You would be surprised to know that the third-party sellers on Amazon exceed the 2 million mark. It is due to these sellers that a consumer sitting in any part of the world can order a variety of different products on the Amazon platform.
Among these sellers on the Amazon platform, almost 26% of them use the wholesale sales model. Wholesale basically refers to buying branded products in bulk from a different manufacturer, distributor, or supplier and reselling them to the consumers.
Selling such products brought in bulk on Amazon may seem like a lucrative opportunity. However, a lot of concepts and procedures involved in following such a sales model need to be understood thoroughly first.
Through this article, you can easily grasp the ways in which you can implement a wholesale sales model on Amazon.
How is wholesale different from the other sales models supported by Amazon?
When you hear the word “wholesale” you may feel that it is more or less similar to the other types of sales model on Amazon. However, this is so not the case as there are huge differences in each type of sales model supported by Amazon.
- Arbitrage is a sales model wherein the products are purchased at a discounted rate from certain retail or online sites and then resold on Amazon. The similarity of this sales model with wholesale is that both of them involve the purchase of branded products. There are two types of arbitrage, retail arbitrage and online arbitrage. In retail arbitrage, sellers look for retail or outlet stores and look for making a bargain by reselling the liquidations, clearance stock, and reduced stock. However, in online arbitrage, the products for reselling on Amazon are obtained from online sources. In online arbitrage you can generally buy the products in bulk.
- The private label sellers have their own individual brands that they market and sell on Amazon under their own brand name. However, wholesale sellers purchase existing products from different brands. Private label selling also involves building a brand from scratch which is not the case when it comes to wholesale. Also, private label sellers do not want or would not allow any wholesalers to buy their product and resell them on Amazon.
- Dropshippers are third-party sellers who sell the products that they do not own on Amazon. Dropshipping is not just limited to product acquisition but it also involves product fulfillment. In dropshipping, the buyer gives you the order and the order is processed by you on behalf of the supplier. The product will then be packed and shipped to the buyer by the supplier. The main difference between dropshipping and wholesale lies in the way the product inventory is handled. Since products are bought in bulk in case of wholesale, product inventory plays a major role. However, this is not the case with dropshipping.
Reasons to sell wholesale
Here are a few reasons why Amazon wholesale is so popular and opted by several sellers online.
- The products from existing brands can be sold through this method. This takes away the burden of marketing and advertising the products that you are selling online.
- In case of wholesale, you would not have to go through the laborious process of manufacturing the product, shipping it to the customer, etc.
- It is much more profitable to sell products as a wholesaler on Amazon. This claim is supported by a report which suggested that the wholesalers on Amazon took under three months to turn a profit and the private label sellers took about six months for the same.
- It takes minimum time to get your business up and running when it comes to Amazon wholesale.
- With not having to bother about brand identity, marketing, etc, you can dedicate that time to growing your business and building a team. However, in order to sell on Amazon as a wholesaler, you would need the brand approval.
Basics of Amazon wholesale
There are several steps involved in wholesale selling on Amazon. There are certain business setup practices entailed by Amazon which one has to follow if they wish to sell wholesale on Amazon.
If you wish to adopt wholesale selling on Amazon, you will need an LLC and sales certificate. This is required when you are purchasing products from distributors for wholesale on Amazon. This can be in the form of a tax-exempt form or a business form as well and this depends entirely on the existing rules and requirements for reselling on Amazon in your country. Before commencing your journey as a wholesale seller on Amazon, you need to check the license requirements for wholesale selling on Amazon in your country.
Once you have these legalities in place, you can proceed to the next steps. The main steps that are involved in Amazon wholesale selling include the following.
- Seller account setup
- Selecting the product you wish to sell
- Product sourcing
- Bundle, optimized listing creation, PPC
- Launch and promote the selected product
- Management and development of your business
Finding a suitable product to sell on Amazon
When you select a product for wholesale selling on Amazon, the first thing that you must look into is that the product should not be sold by a private label seller or Amazon. Generally, the products under Amazon’s brand are already at a competitive price and as a wholesaler, you cannot compete with the same. Also, many of the private label sellers will not allow the wholesalers to place offers on the product listings that are similar to theirs.
While picking a suitable product, try looking for well-established brands. Such successful brands would speed up the success of your business as a wholesaler on Amazon. You also need to check the demand for the product prior to making the selection.
Amazon has several products that fall under different categories. We recommend that you pick the products that fall under the following categories.
- Arts, crafts, and sewing
- Home and kitchen
- Home and Garden
- Home Improvement
- Kitchen and Dining
- Music Instruments
- Office Products
- Pet Supplies
- Patio, Lawn, and Garden
- Sports and Outdoors
- Toys and Games
- Video Games
Ensure that the BSR or the products picked by you should be equal to or more than 50000. BSR refers to the best sellers rank which is a score for the products on Amazon based on its sales history and sales volume. It is basically a measure of how each product in a category compares with the other products in the same category.
You can use the sales estimator by Jungle Scout to find out the high-in-demand products on Amazon. You can use this estimator to your advantage by finding your product on Amazon and examining the rank corresponding to Amazon BSR for the top category.
You need to ensure your product meets the following points.
- It is not sold by Amazon.
- Has three or more sellers.
- Has at least one FBA offer.
- The selling price is equal to or more than $20.
There are some categories on Amazon that need additional special approvals to sell. Such categories are Automotive, Beauty and Personal Care, Clothing, Shoes, and Jewelry, Grocery and Gourmet Food, Health and Household, Industrial and Scientific, Kindle Store, and Music. Although you can easily get approval for the products falling in these categories if you are starting out it is better to stick to ungated categories.
Evaluating sales and profitability of chosen products
If you are looking to sell your products on Amazon, you would definitely want to earn some profit. Here is how you can calculate how much profit the chosen product will give you.
- You might have noticed the “Buy Box” which has “Add to Cart” on Amazon. You need to make sure that you have priced the product within 2% of the price given in the “Buy Box”. If the price of your chosen product is higher than this, there is a possibility that it may never appear in the “Buy Box”.
- From the final sales price, reduce the actual price of the product and the fee charged by Amazon. If the resultant number is a positive number, you can assume that you would profit from it.
- Using the sales estimator by Jungle Scout (mentioned earlier), check the monthly sales of the chosen product. Divide this by the total number of sellers including you to get the average sales shared by the wholesalers.
For instance, if the deduced monthly sales of a product is 4000 and there are currently 10 sellers for it, the sales per month would be 400 (i.e. 4000/10).
- Ensure that only up to 3 months of sales is kept in stock to avoid the added storage fees charged by Amazon. If we take the above calculations into consideration, you must keep around 1200 units in stock and not more than that.
If you want to know how much profitable the selected product would be, you can use the Helium 10 calculator for checking Amazon profitability. If you are thinking about your business total revenue, this calculator can be of great help. The following details can be found out using such a calculator.
- FBA fees for storage
- Product weight and dimensions
- Fees for shipping
- Percentages of profit margins
- Current price of item
- Product sizing, and so much more!
It is always better to utilize the FBA service by Amazon since it offers the most simple way to grow and scale your business. There are certain fees by Amazon that need to be considered by you.
- Referral fee: 8-15% of the total selling price
- Fulfillment fee: Varies with the product
- Inbound shipping: Varies based on product weight, for average-sized products it is $0.50 per unit
You can get this information easily through the Amazon fee calculator which is readily available for use online.
What you need to do is enter the ASIN for the chosen product in the search bar. After this, enter the price at which you are selling the product under “Item Price”. In the “Cost for Product” space, enter the amount that you are paying to the distributor. Enter $0.50 in the “Ship to Amazon” space. From this, you can get an estimate of Net Profit and Net Margin for the product selected by you. Try to ensure that you select a product that has a profit of at least $5/unit and has a minimum of 15% net margin.
Ordering the selected product
Once you have followed all the above steps and picked a product that gives you substantial profits, you can go ahead and order the selected product.
You start the ordering process by contacting the suppliers. When you do so, ensure that you thoroughly demonstrate how you can contribute to and enhance their existing brand identity. While doing so, keep in mind that these companies are majorly concerned with the patent, development, and marketing initiatives for the new product.
You need to pitch in your offer in such a way that they feel that you would valuably improve their brand and increase their product sales. Generally, such big companies do not have sufficient time to explore selling opportunities on Amazon and they also do not know how to do this. This will give you an upper hand when you propose to sell their product for them on Amazon.
Once the supplier or manufacturer agrees to the offer, you can place the order for the product/products. Generally, a standard procedure is followed when placing a product order. However, this procedure can change depending on the supplier.
Also, before starting a business with a supplier, you need to ask a few questions as well. Since you are going to invest a substantial amount of money to purchase their product, no question should seem silly to you.
To understand this better, have a look at a typical purchase order (PO) and examine each category.
Each category in this PO represents the key points which you need to focus on and enquire before striking a deal with the product supplier.
You also need to enquire with your supplier about the MAP for a certain product. MAP refers to Minimum Advertised Pricing which is the lowest price at which the product can be displayed on sale. This does not refer to the lowest price for which the product must be sold in a retail store but it is the minimum price at which it should be shown for sale online on Amazon.
Another thing that you need to be conscious of is the Minimum Order Quantity or MOQ. This refers to the minimum number of units or the minimum amount that you have to order from the supplier. This generally would not be more than $500.
Once you know the minimum order quantity, you can ask for a shipping quote. Here you have two choices,
- You can get the products shipped to you directly.
- Alternatively, you can arrange for the products to reach the prep center.
- Or, you can even ship the products directly to Amazon.
The third option sure does seem tempting, but it is recommended that you make use of the first two options for the initial few orders.
If you have followed all the above steps accurately, you will have a profitable wholesale business on Amazon. While pricing your product on Amazon, make sure that you price it somewhere close to the lowest price or the selected product. After this, you should take this price as a base for the profitability and sales estimations.
The prices of every product will tend to fluctuate in the long run. You need to monitor the product price regularly to ensure that its price is competitive enough in the current market.
Wholesale is a great option for all those sellers who do not wish to get involved with the hassles associated with private label selling. You can explore this option and initiate a new business venture by carefully following the steps given in the above guide. If you wish to set up a wholesale account on Amazon in the most convenient way, contact via [email protected]
If you need any professional help for your Amazon store management, get in touch with us at [email protected]
Fabongo is a Vancouver, British Columbia based agency providing human resources to manage all things Amazon marketplace.