Why Sell Wholesale on Amazon?
Selling wholesale on Amazon is perhaps not what you first think about as an Amazon business. But despite what you might think, wholesale is actually the business model for about a quarter of all third-party Amazon sellers.
A wholesaler purchases products at a bulk discount from a manufacturer, supplier, or distributor. The wholesaler doesn’t add any value to the product or rebrand it; rather, the wholesaler simply resells it to end-users. Because of the bulk discount, selling wholesale on Amazon enables you to sell brand-name products at a lower than retail price point.
While wholesalers typically sell to other retailers or businesses, selling wholesale on Amazon to end-user customers is possibly a lucrative business opportunity. However, there’s a lot you need to know about selling wholesale on Amazon in 2022. In this post, we take a look at:
- The difference between wholesale and similar business models
- Pros and cons of selling wholesale
- Selling wholesale on Amazon requirements
- Tips for successful selling wholesale
The Difference Between Wholesale and Similar Business Models
There are two business models that are similar in concept to selling wholesale on Amazon but have significant differences.
- Retail arbitrage. This model also purchases discounted products to resell at lower prices. However, retail arbitrage typically involves one-off items and low quantities. Since the retail arbitrage seller isn’t buying in the high volumes of a wholesaler, there is considerably less up-front investment.
- Private label. While like the wholesaler in sourcing directly with the manufacturer, the private label seller is contracting with the manufacturer to make a product either under its own brand name or add value or features to an existing brand. The wholesaler, in contrast, is simply a conduit to sell the manufacturer’s brand.
The Pros and Cons of Wholesaling
If you’re selling wholesale, you want to sell established brands. Why? Because the key advantage of selling wholesale on Amazon is selling a recognizable brand at a lower price than your competitors. You don’t have or need any marketing overhead.
And since you are buying in bulk to get the discount you need to sell at a lower price point, you don’t need to worry a lot about inventory management. When stock is gone, it’s gone, though, of course, you can always opt to restock. And if you do restock, you are under no contractual obligation to use the same source if you can find the same product at a better discount somewhere else.
The profit potential is also attractive. Wholesaler margins are as much as 50 percent (though of course there’s no guarantee), with new wholesalers turning a profit in as little as three months after the start of business (again, there’s no promise of profitability).
One of the biggest advantages is that selling wholesale is highly scalable. The way you purchase products from one or two products for selling wholesale on Amazon is the same as for a dozen or more vendors. So selling wholesale on Amazon with hundreds of products is relatively quick and easy.
You’re going to spend a lot of effort doing research for products to source. Finding brand manufacturers open to wholesaling is the most time-consuming aspect of selling wholesale on Amazon. Brands that already sell on Amazon aren’t going to undercut their own direct sales with a wholesaler.
Once you do find a source for selling wholesale on Amazon, the capital investment is higher than “regular” selling on Amazon. Because you are buying in such large quantities to qualify for discounts, selling wholesale on Amazon is usually more expensive. If you aren’t selling wholesale on Amazon using Fulfillment by Amazon (FBA), you have the additional costs to find sufficient warehouse space and staff to inventory and ship products.
Also, keep in mind there is nothing to prevent a manufacturer from working with others selling wholesale on Amazon. Competition among multiple wholesalers selling the same exact product leads to eroding price margins because the price is the only thing you can compete on.
Selling Wholesale on Amazon Requirements
Selling wholesale on Amazon requires setting up a seller account, just as you do for any kind of selling on Amazon. One possible difference is you might need to acquire a wholesale license, also possibly known as a business license or tax-exempt form. Whether you need such a license depends on the state or country where your business is based.
You also need to think about fulfillment, whether to use FBA or warehouse and ship products yourself. Doing it yourself is the better option for low volume, high margin products where time spent in fulfillment won’t involve an inordinate amount of time.
FBA is a better choice for high volume, low margin products. Overwhelming sales volume requires a lot of time you might better spend sourcing additional products. Also, higher volume increases the chances for fulfillment delays and mistakes that could jeopardize your relationship with a manufacturer that feels its brand is getting tarnished due to these errors.
Tips for Successful Selling Wholesale on Amazon
Where do you find products for selling wholesale? Amazon itself is a good research tool. Pick a product category. Headphones, for example. Then select a brand manufacturer. Find a specific product category (e.g., in-ear, Bluetooth) and a price range (e.g., $50-$100). Check out how many other sellers carry the product that is not the brand manufacturer and are not Amazon (because Amazon can afford to sell the product at a loss).
Determine the total monthly sales of in-ear, Bluetooth headphones in the price range (third-party software can do this). Let’s say it’s 5,000.
Winnow down the number of sellers by looking only at those who are within 2% of the Buy Box (the widget to the right side of the Amazon product page that lists pricing with a gold “Add to Cart” button). This is your primary price competition. Let’s say there are five competitors.
Divide the monthly sales (5,000) by the number of competitors (5), i.e.,1,000. That’s a reasonable guess you could move 1,000 units selling wholesale on Amazon. Assuming that is, you are competitive within 2% of the pricing from the five Buy Box competitors, and preferably if you can be the lowest.
Obviously, this is theoretical. You need to find a brand manufacturer willing to sell in sufficient quantities to get a sufficient discount so you can offer the best price and still make a profit. Keep in mind that in addition to the cost of acquisition, you need to figure in FBA fees (or your own costs to provide fulfillment) as well as other Amazon listing fees.
When you contact a potential supplier, remember you are negotiating a deal so selling wholesale on Amazon is as profitable as possible for you. This is not a one-way street. The supplier isn’t doing you a favor, this is a business proposition where you offer a number of value-adds. These include that as someone selling wholesale on Amazon, you:
- increase the manufacturer’s business
- grow the brand’s customer base
- are easier to work with than dealing with Amazon directly
GETIDA Helps Selling Wholesale on Amazon FBA
If you’re selling wholesale on Amazon using FBA, you need to keep track of FBA reimbursements Amazon owes you for errors in handling and shipping your products, but doesn’t always tell you about. GETIDA is a complete end-to-end solution comprising auditing software to track your Amazon FBA inventory transactions, refunds, seller data analytics, and FBA reimbursements. GETIDA’s dedicated, experienced Amazon FBA account team submits and follows up on your claims for as long as it takes to get you the money you are owed.
GETIDA makes the process of claiming Amazon fee reimbursement easy. And it’s free, with no commitment. GETIDA charges only when a claim we file is successfully reimbursed.
The more reimbursements you collect, the more available funding you have for your Amazon PPC strategies.
$400 in Free Amazon Seller Refunds with GETIDA.