3.5M products to 310+M buyers worldwide.
Source: https://www.insiderintelligence.com/content/amazon-us-ecommerce-market?ecid=NL1001
With such numbers, no wonder that Millions of sellers have rushed to Amazon in recent years and established their own e-commerce businesses, with 76% of sellers being profitable (note that only 63% of them are profitable after the first year). In fact, Amazon allows anyone to become a self-employed seller thanks to its ground-breaking FBA model, which was first introduced to the world in 2006, but it was only at the beginning of the previous decade, when the first courses started to train 3rd party sellers.
Source: https://www.marketplacepulse.com/articles/60000-amazon-sellers-exceeded-1m-in-sales
Amazon is the world's largest online marketplace with over $500 Billion in annual sales, with 22% of its revenue coming directly from us - third-party sellers who sell over 7,000 products per minute on the platform. In addition, the three most popular product categories are home and kitchen (32%), personal care and beauty (23%), and toys (20%).
Amazon is also an e-commerce giant, thanks to its advanced and extensive logistics network. In fact, this network is the most comprehensive and technological today and includes rapid global distribution, a sophisticated and advanced shipping system, and a vast network of planes, trucks, and robots that operate in Amazon fulfillment centers - over 300 of which are scattered throughout the US - making them the most efficient in the world.
In addition, Amazon is a huge brand on itself in the US, with first-tier consumer loyalty. These consumers are the secret power behind the Amazon marketplace, the largest and hottest traffic in the e-commerce world if you will. These buyers are not only loyal to Amazon but also to the third-party sellers on the platform, as they trust the Amazon brand.
Source: https://www.junglescout.com/blog/amazon-statistics/
Thanks to this strong purchasing power, we are witnessing the rise of micro brands. These are small brands that individuals or small businesses establish and run online. In recent years, we have seen a shift and growing trust towards these small brands, as micro brands have created a more personalized, accurate, and service-oriented buying experience for targeted audiences. These audiences are primarily from the last two generations, about 60% of whom buy from businesses defined as small at first or as a significant part of their decision-making process. The sellers on Amazon who follow the private label business model create the same micro brand.
With such impressive data, it is clear why 3,700 sellers choose to join Amazon platform every single day. So, let's examine some of the business models that exist in the online trading industry today on Amazon. These models are trading strategies for everyone; for those who wants to find existing products and simply resell them again or for those who wants to create a brand of their own and build it from scratch. Some are looking for opportunities to import products from abroad, while others are looking for ways to produce products in the US. Some are planning to sell a few products, while others are looking to build a diverse product line. So let’s dive in and elaborate on the main models that exists today.
The Dropshipping Model
The dropshipping model is a popular and well-known model among beginners. The reason for this is clear, it is a model with almost no financial risk, but keep in mind that the potential for profit and scale is also relatively small.
How does it work?
We choose products that we want to sell on Amazon (from the range of products available on Amazon), we list them (without having the products physically), and only after a purchase is made, we buy the products from other sources and send them directly to the customer's home. The profit will be the difference between our sale price and the cost price that we paid on another site. One could say that it's like a friend asking you to order a product for them and you charge them a fee. Quite simple, right? In fact, in this method, there is no investment in products, branding, or special inventory, we don't even see or touch the product, but we are responsible for the delivery and distribution to the end buyer, while providing customer service.
Online Arbitrage Model
The Online Arbitrage model involves selecting the products that you want to sell on Amazon from the company's vast offerings (similar to the dropshipping model), but in this case, you will need to order the merchandise from other websites or physical stores and have it shipped to a logistics warehouse in the US or to any other physical location you might choose. At this location, the products will be prepared according to Amazon's requirements (such as attaching appropriate barcodes and labels) and then shipped to Amazon fulfillment centers (FBA).
In this model, you will be selling established brand products and won't have to spend money on product branding, but it's worth noting that not all brands are allowed - you'll need to obtain official approvals from certain brands and Amazon may also verify and request that you prove that you are legally allowed to sell the product. In this method, Amazon will handle the shipping and distribution to the customer as well.
There is a low risk In this model also, as the products are ordered upfront, creating an initial financial investment. Success in this model depends on many factors, with the first being the purchase price at which we acquire the merchandise. It is very important to get particularly favorable prices on these products that will allow us to make the margin between our purchase price and the price at which we sell on Amazon. Therefore, most product search methods in this model focus on stock-clearance, discounts, and promotions, which allow us to buy products relatively cheaply and make a profit when selling them at the regular price on Amazon. It is important to remember that in this format, it is necessary to consider that Amazon also charges a fee for shipping and distribution - Pick & pack fee or also known as the FBA fee.
AMAZON FBA Private Label Model
The FBA Private Label model is used by 89% of third-party sellers and is perfect for those who want Amazon to be more than just a side business. This model involves creating your own product under your own private brand, typically a product with a specific niche that you create with a supplier you have found (usually in China), sending it to Amazon warehouses, branding it, and selling it on Amazon. This requires much largeer financial investment, but the potential for profit is also much, much greater. You will have to create the product from start to finish, starting with finding suppliers and ending with creating logos and packaging for the product. The purchase price of the product will be lower compared to the sale price on the Amazon website.
While it may sound complicated, this is a business model that requires an interactive learning process from the start, continuous financial investment, time, and a serious commitment as with any regular business. The good news for those starting their journey in this model today is that there is a well-established industry that provides a lot of knowledge, communities, content, and training to support you.
Registration as an Amazon seller
In order to start selling on Amazon, you will need to create a store on the platform. The first step in this process is to register as a seller on Amazon, also known as opening a "Seller Central" account. The registration process in the US is relatively straightforward but requires attention to details in order to successfully complete Amazon's thorough verification process, during which you will need to provide Amazon with your personal information, documents, and certificates. With dedication and effort, it is possible to become a fully registered and official seller within a couple of weeks and join the Amazon seller community.
Once your account is set up, it will automatically be opened under the Professional plan, which costs $39.99 per month. The other option is the Individual plan, which costs $0.99 per sale. It is usually more cost-effective to choose the Professional plan if you plan to sell more than 40 items per month. However, there is a workaround for those who wish to downgrade to the Individual plan right away. You can upgrade to the Professional plan later, but you will need to go through a short verification process again.
You can also purchase an existing seller account from an individual without going through the verification process, but you will need to go through a short legal process to transfer ownership of the account. In general, seller accounts are sold for a few hundred dollars for new accounts from the past year or two, up to several thousand dollars for an established account with a history of positive track record on Amazon.
The Product: The driving force behind your business success
Finding a winning product can be challenging. What is the most profitable product to sell? How do I find a supplier? These are just a few of the many questions that may come up when considering a product. This process can be long and is the most important step when we start our journey. It often takes several months for new sellers to launch their first product.
Conducting market research is crucial in understanding the market, competitors, and the product itself. Analyzing the product's demand, cost, and profitability is a crucial aspect of product research. Detailed market research also involves learning as much as possible about what customers like or dislike about the product, as well as any issues or problems they may have encountered. This information can be gathered through researching other competitors reviews on Amazon, which will provide insight about customer sentiment and preferences. With this information, you can improve and differentiate your product.
As mentioned before, the most popular method of selling on Amazon is private label – a brand owned by you. This method requires a deep understanding of the platform, how the search algorithm works, and the important principles that govern scaling organically on Amazon.
There are many courses available online, ranging from basic to more advanced. It is important to make a thoughtful choice in this area and, without a doubt, the recommendation is to take a basic course, even if you choose to continue on your own or seek professional guidance.
When it comes to choosing a product to sell on Amazon, it's important to find something that has a large customer base and strong demand. This means looking for a product that has a wide range of relevant search terms on Amazon's search engine and is not overly saturated with competitors or established brands. It's also a good idea to research the competition in your product niche, to see if you can realistically compete with other sellers. Ultimately, the goal is to find a product that has a good balance of demand and competition, so you can set yourself up for success on the platform.
There are, of course, many tools in the market for finding potential products, and these can be a great place to get additional guidance. However, remember that just like you, hundreds of thousands of other sellers are using the same tools and see the same data, so there is no substitute for independent thinking and more in-depth research. In addition, Amazon itself provides a revenue calculator for us to specify and break down the costs, fees, and expected profits for each product we want.
Golden Tip
I highly recommend you first launch a low-risk and low-priced experimental product to Amazon as soon as possible. This means, while you're learning and advancing at a proper and professional pace, you can already put into practice what you're learning by finding a very cheap product (around $1-$2) and sending 100 units of it to Amazon without any special branding or legal Trademark. The goal is simply to learn, experience, make mistakes, all with a product that won't hurt you financially if you have to throw it away and abandon the investment at any phase. All successful sellers on Amazon has made plenty of mistakes at the start of their journey, and even I lost $30,000 on my first product launching. If I had received this tip in 2015, I'm sure my journey would have looked completely different.
The Product is Live on Amazon - What's Next?
The first 90 days after launching a product on Amazon are crucial for determining the most effective strategies to increase performance during the launch phase. While each product and niche are unique, there are certain principles that can be applied to any launch, with the key assumption that your product is high quality and differentiated. Here they are:
- Trademark and Brand registry - To ensure a successful launch, it is important to register the product for an official commercial use and obtain a trademark. This will allow you to join the Brand Registry program on Amazon, which provides legal protections within Amazon and advanced tools for professional marketing and sales promotion. Please note, that launching a product page without a brand name or different name from what you will want in the future, will not allow you to change the name afterwards.
- A Million $ looking product page - that is visually appealing and successful in converting visitors is a must! This can be achieved through well-written content and professionally designed creative assets (product images, A+ content, video, storefront). These are key factors in improving the product's conversion rate, which is the ultimate goal once we attracta steady stream of traffic to our page.
- Inventory management - it may seem not crucial to run out of stock, but this is one of the biggest challenges for sellers on Amazon. When launching a product, you want to give it the best chance to sell, so finding the ideal balance of how much units to bring in can be difficult. Ordering too little can lead to running out of stock quickly and not having enough to restock, which can cause a decline in activity and require a relaunch. On the other hand, too much inventory can result in paying for storage on Amazon if it doesn't sell or receive negative reviews that will significantly affect conversion.
- Pricing - It's great to sell a lot and have increased sales velocity, but what really matters in any business, is making an actual profit. This means pricing your product correctly. Your net profit after all production, shipping, Amazon fees, and advertising costs should be high enough to keep you competitive and flexible on the platform. A good rule of thumb is to aim for a return on investment (ROI) of at least 100%. Remember, on Amazon, the price of your product can have a big impact on sales. Each product has a "sweet spot" where the conversion rate is highest. If you price too high, conversions and sales will drop. Make sure to find the right balance of profit and pricing to succeed on Amazon. Note, that at launch, we can’t really sell in our target price without a substantial social proof (reviews), so I would aim to somewhere between break-even to 50% ROI in the first 90 days until I get good enough reviews.
- The Amazon algorithm - A high sales rate leads to more reviews and even more sales. This is the basic idea behind how Amazon works. It's called the "snowball effect." During the first 90 days of launching a product, there is a special period known as the "honeymoon period." During this time, Amazon gives your product extra visability and preference over others in the market. The goal is to get your product's sales rate moving as quickly as possible in the first 90 days and keep it going for as long as possible (although this almost never happens perfectly, but that's the idea).
The Ultimate Goal – Exiting?
In 2021, while the world was struggling with the Coronavirus pandemic, a massive and exciting industry of large companies emerged with the goal of acquiring successful Amazon private label brands and aggregate them under a unified portfolio. Since 2021, these companies raised over $12 billion in fresh capital and dept from investors and financial institutions for this purpose.
This opportunity allowed many sellers from around the world, to exit their private label brand for an amount they could not have imagined when they started this business. This means from hundreds of thousands to millions of dollars for Amazon native brands, that has excellent sales and profits, in other words, sellers who have built and maintained a successful private label business on Amazon over time might find themselves with 7-figures in their pocket!
“Instructions Written in Blood”
Hundreds of thousands of sellers who I trained, clients that went through RPGECOM agency, seller in our community, or seller I knew in persona, all agree on one thing - an Amazon business is a REAL business! It is not suitable for everyone. Many courses and mentors out there, try to sell the lucrative Amazon business dream as something that is within everyone's reach, regardless of background, abilities, financial situation, or mental state. Well, let me tell you my thoughts on this gently - it's one big bullshit!
After almost a decade in this industry, I can say for sure what the successful sellers have in common - understanding the sphere they are entering, curiosity and ability to learn independently and constantly, initial big financial capital, entrepreneurial mindset and positive attitude (grit), supportive environment or the ability to always believe in oneself when there is no supportive environment, inner strength when things are not going well, creativity and thinking outside the box, analytical and good English skills, the ability to take calculated risks, good personal communication, self-motivation and personal organization, attention to detail, multitasking and much more...
If you have 80% of this, you are ready to start your exciting journey on Amazon, don’t worry, you will be able to handle the remaining 20% on your own 😊
We at RPEGCOM wish you a lot of success if you choose to embark on this exciting journey, and we will be happy to assist you at any stage of the process whenever you need professional help, consulting, coaching, store setup services, creative services, full account or PPC management and mch more.
Good luck!
Guy Heretz,
CEO and Co-Founder at RPGECOM
