Choosing how to sell on Amazon is the first critical decision for any aspiring ecommerce entrepreneur. Your success depends on aligning your strategy with your budget, time, and long-term goals. Most sellers follow one of two main paths: reselling existing products through models like wholesale or arbitrage, or creating an entirely new brand with private label.
Amazon also provides specialized platforms like Handmade for artisans and Kindle Direct Publishing (KDP) for authors. Each of these Amazon business models comes with different startup costs, profit margins, and daily operations.
This guide will break down each model, explaining the core concept, typical investment, and who it’s best suited for. By understanding these differences, you can pick the approach that fits your resources and ambitions.
Retail Arbitrage
Retail arbitrage involves buying discounted products from brick-and-mortar stores like Walmart or Target and reselling them on Amazon for a profit. Sellers hunt for clearance items, scan them with smartphone apps to check Amazon’s price, and list them on existing product pages. The profit comes from the price gap between the store’s clearance price and the online selling price.
1. How It Works
You physically go to local retail stores, find products on sale, and scan their barcodes. If the Amazon price, after fees, is significantly higher than your cost, you buy a few units. You then list them on Amazon, often using Fulfillment by Amazon (FBA) for faster shipping. It’s essentially “flipping” retail bargains online.
2. Startup Investment
You can start retail arbitrage with just a few hundred dollars. Many beginners start with $500 or less for their first batch of inventory. There are no minimum order requirements beyond what you choose to buy.
3. Typical Profit Margins
On average, retail arbitrage can yield 20–50% profit margins. While you might occasionally find a rare deal that doubles your money, those are exceptions. Margins depend on the product category, competition, and Amazon’s fees.
4. Pros
- Low Startup Cost: You only buy a small amount of inventory at a time, minimizing financial risk.
- Easy to Start: Anyone with an Amazon seller account and a smartphone can begin scouting for deals. No technical skills are needed.
- Quick Profits: A good find can be listed and sold within days, especially when using FBA.
5. Cons
- Time-Intensive: Sourcing products requires a lot of time visiting stores and scanning items.
- Hard to Scale: Your business growth is limited by how much inventory you can personally find.
- Inconsistent Inventory: Clearance deals are unpredictable. A profitable item today might be gone tomorrow.
- Thin Margins on Popular Items: High competition on well-known brands can quickly drive prices and profits down.
Online Arbitrage
Online arbitrage is the digital version of retail arbitrage. Instead of visiting physical stores, you find discounted products on other e-commerce sites (like Walmart.com or Target.com) and resell them on Amazon at a higher price. The concept is identical: buy low online and sell high on Amazon.
1. How It Works
You use software or manual searches to find deals on online retail websites. You compare those prices to Amazon’s, and if a product is profitable after fees, you buy it. The products are then shipped to you (or a prep center) and listed on Amazon. All sourcing is done from your computer.
2. Startup Investment
Similar to retail arbitrage, the startup cost is low. Most online arbitrage sellers can get started with around $500. You don’t need a wholesale account; you just buy products like a regular online shopper.
3. Typical Profit Margins
Profit margins for online arbitrage typically range from 10–30%. Margins tend to be slightly lower than retail arbitrage because online deals are more visible and attract more competition.
4. Pros
- Work from Anywhere: You can source inventory from your home or anywhere with an internet connection.
- Large Product Selection: You aren’t limited to local stock and can access deals from retailers across the country.
- Low Startup Cost: A few hundred dollars is enough to get started.
5. Cons
- High Competition: Popular online deals attract many sellers, which quickly erodes profit margins.
- Time-Consuming Research: Finding profitable deals requires constant searching across multiple websites.
- Unstable Margins: Online prices and promotions change rapidly, making profitability unpredictable.
- Risk of Restrictions: Some brands are restricted on Amazon. If you buy a product you can’t sell, you’re stuck with it.
Amazon Wholesale
Amazon wholesale model involves buying products in bulk directly from brands or authorized distributors and reselling them on Amazon. You act as a traditional retailer, securing a wholesale account, placing large orders at a discount, and then listing those products on existing Amazon pages.
1. How It Works
First, you get a reseller’s permit and contact brands to open a wholesale account. Once approved, you purchase inventory in bulk. You then add your offer to the product’s existing Amazon listing. You fulfill orders using FBA or by shipping them yourself. Your profit is the difference between your bulk cost and the retail price on Amazon, minus fees.
2. Startup Investment
Wholesale requires a significant initial investment. Most suppliers have minimum order requirements of $1,000–$2,000 or more. You should expect to spend at least $2,000–$5,000 for your first inventory purchase.
3. Typical Profit Margins
Wholesale sellers often report net margins or ROI of around 30% or higher. Buying in bulk secures lower per-unit costs, allowing for healthier profits compared to arbitrage. As you scale, you can negotiate better pricing.
4. Pros
- Scalable: Once you establish a relationship with a supplier, you can easily reorder and scale your sales.
- Predictable Sales: You’re selling established products with proven demand, making sales forecasting much easier.
- No Listing Creation: You add your offer to existing listings, so there’s no need for product photography or marketing.
5. Cons
- High Upfront Cost: Minimum order quantities lock up a lot of capital and increase risk if products don’t sell.
- Difficult to Secure Suppliers: Many major brands are selective about who they work with and may require a proven sales history.
- Intense Competition: You will be competing with other sellers for the Buy Box on the same listing, which can lead to price wars.
- Risk of Loss: A large investment in the wrong product can lead to significant financial losses.
Amazon Private Label
Amazon Private label is the process of creating your own brand. You find a generic product from a manufacturer, customize it with your own logo and packaging, and sell it under your brand name on Amazon. This model transforms you from a reseller into a brand owner.
1. How It Works
You research product niches to find an item with high demand and an opportunity for improvement. You then source a manufacturer, often on platforms like Alibaba, and work with them to create your custom product. After registering your brand with Amazon’s Brand Registry, you create a new product listing and use marketing, like Amazon PPC ads, to drive initial sales and build brand recognition.
2. Startup Investment
Private label requires a substantial investment. A realistic budget to launch a single product is $2,000–$5,000+. This covers product samples, your first inventory order, custom packaging, and advertising costs.
3. Typical Profit Margins
Because you own the brand and control the pricing, private label offers the highest profit potential. It’s common for sellers to achieve 40–60% gross profit margins, with net margins often falling in the 25–40% range.
4. Pros
- Full Brand Control: You own the listing, set the price, and build a customer base loyal to your brand.
- High Margins: You capture the full value of the product, leading to much higher profits than reselling.
- A Sellable Asset: A successful private label brand is a valuable asset that can be sold in the future.
- Exclusive Listings: Amazon’s Brand Registry protects your listing from hijackers and unlocks advanced marketing tools like A+ Content.
5. Cons
- High Upfront Cost and Risk: You invest thousands in inventory and marketing with no guarantee of success.
- Longer Time to Profitability: It can take months of research, manufacturing, and marketing before you see a return.
- Requires Market Research: Success depends on choosing the right product and differentiating it from the competition.
- Heavy Reliance on Advertising: New products require a significant ad spend to gain visibility and traction on Amazon.
Dropshipping
Dropshipping on Amazon allows you to sell products without ever holding inventory. When a customer places an order, you purchase the item from a third-party supplier, who then ships it directly to the customer. You are the middleman between the supplier and the buyer.
1. How It Works
You find a supplier who supports dropshipping and create Amazon listings for their products. When an order comes in, you pass the customer’s details to the supplier. They handle the packing and shipping. Your profit is the difference between the Amazon sale price and what you paid the supplier.
2. Startup Investment
Because you don’t buy inventory upfront, startup costs are very low, typically $100–$500. This covers your Amazon seller account fee and any listing tools you might use.
3. Typical Profit Margins
Dropshipping margins are thin, usually around 10–30%. Intense competition and Amazon fees can squeeze profits even further, making it difficult to fund advertising.
4. Pros
- Minimal Upfront Cost: With no inventory to buy, your financial risk is extremely low.
- Flexibility: You can list a wide variety of products without investing capital and run your business from anywhere.
- No Inventory Management: The supplier handles all logistics, freeing you up to focus on marketing.
5. Cons
- Slim Profit Margins: The small markup on each sale makes it hard to scale the business.
- Strict Amazon Policies: Amazon’s dropshipping policy is rigid. You must be the seller of record, and no supplier branding can appear on the packaging. Violations can lead to account suspension.
- Reliance on Suppliers: You have no control over shipping times or quality. Any mistake made by your supplier reflects on your seller account.
- Intense Competition: It’s easy for other dropshippers to find the same products and undercut your price.
Amazon Handmade
Amazon Handmade is a dedicated marketplace for artisans to sell genuinely handcrafted goods, like jewelry, art, and custom decor. To join, sellers must go through an application process to prove their items are made by hand.
1. How It Works
Once approved, you create an artisan profile and list your products in the Handmade category. Amazon waives the standard $39.99 monthly professional seller fee, and you only pay a referral fee when an item sells. You can fulfill orders yourself or use FBA.
2. Startup Investment
The startup cost is relatively low. Your primary investment is in your crafting materials and time. There are no listing or subscription fees, so your only costs are materials and Amazon’s referral fee on sales.
3. Typical Profit Margins
Profitability varies widely based on your pricing and material costs. According to Jungle Scout, about 33% of Handmade sellers achieve profit margins above 20%. Unique, high-value items can yield very healthy profits.
4. Pros
- Massive Audience: You get access to Amazon’s huge customer base.
- No Monthly Fee: Amazon waives the professional seller fee, so you only pay when you make a sale.
- Artisan Branding: You get a custom storefront to share your brand’s story.
- Less Direct Competition: You aren’t competing against mass-produced goods.
5. Cons
- High Referral Fees: Handmade items have a 15% referral fee, which is higher than many other categories.
- Lower Sales Volume: As a niche market, you may sell fewer units compared to mass-market products.
- Application Process: You must apply and be approved by Amazon to sell.
- Production Time: Scaling up production for sales spikes, like the holidays, can be challenging for a single artisan.
Kindle Direct Publishing (KDP)
Kindle Direct Publishing (KDP) is Amazon’s self-publishing platform for authors. It allows you to publish eBooks and print-on-demand books for free. You create the content once, and Amazon handles the sales, printing, and distribution.
1. How It Works
You upload your book manuscript and cover design to the KDP platform, set your price, and choose a royalty plan. Amazon makes your eBook available on Kindle devices and can print physical copies as they are ordered. You earn royalties whenever someone buys your book or reads it through Kindle Unlimited.
2. Startup Investment
KDP is free to use. Your only investment is the time and money spent on writing, editing, and cover design. There are no platform fees.
3. Typical Profit Margins
Profit margins are very high, especially for eBooks. Amazon offers up to a 70% royalty on eBook sales and up to 60% on paperbacks (minus printing costs). Since there are no inventory costs, the royalty is almost pure profit.
4. Pros
- High Earnings Per Sale: A 70% royalty is significantly higher than traditional publishing.
- No Inventory or Logistics: Amazon handles all printing and shipping on demand.
- Passive Income Potential: A well-performing book can generate income for years with little ongoing effort.
- Global Reach: Your book is instantly available to a worldwide audience.
5. Cons
- Highly Competitive: With millions of books on Amazon, getting noticed is a major challenge.
- Requires Marketing: You’ll need to promote your book through social media, ads, or other channels to generate sales.
- Amazon Controls the Terms: Pricing and royalty structures are set by Amazon and can change.
- Significant Upfront Work: Writing and preparing a quality book for publication requires a lot of time and effort.
Which Amazon Model Is Right for You?
No single business model is best for everyone. The right choice depends on your budget, goals, and available resources.
Here are some guidelines to help you decide:
- For a Tight Budget (Under $500): If you have limited capital, start with retail/online arbitrage or dropshipping. These models require minimal upfront investment.
- For Building a Brand: If your goal is to own a brand, private label is the only way to go. It requires more capital but offers the highest long-term rewards.
- For Stable, Scalable Sales: If you prefer predictable sales of existing products, wholesale is an excellent choice, provided you have the capital for bulk orders.
- For Creatives and Authors: If you’re an artisan, Amazon Handmade provides a tailored platform. If you’re a writer, KDP lets you turn your words into passive income.
- For a Quick Start: Arbitrage models can generate cash flow faster than others, but they are harder to scale.
- For Long-Term Assets: Private label and wholesale are better for building a sustainable business that could one day be sold.
Many successful sellers start with a lower-risk model like arbitrage to learn the ropes and build capital, then reinvest their profits into a private label launch. The key is to choose the model that best fits your current situation and then master it before diversifying.
Frequently Asked Questions
Which Amazon business model has the lowest startup cost?
Kindle Direct Publishing (KDP) has the lowest barrier to entry because it is free to use; your only investment is the time spent writing or designing. If you are looking to sell physical products, Dropshipping and Retail Arbitrage are the most affordable options. You can often begin these with $100 to $500 since you do not need to place large bulk orders upfront.
What is the difference between Private Label and Wholesale?
The main difference lies in brand ownership and product creation. With Private Label, you create a new brand, customize generic products, and own the listing. This offers higher margins but requires more time to launch. Wholesale involves buying existing, established brands in bulk to resell.
Can I sell on Amazon without holding any inventory?
Yes. You can use the Dropshipping model, where a third-party supplier ships products directly to the customer after a sale is made. Alternatively, Kindle Direct Publishing (KDP) uses a print-on-demand or digital delivery system, meaning you never have to store physical books.
Is Amazon Dropshipping risky?
Yes, dropshipping carries specific risks regarding Amazon’s policies. You must be the “seller of record,” meaning the customer cannot see any packaging or invoices from your third-party supplier. If you fail to follow these strict guidelines, or if your supplier makes a shipping error, Amazon may suspend your account. The profit margins are also thinner compared to other models.
Do I need a business license to do Retail Arbitrage?
For the act of buying items at a store like Walmart, you do not need a license. However, to sell those items on Amazon, you must set up an Amazon Seller account. As you grow, you may need to register your business to handle taxes properly, but beginners often start as individuals (sole proprietors) to test the waters.
Which model is best for building a sellable asset?
Private Label is the strongest option if you want to sell your business later. Because you own the brand, the trademark, and the customer base, you are building an asset with value beyond just the inventory. Wholesale businesses can also be sold, but they are often valued lower than established private label brands.
Is Amazon Handmade different from a regular Amazon Seller account?
Yes. Amazon Handmade is a specific category that requires an application process to prove your goods are actually made by an artisan. The fee structure is different: Amazon waives the standard $39.99 monthly Professional Seller fee for Handmade artisans, but the referral fee on each sale is 15%, which is higher than some other categories.
