If you are interested in selling products on Amazon, you first need to find something to sell. Finding products to sell is called “product sourcing”. There are 3 major methods of product sourcing:
- Retail Arbitrage
- Wholesale
- Private Label
Let’s review each of these sourcing methods and list their pros and cons.
Retail Arbitrage
Retail arbitrage refers to buying a product from a retail store to resell at a higher price on Amazon. Often, but not always, the products will be on sale, clearance, or sold by a liquidator.
The sale or clearance price of the product in the store will be below the price on Amazon, allowing for a profit. Profiting from this price difference is the arbitrage in retail arbitrage. (See this wikipedia link for a complete definition of the term arbitrage).
Retail arbitrage is a great way to source for inventory if you are new and want to try selling on Amazon to see if it is for you. It’s a low-risk, low-cost way to source for products.
Unfortunately, retail arbitrage doesn’t scale well, for a couple of reasons. First, you can only buy the products you actually find, so your purchases are limited to what you can buy in person. Second, retail arbitrage is time consuming, because it requires you to travel to physical stores to shop in person.
While retail arbitrage is ideal for a beginner, if you decide to get serious about selling on Amazon, you’ll likely move on to one of the other sourcing methods.
Pros:
- Low capital needed to start
- Products you’re buying have proven demand on Amazon
- Any store with sale or clearance products is a potential source
Cons:
- Time consuming to hunt for bargains store by store
- Can be hard to find the same product on clearance again in the future
- Many other people may already sell the same products you found
Wholesale
Wholesale sourcing means buying a product in bulk directly from a manufacturer, or authorized distributor, to resell at a higher price on Amazon. Buying this way usually means getting the product at a significant discount compared to the Amazon retail price.
Unlike retail arbitrage, sourcing from wholesale distributors scales very well. You can usually buy as much product as the distributor has in stock, which can be thousands of units of a given product.
Unfortunately, if you find a distributor to buy from, chances your competition has found this source already, so you’ll have to compete against them selling the same products. This is where knowing how to evaluate the profitability of various products comes in handy.
Pros:
- Can re-order the product over time as needed
- Can order as many units of a product as you want
- Established relationship with a manufacturer or distributor for future product orders
Cons:
- Higher capital needs as there are usually minimum order sizes, for example $500 minimum
- Can be difficult to find manufacturers or distributors (they can’t always be found online)
- Other people may already buy products from the same manufacturers or distributors you find
Private Label
Private Label refers to designing and manufacturing your own product to resell on Amazon. Since you are the product creator, the product is listed under your brand, or “Private Label”, on Amazon.
Sourcing products by creating them yourself is the ultimate in scalability, because most manufacturers have the capacity to produce WAY more units than you will ever need.
However, the downside to creating your own product is all the time and effort it takes to research a good product idea that has somehow gone unidentified by your competition. It’s also not guaranteed that doing proper research results in a product that sells well. For a newcomer to selling on Amazon, private label products are high-risk but not necessarily high-reward.
Pros:
- Only have to create your product once
- Creating the product means you have control of the product
- Can manufacture as many units of your product as you can sell
Cons:
- High upfront capital costs to cover minimum manufacturing runs and overseas shipping
- Can be difficult to find trustworthy manufacturers
- Have to create a new product page on Amazon, and will have to pay for advertising so people can find your new product
- Other people can design and manufacture products that are similar to yours
Summary
This is a brief overview of the 3 major sourcing strategies for finding products to sell on Amazon. I’ve created a visual way to compare each method below. Note that every strategy has advantages and disadvantages.
For the beginner, I would recommend starting with Retail Arbitrage. It requires the lowest level of commitment and starting costs, so it’s a good choice to see if selling online is something you want to pursue further. You can always move to sourcing products using the other two methods once you are comfortable with how selling on Amazon works.
