TAC Day 2: Business Model

Welcome to The Amazon Challenge Day 2.

Today, it’s all about the business model I will be following.

There are two main ways in which you can sell on Amazon. The methods are:

i) Wholesale/Arbitrage model

ii) Your own product/ private label model

With wholesale/arbitrage model, you simply get items for cheap at one source, and then sell them at a markup on Amazon. For example, you can buy items in bulk from a manufacturer and then sell them at retail price on Amazon.

I will not be following this model mainly because it is time consuming and the markups are not worth the time it takes to get everything set up. Rather, I will be going the private label/own product route.

With the private label/own product route, you simply create or private label a product to sell on Amazon. For example, if I want to sell mosquito nets, I can get one with my own label/brand and sell on Amazon. Here, I will need to find a manufacturer that allows private label, get them to put my label and then I can start selling.

The benefits of owning your brand on Amazon is that you don’t get to compete with others on price since you are the only one with the labeled product. Moreover, you can position your item¬† to be premium and hence charge a higher price and enjoy better margins.

This is the model I will be following.

Amazon FBA (Fulfilled By Amazon)

To be clear, I will not be keeping inventory in my house. It’s simply not practical since I am outside the US and shipping from my country can be quite prohibitive. So, I will be doing Amazon FBA.

What Amazon FBA simply is, is a way to get your products available to customers easily and more cost effective. What you need to do is ship the items you want to sell to one of the Amazon warehouses across the US, and Amazon will take care of fulfillment. You won’t have to worry about shipping, packaging, customer care, etc. Amazon will do everything for you.

Anyone can get started with FBA, regardless of the country they live in.

Unanticipated Events

There are a couple of things that have come up that I hadn’t anticipated before:

i) Amazon Seller Central Fees.  To do FBA, Amazon offers sellers 30 days trial and then charge $39.99 per month for the service. I will have to budget for the cost of the monthly service.

ii) Cost of inventory. I hadn’t really thought of the cost of inventory until much later during the day today. Of course, I will need some money to purchase and ship inventory.

I will start slow, with a budget of $500 to $1000. If I can get the inventory for cheaper, the better.

So, this means I have to start setting money aside every day for the Amazon venture!

That’s all for today folks, catch you tomorrow with Day 3 Update.


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