This is a blog post where we share a thorough guide on Amazon Retail Arbitrage vs. Private Label and where we outline how it can be cracked notably through using DataHawk.
Generally speaking, there are two eCommerce business models. In the first group, we have models that are very easy to launch but very hard to generate significant profits with. And, in the second group, we have those that demand very specific knowledge and skills, but in return promise extreme profits.
Let’s be honest with you. There is no easy way to run a successful online business. Whatever idea you decide to pursue, you will have to put in a lot of hard work, learning, and adapting to turn it into a successful business.
Since launching a business with Fulfilment by Amazon (FBA) has become a trend, we have decided to step in and help you make informed decisions. Here is everything you need to know about Amazon retail arbitrage and private label with FBA.
1. Private Label with FBA
The private labeling on Amazon is a commonly pursued course of action. People cherish the idea of making a living without even having to leave the comfort of their homes. Let’s start with something simple, such as what is private labeling.
What is Private Labeling?
Did you ever take a look at a product, admire the idea behind it, and its success, wondering why it wasn’t you that came up with such a brilliant plan to make cash? If so, then private labeling is exactly the thing that you will love. Simply put, private labeling is taking an existing product, putting your label on it, and selling it as a completely new product.
Do you remember your last trip to the local store? All those products that had the store's label are the products that went through the private labeling process. This means that whatever product there is on Amazon, you can take it, put your own label on it and make a profit without going through the tiresome process of product design.
More importantly, with private labeling, you are going to sell the product that is already selling, just under another brand name. This significantly reduces certain risks attached to launching a brand new product line. You can even make your own custom-tailored adjustments and improvements to improve sales and earn big.
Why Choose Amazon?
Once you’ve decided to make profits by selling products online, you have to choose the platform to sell on. There are several major online retailers that can easily catch your attention in this $525 billion market. But Amazon is definitely the best one. Here is why you should choose Amazon:
- Amazon is the world’s largest online retailer – this means that Amazon has one of the biggest product pools online and that it generates a huge amount of traffic.
- Amazon has pristine customer service – customer service is one of the most important things to factor in when embarking on an online retail quest. You want your customers to be served in the best possible way and Amazon incorporates the best customer service practices.
- Amazon offers a great user experience – their online shop is completely optimized for both desktop and mobile customers. Listing your products on their website will put you in a position to leverage this and add this experience to your customers’ journey.
- Amazon is a trusted online retailer – Amazon is not a mere online retailer. They have been on the online market long before most of us even knew a thing about private labeling and retail arbitrage. People trust them and regularly come back to shop on their platform.
- The Amazon search engine is as popular as Google – when someone wants to look for a product online the chances are that they will either open Amazon or Google. By listing your products on Amazon, you’ll make it easier for potential customers to find you.
- Amazon does their own SEO – you won't have to worry about launching and managing your own website if you don't want to. Amazon already has millions of daily active users to turn into loyal customers.
- Fulfillment by Amazon is a complete service package – you won’t have to worry about storing your goods, as they’ll be stored in Amazon warehouses. You also won’t have to worry about having your orders fulfilled, as Amazon will do it for you.
Before we dive into the specifics, you’ll have to create an Amazon Seller account. You’ll be able to set it up and have it running in several minutes.
Add FBA to Your Account
Once you’ve got that out of the way, you want to add FBA to your account.
Necessary Launch Budget
Let’s address one of your primary concerns: “How much does it actually cost to launch a private label with FBA?” This is, in fact, a really good question. Let’s be honest with you. The simple answer is – it depends. Ok, it depends, but what are the factors that will decide the amount of cash in your launch budget?
First, it depends on the price of the product you want to put your label on. Then, logically, it depends on the quantity that you need. At this point, it’s important to understand that all suppliers are different. This means that some will require you to place a minimum order of 1,000 pieces, while others will require you to order 200 pieces. There are also suppliers with no minimum order policy in place.
It also depends on how quickly you want to scale your business. If you want to learn the process and get accustomed to the terms, prices, profit margins, and so on, you’ll probably start with a budget of less than $1,000. In this bracket, you’ll be probably looking at products that cost around $15, and a profit margin no bigger than $3.
On the other hand, if you want to scale up fast, you’ll have to enter the market more aggressively. This means that your budget will have to be above $1,000. As a reward, you’ll be looking at greater potential profits.
Basically, there is no rule set in stone here. If you look it up online, everybody is putting up different numbers. Ultimately, the necessary private labeling launch budget depends on the item you choose more than anything else.
At the end of this section, let us remind you that you should also take FBA’s inventory storage fees into consideration when planning a budget. As the volume of your sales grows, so will the storage costs, because you’ll need to store more items. As you can see, determining an exact value for the operating budget is really hard due to the dynamic nature of this business.
On the other hand, once you know which product you want to sell, how big your order will be, and how much storage space it’ll take, determining the launching budget is simple math.
Use the Proper Apps
To get your private labeling business up and running, you’ll need to get comfortable with using specialized apps.
One of the standard apps used in this niche is the Amazon Seller App. It’s a free app that you get access to as soon as you register an Amazon Seller account. This app is an excellent option for those of you who want to test your skills in retail arbitrage.
And we will come back to it in the section of this guide dedicated to Amazon Retail Arbitrage with FBA. But for the private label with FBA, you’ll need to consider using a more powerful app.
DataHawk is such an app. It’s an Amazon analytics tool we designed to help you with all things Amazon. Thanks to easy-to-use features, you’ll be able to run a market analysis, discover attractive niches, run a competition analysis, get insight into product metrics, and optimize your keywords.
Don’t let the comprehensive list of things you can do with our software discourage you though – it’s really easy to master. Let’s see how you can use it when you are trying to get product ideas for Private Label.
How to Get The Product Ideas?
Once you complete the straightforward registration process, you’ll be able to see the dashboard of the DataHawk app.
Create a new project and name it conveniently for your purposes. This is useful since all the products that you decide to track and look into can be added to your project. And, of course, once you arrive at the final step and have your product listed on Amazon, you’ll be able to find it and track it here.
There are two easy ways to start getting ideas about the type of products you should go for.
First, you can browse through the Amazon Best Seller Rank. Find the main functionality bar located in the left section of your screen, under Market. Click on the Best Seller Rank Browser, select the department, and start browsing the best sellers ranks for it.
Let’s say that you are interested in private labeling Office Products. Click on the Office Products department and DataHawk will list all the products in this category based on their BSR. You can narrow down your research by selecting any of the subcategories of Office Products.
You can sort the listed products by any of the following: Rating, Number of Reviews, and Price.
Another convenient way to look for products is to access the Product Research feature located in the bar on the left side of the screen. You’ll be able to research the DataHawk database containing millions of products.
Set up the “Search Products in” category for Amazon and the country you want to launch your product in. Pick the product category, enter the min and max price, along with the min and max number of user ratings, average rating value and click on the big green Launch Search button.
DataHawk can also help you research your target market and discover a niche offering new opportunities for an online retailer interested in private labeling. The things we have described above can also be considered as market research options but there is another one to cover.
You can add multiple keywords to DataHawk and see if there are any products ranking for them. This is very convenient because it can kickstart your Amazon search algorithm optimization efforts.
Once you have created a project you will get access to the Keywords to feature located on the bar on the left. You’ll need to master it if you want to rank your products higher on Amazon. Click it and add a targeted keyword. For our Office Supplies example, we went with the “office pencil”.
You’ll see how many products qualify for this keyword, as well as the median price, rating, number of reviews, and search volume. But if you click on the drop-down menu with a cog icon on it, located on the right section of the table, you’ll be able to open details in a new tab. And this brings us to more advanced data to look into.
Here you can view all products, see how the products you are tracking rank for the chosen Keyword, get insights into market analysis, and leverage DataHawk AI semantic analysis of related words and top-ranking products for your keyword.
Market Analysis is a paid feature and it's available on the Starter plan and above. It lets you get insight into data on a global level, including average, min, max, lowest and highest 25%, regarding the items you are tracking. A pro-market analysis will provide even more detailed insights basing the search criteria on the pages the tracked items rank on. Running Amazon product research is quite simple.
You can leverage DataHawk's Amazon Rank Tracker, to find the most effective keywords for your listings and keep an eye on your competitors. All the DataHawk’s use cases we’ve described above will help you validate your product & keyword ideas, and narrow down your options to the most profitable ones.
There are some general guidelines to follow in this step:
- Make sure not to choose a seasonal product, as this significantly complicates the planning and launch process. This also limits the time frame during which you can make money.
- Make sure to pick the products that have at least a couple of hundred reviews.
- If you can go with products in the ungated category to reduce the approval process.
- In the beginning stick with products that cost between $15 to $45.
- The best selling rank of your target products should be above 500 but below 5,000.
- Don't go with products that are too large, as the warehouse fees may significantly affect your profits.
In the end, be patient. Track the products you are interested in via DataHawk for at least a week. See how the market behaves to evaluate the eligibility of the product for your private label campaign. Stay away from the products that are in low demand and with high competition.
Sourcing your Product
So, you’ve picked a product you want to put your label on, now what? You have to find the suppliers, contact them, and get your hands on the samples. Enter Alibaba, heaven for entrepreneurs who want to test their skills in the private labeling market.
Alibaba is a huge website where you can find the products, see who manufacturers them, and contact the suppliers. Even if the suppliers are from different countries, you’ll be able to contact them thanks to this wonderful platform.
There are two ways to get in contact with suppliers. Once you arrive on the Alibaba website, you can enter the product you want to sell in the search box and then contact the suppliers directly. In the left drop-down menu, you can choose either products or suppliers.
Once you type in the product category, or a specific product, a list of the suppliers will pop up. To be on the safe side you should go with either Assessed, Gold, or Gold Plus Suppliers who also have Trade Assurance. Trade Assurance is a free service that protects your order from payment to delivery – an absolute must-have.
Alternatively, you can simply submit a Request for Quote and wait for the suppliers to contact you. To do so, you’ll have to visit rfq.alibaba.com. There you can access the RFQ form where you can fill in:
- Product Name
- Product details and specifications (technical details, including materials and dimensions)
- Attach Files (sketches, drawings, design files, and so on)
- Requested order and payment terms
Bear in mind that Alibaba cannot vouch for all the suppliers. This is why they have a Golden Supplier rank for those who have registered companies and have successfully worked on many projects.
When you are choosing which suppliers to contact, it’s also important to look at the responsiveness metric. Anything above 80% is considered good.
There are three factors to focus on – quote, price, production time, and minimum order quantity. We suggest that you contact several suppliers at a time. This way, you can compare them and pick the best one for your private labeling efforts.
As an end result of your sourcing efforts, you should have at least 1 to 3 suppliers. Now you have to order samples from them. This is the best way to check the quality of the products you plan to sell with FBA. Bear in mind that PayPal and Alibaba trade payment options are the best ones, as they provide the best protection for your money.
How to Create Your Brand?
With your product en route, the time has come for you to start working on your private label or, simply put, your brand. So, what makes a brand? You’ll need to do several things at this stage:
- Choose a brand name
- Decide on the brand voice
- Establish your brand values
- Write down the brand’s mission statement
This will give your potential customers something to connect with, rather than just a product. More importantly, creating a brand will help you layout the healthy foundations of your marketing efforts.
You are not done with this, as there are several things remaining on your must-do list. To ensure the success of your private labeling, you need an official website for your brand. People will check you out online. And if you don't have a digital signature, it will be hard for you to establish trust.
Fortunately, creating a website from scratch is very easy. Get a domain name, purchase a hosting plan, and, if you want to have it easy, go with WordPress. WordPress is a great option because it’ll allow you to build a great website with minimal technical knowledge.
The themes that give the look and functionality are also affordable. The best ones are priced at a maximum of $60. With a great theme, your website will be mobile-ready, and you’ll be able to publish amazing landing pages.
Ask your hosting company to provide you with at least one email, this way you’ll appear more professional in front of your prospective customers.
Lay the Foundation to Your Marketing Strategy
At this point, you have the products en route, your branded email, and a website. The time has come for you to start working on creating the buzz around your new product. And to do that, you‘ll need to devote your efforts to marketing.
Don’t worry, you won’t have to do much. Your first effort should be taking care of the logo. There are many websites online that specialize in logo design. All you have to do is set your budget, which can, by the way, be as small as $10. Once the designers send you the sketches of their ideas, pick one and you’ll be done with it. You can send this logo to the supplier when you are making the order.
Now that you have a logo, you should publish it on your official website and use it to create accounts on several social media platforms. Facebook and Instagram are common options among online retailers. You should at least go with these two.
Don’t forget to log in to your website and connect the social media buttons with your new profiles. Running a marketing campaign on these platforms is more than affordable, an opportunity you should seize to amass your following and start building trust.
In the meantime, you should also work on building your email list. This is why we stressed the importance of using a simple CMS, such as WordPress. Having a beautiful and slick landing page with a simple email form is an easy task in WP.
How to attract people to sign up for your emails? There are several strategies to consider – an attractive giveaway, valuable and informative blog posts on your website, a discount, and so on. Once your product arrives and is available on Amazon, you’ll be able to use the mailing list to inform the potential buyers and leverage the momentum you’ve been building up thus far.
Order Your Products
By the time you’ve done all the things we went through above, your products should’ve arrived. Now is the time to test the samples and to pick the right suppliers. Put those samples to the test. Imagine that you are the end-user and see how each of the products performs in numerous scenarios.
Once you’ve picked the sample, it’s time to post your first official order. Don’t let the excitement cloud your judgment. Before you place your order, make sure to go through the terms with your suppliers. These are the most important things to check with your supplier:
- Check whether the default product packaging is compliant with Amazon TOS. If your products come wrapped in bulk, you’ll have to package them yourself. Staying compliant with Amazon TOS should be your primary concern.
- Minimum order quantity.
- The amount of down payment required by the supplier before the production can begin.
- Pricing terms and shipping terms.
- Logo, color, and label going to be put on each product.
- The barcode or UPS. Get either one of these and have the supplier put it on your products. Once your products arrive, Amazon’s internal tracking service will have no problem scanning and finding them.
After the production of your products is complete, you’ll have to transport them over to the FBA warehouses. There are 3 most commonly used ways for shipping goods, let's start with the most affordable one:
- Sea freight is very cheap but, at the same time, the slowest way to get your goods to the desired destination. Be aware, though, the goods that arrive in this fashion have to be cleared by the customs in most developed countries. When time is a very important factor, shipping product via sea freight is not such a great idea.
- Airfreight is slightly more expensive than sea freight. The benefit is the time needed for transportation. The goods that arrive in this fashion are also required to undergo customs inspections.
- Air express is definitely the fastest way to get your products shipped. At the same time, it’s the most expensive. But if your order is under $2,500, it won’t have to go through customs, which significantly reduces the time needed before it arrives in FBA warehouses.
The size of your shipment is the most important factor to consider before you come to a decision. Why? Because the larger the shipment, the more it will cost to get it to the warehouses.
Track the Time
Tracking time is one of the most important efforts you’ll have to commit to once you start the private label with FBA. Your supply will inevitably run out, and if you don't want to frustrate your customers, you’ll have to know exactly when to re-order. To do so, you’ll need to know how long the production, shipping, and completion of the FBA warehouses last.
Take Chinese Holiday Schedule Seriously
If your suppliers manufacturing facilities are located in China, there’s another thing to pay attention to – Chinese holidays. Make sure to quickly Google the Chinese holiday schedule. During these holidays, factories don’t work. Sometimes for weeks at a time. This will help you to more accurately plan your inventory and orders.
List Your Product
Before you are able to launch your product, you’ll have to build your product listing. This is done via your seller account on Amazon. To build an effective product listing you’ll have to:
- Make great product photos. Your product photos should be of high quality and shot from several angles. Some of the sellers include 360-degree photos to drive more sales. Don't forget that a white background is required on the main product photo.
- Write an informative title, bullet points, and product description. Rember those keywords you’ve used while researching the market and product opportunities with DataHawk? Now is the time to incorporate them into your text.
Launch Your Product
When your products are at FBA warehouses and you are done building your product listing, it’s time to launch your product. Log into your DataHawk account and start tracking it as soon as possible. See how many sales you make per day, assess the profit margin, and stay on top of the current market developments.
3 Ways to Boost Your Sales
Yes, you can optimize your pricing and listing to drive more sales, but there are other options at your disposal to kickstart the sales from your private labeling efforts.
Ask for Reviews
Asking for reviews in the wrong fashion can easily get your seller account suspended or closed permanently by Amazon. This is why you should abide by Amazon’s rules. In fact, the communication between sellers and Amazon buyers is strictly defined.
You are allowed to contact buyers via the built-in Seller Central Buyer Message system. But you are not allowed to:
- Offer any kind of incentive to get Amazon reviews.
- Ask for a 5-star review nor positive review.
- Ask buyers to change a negative review.
The best way to get more reviews is to utilize the Seller Central Feedback Manager. These feedback requests will be sent via email following the order delivery. This is a great opportunity for you to ask the customers to share their experiences with other shoppers.
Don’t forget to send them a clear message that their opinion and insight matter to you. And please keep your tone neutral. “Be sure to leave us a good review” type of message will get you suspended or banned from the platform.
There is nothing wrong with extending your review efforts via the email list you’ve built meanwhile. And make sure to follow up with customers whose issues have been resolved with an email and ask for a review.
Run a Giveaway Campaign
To increase the sales and visibility of your product on Amazon, you can use the built-in Amazon giveaways system. To access it, you have to log in to your seller account and follow this path: Advertising – Promotions – Giveaway – Create – Choose Product – Setup Giveaway.
This is a great way to reach your sales objectives faster. But before you engage in such an activity, make sure to check Amazon’s ToC and protect yourself from the potential penalties.
Run a PPC Campaign
Pay-per-click advertising is a popular marketing method among Amazon sellers. Amazon ads or the Amazon PPC platform will allow you to display your products as top search results and capture more sales.
Amazon PPC is a highly targeted advertising method. Thanks to the sophisticated settings, you’ll be able to reach and engage potential customers at every stage of their journey. You can read about Amazon advertising here.
>> Don't forget to track your Amazon Best Seller rank to monitor the impact of your daily efforts.
2. Amazon Retail Arbitrage with FBA
What is Retail Arbitrage?
Retail arbitrage is a simple process. All you have to do is buy an item in a store and sell it online. Since you are going to sell it high online, the difference in price is going to be your profit margin. Since Amazon is the largest platform online, starting your Amazon retail arbitrage efforts on this platform allows you to seize many opportunities.
Let’ say you are walking among the Walmart shelves, and you see a product on promotion. With your smartphone, you can quickly check how much that item costs on Amazon and see if it offers an opportunity to make extra cash. Please don’t forget to factor in shipping costs and marketplace fees before you get all excited about it.
Necessary Launch Budget
To start an Amazon retail arbitrage business model, you don’t need a huge launch budget. In fact, you can start with less than $100. This is why retail arbitrage is commonly pursued by many people online.
Start as an Individual Seller
Before you can start selling items on Amazon, you’ll have to create a seller account. We recommend that you start by creating an account as an individual seller because it has no monthly fees. The setup process is straightforward and it will take you no more than 10 minutes to complete the entire process.
Use the Proper Apps
To excel in this line of business, we recommend combining the free Amazon Seller App and DataHawk. Finding the perfect products to resell and tracking their performance on the market is essential. Why? We’ll take a closer look at the main reasons in the following section.
How To Find The Right Products?
There are two ways of finding the right kind of products to sell via retail arbitrage with FBA. You can either start with the Amazon Seller App and end it with DataHawk, or vice versa.
If you start with the Amazon Seller App, all you have to do is go hunting for the products in local stores. The equipment you need is your phone, the app, and your gut. When you come across a product that looks like a nice opportunity to make money, take out your phone, launch the Amazon Seller App, click on the camera icon and scan the barcode on the product.
If the product is listed on Amazon you’ll get the result. Click on the gray arrow on the right side of your screen to access the details of the product in question.
On this screen, there are several things that you have to pay attention to:
- In the middle portion of the screen, there is a Selling Eligibility field. Check this first. If it says “You can sell this product in new condition” you are ready to go. If not, proceed with your product hunt.
- Located in the upper left corner is the sales rank. This number indicates how fast a particular item is selling on Amazon compared to all other items in the category. The lower the number, the better. From our experience, you shouldn’t give an item a go if the sales rank is above 200k.
- Then you want to check the profit. To do this, you have to click on the gray arrow, following the row with Low Price, Fees w/FBA, and Gross Proceeds columns. In the following screen, you can type in your new price and the app will automatically calculate your profit. In the beginning, we recommend that you stick with products that offer a minimal profit of $3.
- Lastly, divide your profit with the initial investment to calculate your ROI. For instance, if you are buying an item for $10 and your profit is $5, the ROI = 5/10*100 = 50%. Anything below this is considered not worth your while.
Record all the items that have caught your attention. You’ll need this list once you get home to run it through DataHawk. You can use the search function to find these items and track them to see how they are performing, analyze your competition, and research which keywords to use to write listings and draw more customers.
This process is the same as the one we have described in the private label section, so feel free to scroll up and check it out again.
If you decide to start with Amazon Product Analysis with DataHawk, you should identify the products that offer opportunities. For instance products in high demand and low sales volume might be overpriced. If you are able to find them in brick-and-mortar shops at a reasonable price, why not sell them with FBA.
You should write down all these products and head out hunting in local stores. This time you’ll be armed with the Amazon Seller App though, which will help you quickly assess your profit and ROI for each particular item.
The Best Stores for Retail Arbitrage for Amazon FBA
The best store is the one that you have easy access to. You have to do all in your power to make the process of hunting for and purchasing items as easy as possible. Some of the best places to shop for retail arbitrage are popular shopping centers including Walmart, Shopko, Big Lots, Rite Aid, Toys R Us, Target, Kmart, Office Depot, and so on.
Pros & Cons of Retail Arbitrage vs Private Labeling
Now that we went through both retail arbitrage and private labeling, you can easily see that these two are fundamentally very different. Let's see the pros and cons of each one.
Retail Arbitrage Pros
- It consumes far less time and requires far less effort than private labeling. You’ll basically be reselling products that already exist. You won't have to build a brand. All you have to do is make a smart buying decision and resell at an attractive price.
- With millions of products already on Amazon, the options for retail arbitrage are limitless. On top of that, with tools such as DataHawk, you can see how a particular product performed, performs, and will perform in the market.
- There is no need to design the product. What you are going to sell is already there, branded and designed. This is why you can take advantage of literally any product at your disposal.
- You can enter the market with a very small budget. Even if you have $50 in your pocket, you can buy 5 products, $10 each, and try to resell them at a higher price.
Retail Arbitrage Cons
- Brands can be restricted. Since you are selling a product that is not yours, you might end up in a tricky situation. There might be a great opportunity on the market, but you can’t pursue it because the brand is restricted for retail arbitrage with FBA.
- Profit margins are not that great. Ok, you might be able to land a great deal from time to time. More commonly, though, you’ll have to sell a lot to make ends meet because the profit margins are a lot smaller when compared to private labeling.
- There is still a lot of work involved. Although it may appear less complex than a private label, retail arbitrage will put you in a position to manage your account, optimize your listings, reprice the products, research, manage reviews, and so on.
Private Labeling Pros
- You are at liberty to do what you want. Right from the start, you are personally involved in the product design, manufacturing, packaging, and branding processes. Since you decide everything, you can do whatever you want.
- Private label can turn into a long-term business model – if you happen to launch a successful process you can make a profit on it in the long run. All you have to do is manage your inventory and keep the goods flowing.
- You can choose to sell your brand. Ultimately, you can make a lot of money if you make a recognizable brand via the private label. Your brand will be a very valuable asset that can be sold to the highest bidder.
- The heavy lifting is only a part of the first stage. Once you are done with research and landing the deal with the supplier, you won’t have to do all the repetitive processes like in retail arbitrage.
Private Labeling Cons
- It’s not easy to enter the market. Right from the start, you’ll have to operate on a significantly larger budget. You’ll have to pay for a website, branding, and marketing efforts, and cover the minimum order quantity and shipping costs.
- It’s a leap of faith. No matter how well you prepare, you cannot be 100% sure that your product will perform well in the target market. There’s more risk involved than in retail arbitrage.
- It requires more patience. You are practically limited to starting small. Since there is a certain risk involved, you cannot start with expensive products. In fact, you have to start small and work your way from there. Seeing a big profit may take months or even years.