To sell on Amazon, you need to decide how to source and sell your products. Learn the cost breakdown of each business model, and which is best for you.
If you want to sell on Amazon, you have four main business models to choose from: Arbitrage, Dropshipping, Wholesale, and Brand Building. Each option has different upfront costs, strengths, and drawbacks. Not sure if you can afford to start selling in the Amazon marketplace? Here you’ll learn the pros and cons of each option you have, including a comparison of typical costs, and how to choose which is best for you.
Before we get started, we’ll give you a quick overview of each approach to start selling on Amazon. The Amazon marketplace can be incredibly profitable, but it’s not always obvious how to get started. While some options are easier on the wallet than others, you’ll also want to look at things like: scalability (how easily you can grow it), time investment (short and long term), technical requirements, and business knowledge requirements. Keeping that in mind, these are the four business models to consider:
Now that you have an idea what each business model looks like, let’s break down the typical costs of each.
There are 10 key factors that contribute to Amazon selling costs. No need to memorize them just yet, we’ll look at each as they become relevant. The final five items on the list will only apply if you are building your own brand, so you can ignore them for the first three options.
Bear in mind that any serious seller on Amazon should get an Amazon Pro subscription, which is a monthly cost of $39.99. For simplicity’s sake, we’ve kept it in our cost breakdowns as a one-time payment.
Common costs for Amazon sellers:
To give you a quick comparison, the graphic below shows each business model and its approximate costs. However, each business model is a different endeavor, so we’ll look at each option and weigh the pros and cons next.
Shipping to FBA
As we’ve mentioned, the prices alone don’t tell you the whole story (otherwise no one would build their own brand). So let’s look at the Pros and Cons of each option, and what type of Amazon seller may want each.
Retail arbitrage consists of buying discounted products and selling at a markup
Since we’ve listed Amazon Pro and LLC registration as costs for every option, let’s go straight into what makes retail arbitrage different. To get started with arbitrage, you’ll want to put a few hundred dollars into upfront inventory, and often much more. You buy the inventory from retailers and hold it. This could be at either Amazon warehouses or at your own business (or for many sellers, your house). The costs of shipping to FBA will depend on what you buy, so remember these costs are variable.
Thankfully, this is an easy and cheap business model to start, so if you’re looking to get your feet wet in the Amazon marketplace without too much hassle, this could be your best bet.
Pros of Arbitrage
Cons of Arbitrage
You can start dropshipping without ever leaving your desk.
While dropshipping has some overlap to Arbitrage, the perk of dropshipping is that you never need to touch the inventory. While not required, you may want to order a few samples to test product quality, verify shipping times, and take some product photos and videos if you need to.
Again, dropshipping hooks a lot of new sellers because all you really need is a laptop and some cash to get started. It’s a great option if you want to scale your business, though this eventually requires a much bigger software investment to handle orders, and integrating the different software platforms can be a headache if you’re not comfortable with logistics software.
A big issue with dropshippers on Amazon is when you run out of inventory, or your products don’t reach FBA in time, which you can get penalized for. This means you’ll want to put at least $500 of initial inventory investment to stay on Amazon’s good side. If you have some technical knowledge (or the motivation to tackle a steep learning curve), you can get started dropshipping for under $1000.
Pros of Dropshipping
Cons of Dropshipping
Wholesale requires a bigger upfront cost for inventory, but has great margins.
As the name suggests, this is where you’ll purchase wholesale inventory from your supplier, and then either ship it to Amazon FBA for storage, or simply ship items directly to the customer yourself. As with the other options, this will require a basic software investment.
However, buying wholesale requires a large initial investment, because most manufacturers will require one to two thousand dollars per purchase. This differs from the small quantity purchases (of individual items) you’d make with arbitrage. Buying in bulk can help with your margins though, so this pays off. You can expect to pay around $2500 to get started with the wholesale model.
Pros of Wholesale
Cons of Wholesale
Private labels like AmazonBasics can vastly outperform competitors in the marketplace.
Creating your own brand can come in many forms, but private labels are incredibly common. Think “AmazonBasics,” the Amazon-branded products which compete with common marketplace items, like phone chargers. Rather than selling someone else’s brand (as you would with wholesale), you instead have a manufacturer create a similar product with your own branding.
This method is by far the most expensive and complex, but has the most potential for long-term success. Between all the costs, you can expect to spend upwards of $8000 or more. This cost will vary greatly depending on the product you choose.
The biggest cost here is often inventory, because you’ll generally need a solid three thousand dollars to start scaling. Shipping to FBA can also cost a fair amount, again depending on your product. While simple products may not have the highest engineering costs, you may end up spending a great deal on engineering if you want to make something unique that stands out from its competition.
Of course, you’ll want to order samples of your developing product from your manufacturer, to test it out and create better iterations of it. This can cost a couple hundred bucks at a minimum. Then, once you’ve developed the product, you still have big fees ahead for trademarks, professional photography for branding, and promotion.
On this last point, remember that a good chunk of your first order should be set aside for promotion (around half the order). This is because you need to get some initial sales velocity to earn reviews and get your product trending, and an easy way to do this is via rebates and discounts. Not all of these things are necessary, but are generally recommended.
Pros of Building a Brand
Cons of Building a Brand
Once you have a sense for what business model sounds right for you, you’ll want to settle on a product. You may already have a category in mind, in which case you can eliminate the guesswork around picking a product by using Massview’s free Amazon seller tools.
If you haven’t had the chance to watch our video above, you can skip straight to the 13:13 mark with this link to see how to choose a winning product. This first example applies to Retail Arbitrage and Dropshipping, and shows how you can use a sales estimator tool (such as the Massview Competitor Insight tool) to see how well a given item is selling, and whether it’s worth competing with.
To see how you would use the Massview platform to pick a Wholesaling or Brand Building product, you can skip ahead a bit more. You can use this tool to see what people want to buy, but aren’t currently finding.
For instance, if the listed items have low reviews, you can create a private label to address the unmet demand. If you see established products with high sales numbers but only a handful of sellers per item, you can contact the manufacturer and see if you can start wholesaling their product.
The cost to start selling on Amazon varies, and more profitable options require a larger financial investment. So rather than choosing the cheapest option, think long term: how much time are you willing to invest in your business? How big do you want to scale? How skilled are you at marketing, or at software integrations? Do you want to make a living from this?
There’s no simple answer, and the best solution depends on your priorities and goals. You may not be sure where to start, so a smaller financial investment can make more sense in the beginning. But if you have the drive to put in the work and build a robust business, the extra cash investment up front can lead to big profits down the road.