Amazon FBA Wholesale Vs Private Label – Comparative Analysis
There is a lot of talk about the Amazon FBA wholesale vs private label business model. There is a lot that depends on the type of business model that you want to adopt and that best suits your specific needs whether we are talking about the private label on Amazon or wholesale. Here we are going to discuss both the Amazon FBA wholesale business model and Amazon private label to share our opinion to help you better understand.
Before we discuss the Amazon wholesale business model in comparison with private label, make sure you get yourself acquainted with the concepts of First Party (1P) and Third Party (3P). You will also come across terms like dropshipping and arbitrage. There are many complex definitions out there on the internet and you would have to go through the background of these different Amazon business models to know the various ways to sell on AMZ. Two of the most common ways to sell on AMZ that are always compared are the wholesale and private label Amazon business models. Both these business models for wholesale and private labels come with their challenges related to managing your reputation and brand online.
In this piece of content, we will compare side by side Amazon FBA wholesale vs private label. Wholesale means that you are buying the products in bulk and directly from the manufacturers or the business activities as the reseller on a 3P marketplace and not selling wholesales to Amazon using the 1P partnership. This is a general breakdown of the benefits and the challenges that are related to selling wholesale or private labels on AMZ. Let us have a look at each of these Amazon business models to find out more.
Note: After reading this blog post, you still have any questions, you can contact AmazinEcommerce.com to get professional help in understanding the differences between Amazon FBA Wholesale VS Private Label business models.
Advantages and Limitations of Wholesale
When we do the comparison of Amazon FBA wholesale vs private label, you need to place a big or high volume order with a recognized brand owner or manufacturer. This enables you to sell your products to customers on Amazon. Let us have a look at the advantages of selling on Amazon.
There is no need for you to have a newly created ASIN or have a product detail page setup. This is something that you do in Amazon’s private-label when you are trying to establish your brand on AMZ.
One of the things that you should know is that if you have success in the Amazon FBA wholesale business model with some of the manufacturers, you can showcase that to increase it to the next level. Such scalability is not easy to achieve in Amazon’s private label.
When it comes to starting the Amazon FBA wholesale business model, you will find there to be not a lot of barriers to entry. The main focus in this type of business model is that you need to have reliable manufacturers to back you up with a large catalog of products and they also allow you to sell your product on Amazon. When you compare Amazon FBA wholesale vs private label, the wholesale model takes less time to set up and you can easily scale it. It also takes less time when compared to sourcing products from the retail arbitrage.
You can start by procuring a small number of units when placing the wholesale orders which are not possible in the private label when you place your first order because that requires fulfilling MOQ or Minimum Order Quantity requirement.
In comparison to the Amazon private label brands, you also do not need to worry about infringing the intellectual property rights like copyrights or trademarks in Amazon wholesale model. These are also the headache of the brand owners. But if you are a brand owner like in the case of private label, you would have to take care of that too.
Unlike starting the Amazon private label brands, the Amazon wholesale model does not require you to set aside a large marketing budget each year for advertising. In FBA private label, you have to create the demand from scratch. In wholesale FBA, you smartly select to sell those products that already have an established brand and there is no need to worry about having a positive response from the customers. They possess an established Amazon sales rank too and this further minimizes the risk.
In most of the cases of comparing Amazon FBA wholesale vs private label, you will find out that it has less lead time when compared to the PL launches. This is particularly true for private label SKUs sourced from overseas.
Here is an overview of the challenges that you may be facing when you are opting for the FBA wholesale business model.
You will need to have a wholesale license that you need for most of the states to sell legally the products in the wholesale FBA model. The other names for this license include a resale permit and resale certificate that you can use to be exempted from the sale taxes on your purchases. Still, it depends a lot on the state in which you are operating and you may be required to charge the sales tax to your customers. The process can at times be lengthy and you will also have to apply for the EIN or Employer Identification Number with the IRS (Internal Revenue Service) that takes four to five weeks to get processed.
You will be selling the products that are already been sold by many other merchants. This can lead to reduced demand or finding it hard to compete at a higher price. This is not the case when doing business when owning Amazon private label brands. One of the ways to overcome this limitation in the Amazon wholesale model is to become partners with the wholesale suppliers that do not have their products sold on Amazon. Like in Amazon FBA private label, finding unique products not sold on Amazon for wholesale is tricky and can take time. Make sure that this product is also not sold by one big private brand or is dominant by Amazon selling it. This takes a lot of time commitment and effort before you can find such products for FBA wholesale not having a presence on Amazon.
Similarly, you will also have to face stiff competition in FBA wholesale for Amazon when you are trying to get access your share for the Buy Box.
In Amazon FBA wholesale vs private label discussion, the former requires you to convince the brand owner or manufacturer that you will be the right reseller to sell their products. This is a slow process and can sometimes take time and effort. You will have to share the values that you bring along when you are selected for this purpose including showcasing your sales history and also exhibit how you are dedicated to their brand and products. After finding the right partners, you will also need to do a lot of hard work maintaining and nurturing profitable working relationships.
Advantages and Limitations of Amazon Private Label Business Model
Let’s find define what are private label products. These are the products that you buy from a manufacturer (third-arty) and sell under your brand name. The manufacturer cannot claim any right to that brand or label like in the case of doing wholesale on Amazon FBA. Amazon private brands can select the product design, get it any brand logo they like, take care of the labeling and packaging, and also other design and aesthetic elements. Let us have a look at the benefits of owning and selling your brand on Amazon.
The first benefit is that you get to enjoy huge profit margins when you are trying to find niches with untapped profit margins and still in big demand. In Amazon FBA wholesale vs private label, this is one of the biggest pluses of having ownership of a brand. You can reflect your brand values and reputation the way you like the most.
When you can establish that your cash flow is already established, it is time to add new products to your private label, and there no limits as to how many products can you sell via your private label. This is not something that you can do when you are trying to do business using the FBA wholesale business model. In FBA wholesale, you may have to face such limits imposed by the manufacturer.
You are the owner of the Buy Box and there is no need for you to compete with someone for a mere Buy Box because it is on your ASIN.
In the private label vs FBA wholesale business model, the private label allows you to have full control of the supply chain. You can directly work with your products’ manufacturer for deciding the number of units that you can to the product after placement of the initial order. You can correspond with the manufacturer to start the production and also make any changes to it as per the requirements in demand.
There are certain limitations in the private label Amazon FBA business model when you do the Amazon FBA vs private label comparison.
You need to invest a lot of capital when you are trying to start your private label. You need this money to place the initial orders and in general, you have to allocate a budget separate from that of production money to let your prospects know about the presence of your product on Amazon. You may also need professional Amazon virtual assistance in managing your private label.
You need to commit more time to have your Amazon ASINS created as opposed to doing wholesale on Amazon FBA. Amazon private brands require you to wait due to the lead time for manufacturing and also importing private label products. This is why it’s different from selling wholesale products on AMZ as in many cases you have to outsource products from overseas.
There is another difference between the Amazon FBA wholesale VS private label. In Amazon FBA wholesale you do not need to establish demand for the product that you want to sell. On the private label, you would have to establish the demand.
Similarly, you are not required to positive ratings and reviews for your wholesale FBA business. In private label, you would have to drive shopper loyalty and that requires adding a lot of PPC budget and spend money on many other avenues like using Facebook, Instagram, Influencer Marketing, Giveaways, and keep coming up with more innovative ways of adding to your organic rankings on Amazon.
In Amazon FBA’s wholesale business model, the brand that owns the brand worries about product quality issues. In private label, you would have to take care of the quality issues and would have to make efforts to stay clear of low quality or illegitimate suppliers, which if you fail to do so can result in low-quality products delivered to the customers, damaging your private label brand’s reputation.
When we do the Amazon FBA wholesale VS private label comparison, each comes with a different set of challenges. For the Amazon private label, you would have to think from where you are going to source it. For the Amazon wholesale business model, you would have to find the products in demand but you do not have the ownership of them in the Amazon wholesale business model.
Each of these business models of selling on Amazon differs in their objectives, resources, results, payback period, concerns, and advantages. In the end, it depends on you and how you evaluate your situation to know which business model you think you are currently in a position to sell these products. Make a well-thought decision so that you make the most of the business opportunities available to you whether you want to do wholesale or private label on Amazon.
AmazinEcommerce.com is a leading Amazon FBA consultant offering its services to clients across the globe. AmazinEcommerce.com is a premium Amazon FBA Private Label & Wholesale Consultancy assisting in managing your AMZ store including private label, micro-private label, listing optimization (SEO), product photography, 3D rendering, videography, EBC / A+ Content, PPC, Packaging, Design (including Store Branding), and reinstatement of suspended AMZ accounts.