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With around $400 billion annual revenue and two million active sellers, Amazon is arguably the largest marketplace and global business opportunity center.
There isn’t a single selling model to operate on Amazon. Sellers make money on Amazon through retail arbitrage, wholesale, private label, and dropshipping. Anyone looking to start their Amazon journey can get spoiled for choices with these many options.
For instance, it might be difficult for new sellers— bringing in large investments and looking to establish a healthy income stream— to decide between wholesale and private label.
If you’re one of those aspiring full-time sellers and sitting on the fence, you’ve landed at the right place.
This post will give you an unbiased and comparative overview of the Amazon wholesale vs. private label debate.
Before comparing these two Amazon business models head to head, let’s have a quick rundown of what they’re all about.
Amazon wholesale entails selling products of a well-established brand as a third-party seller. It is a medium-risk, medium-reward business model. First, you have to identify a brand with a solid consumer base and recognized product lines as a seller. Then, you have to consider the profit margins to ensure your wholesale gig remains profitable.
On the one hand, selling established brands make it easy for new sellers to start their Amazon journey for multiple reasons. For instance, a particular dedicated market segment is already looking for the product an Amazon wholesaler wants to sell. Secondly, wholesalers won’t bear huge losses with well-established branded products if things go south. They can easily sell those products outside of Amazon as well due to their brand pull.
But on the other hand, selling branded products means working in a competitive market with no edge. Wholesalers competing in the same niche and product category usually sell the same item from the same brand. This saturation also slashes profit margins for them.
Amazon private label entails launching your own brand on the platform. You source white label products and package them as your propriety brand as a private label seller. Launching a private label involves high-risk and high-reward business prospects.
Its high risk comes from the fact that you’ve to establish a brand from scratch with loads of marketing. If things don’t work out for a private label, a seller can incur considerable losses. On the other hand, the high reward of a private label stems from its good margins, brand building, and the control its sellers have on their product, quality, and overall operations.
Amazon wholesale and private label modes are pretty contrasting when we compare them for different aspects like investment, competition, profits, legalities, etc. So let's have a side-by-side overview of these two selling models in terms of various business features.
Launching a private label on Amazon needs more investment than starting your journey as an Amazon wholesaler. When you launch a private label, you have to build everything up from the ground. You need to find and link with suppliers, place orders in bulk, take care of private label packaging, and carry out extensive marketing campaigns. All of this needs a considerable sum of capital.
In comparison, Amazon wholesale is primarily about having the investment to procure large orders from brands. You don't have to heavily spend on promotions with a wholesale mode of operation. Similarly, you don't incur all the brand-building expenses (trademark, GTIN, logo, product photography, videography, etc) that are needed for a private label product.
Finding: If you’re not afraid of sprawling overheads for building a brand and eventually a million-dollar business, then a private label is the answer. Otherwise, your investment will be best served on a wholesale gig.
Markets thrive and consumers benefit from the raging competition among sellers and businesses. Amazon, as a whole, is a competitive global marketplace. Nonetheless, the degree of competition varies from product to product, niche to niche, as well as business model to business model. For instance, private label sellers and wholesalers usually face different types of competition on the platform.
This is the listing of a Nike shoe where Amazon has picked one seller for the Buy Box from many wholesalers selling the same pair of shoes.
Amazon wholesalers selling the same brand are usually up against each other. In the above example, it doesn’t matter for buyers who is selling the shoe because they are mainly interested in buying that specific item from a particular brand. They click on a listing just because it is an article from Nike, Reebok, Apple, etc. With too many sellers selling the same ASIN, Amazon becomes a regulator and decides which wholesaler will win the Buy Box for a specific branded item.
A private label seller automatically qualifies for the Buy Box of the product they sell.
In contrast, private label sellers don’t have to compete for a Buy Box since they sell a unique ASIN. Nonetheless, private label sellers also face competition. They compete against other private label sellers selling the same thing, which is usually battled out in search results.
Finding: If you don’t want to compete for a single listing all the time for thin margins, you should opt for a private label business.
Starting a business from zero and then taking it where it turns profitable takes time. This lead time is different for different business models. Between wholesale and private label, you can easily guess which business model will have a shorter lead time if you know the answer to the following question.
Which business will take off quicker than the other: a one where you have to build a brand from scratch or a one where you sell well-established brands as a third-party seller?
With all the brand registry requirements, hunting products, finding suppliers, and promotion stuff, a private label business needs more time to take off than a wholesale gig dealing in sought-after brands.
Finding: If you want to get things going quicker, wholesale is a better option than the private label.
When it comes to controlling different business elements, private label is a clear winner. From quality to pricing and promotion to innovation, you are the captain of the ship with a private label product. In addition, a private label seller enjoys freedom in ways that a wholesaler might not.
For instance, private label sellers can foray into product differentiation without needing approval or assistance from elsewhere. However, that’s not the case with Amazon wholesalers. Instead, they entirely depend on the innovation and differentiation strategies of the brands they sell. Similarly, they don’t have much room to tweak the prices because they already source products at higher rates and then sell them in a competitive market.
Finding: If you’re a seller who likes to be in the driving seat to oversee most elements of your business, the private label model is better suited for you as compared to wholesale.
Amazon wholesale intrinsically has thinner margins because it involves reselling popular brands. On the other hand, the private label is all about making a brand out of a white label product, which promises high margins. So, the private label offers better profit than wholesale strictly in terms of margins.
However, a wholesale venture can offer a better profit than a private label gig based on the sales volume. For wholesalers, it is easier to sell a good number of products from the get-go. In contrast, a private label business usually experiences a gradual rise.
Then, marketing is one aspect that can affect the accumulative profit of private label and wholesale businesses. Private label sellers need to dedicate a handsome budget to marketing and promotion that can offset some part of the earnings.
Finding: All things considered, wholesale offers better profit prospects in the short term, and private label promises good returns in the long run.
A private label seller is essentially a brand owner. Therefore, they naturally face more legal responsibilities than those selling products from other brands/manufacturers. From taking care of trademark registration to IP theft and then customs compliances, a private label seller has to cover a lot of legal ground to ensure they can launch their own brand on Amazon marketplaces.
So, if you want to deal in private labels, make sure you work with a trustworthy white-label supplier. Also, try to sell products that are not: edibles, potentially hazardous (e.g. batteries), or have any medical implications (supplements). You can keep your legal liability low by avoiding such products.
Finding: You will have a more legal responsibility if you sell a private label product.
The above comparison points have made it clear that launching a private label is more demanding than venturing into wholesale. However, all the efforts to build a private label business distill into great long-term prospects that are unmatchable compared to what wholesale offers.
A successful private label launch means you can capitalize on that and develop an entire product line. For instance, if you can make a private label product success in the home improvement product category, you can then introduce other home improvement items under the same banner/label.
Moreover, you can turn your private label success on Amazon into a multi-channel sales operation where you can sell your brand on your website and other e-commerce platforms as well.
Last but not the least, you can “flip” your private label business on Amazon at hefty values. Many sellers have become millionaires by selling their private label FBA businesses.
Finding: A private label gig is many light years ahead of wholesale when you factor in long-term business prospects and opportunities.
The above section has shed light on both opportunities and risks of Amazon wholesale. Here, we will try to be more specific with the benefits and downsides of this mode of Amazon business.
Minimal Groundwork: You don’t need to file for the Brand Registry, fulfill its requirements, and tirelessly search for trustworthy suppliers with Amazon wholesaling.
Easy Scaling: It is easier to scale your operations when you sell a product already produced in large numbers with tremendous quality control and a substantial consumer base.
Minimal Advertising: You don’t need to excessively promote your listings when you sell popular and sought-after brands through Amazon wholesaling.
Fewer Legal Liabilities: While selling other brands and their products, you don’t have to worry about counterfeits, defect issues, and other built-in product shortcomings.
High MOQs: Big brands don’t easily make wholesalers their associates. In most cases, a wholesaler is required to comply with quite a big Minimum Order Quantity (MOQ) to be eligible to sell a particular brand on Amazon. Higher MOQs involve more significant capital outflow and thus more risk, especially for sellers with tight budgets.
Thin Margins: A famous branded product is always at a higher price point than a white label item. Therefore, Amazon wholesalers always have to put up with fundamentally thin margins.
Ruthless Competition: Sellers need to fight it out to win the Buy Box to sell a branded product they are wholesaling. Unfortunately, this hardnosed competition always has one winner and multiple losers.
Entrepreneurially Unfulfilling: The entrepreneurial value of Amazon wholesale is far lesser than a private label venture. With wholesale operations, you can’t build a brand and create value that can translate into long-term monetary benefits.
Like Amazon wholesale, the private label model also has weak links and strong suites. Let’s take a look.
Brand Ownership: When you launch a private label, you essentially create a propriety brand that you solely own. Having a brand means you can scale it outside of Amazon as well. Moreover, you get all the creative and business freedom to set, change, and revise the tone and direction of your private label.
Less Competition: A private label seller doesn’t have to chase the Buy Box. Their unique ASINs ensure they always win the Buy Box on respective listings.
Better Profit: Private label sellers can set better profit margins on their products. They get this room because they source white label products with no brand footprint.
No Interference and Dictations: A private label seller can mold, diversify, and customize a product as they like since they own the IP of the product. They are not bound to sell a product as some big brand wants them to.
Time and Cost Intensive: It takes a lot of time and money to launch a successful private label on Amazon.
Tricky Quality Assurance: A private label seller is solely responsible for the product quality. Quality control and assurance can get tricky if a seller struggles to find a trustworthy supplier.
IP Counterfeits and Listing Hijackings: A private label product that gets popular and finds loads of traction often faces contention from counterfeit products. As a private label seller, you have to take care of all the work (reporting to Amazon, sending cease and desist letters to the listing hijacker, etc) to stop the sale of counterfeit products.
Before rounding up the article and giving our final judgment, let’s quickly go through steps to start Amazon wholesale and private label.
These are the steps to start selling as an Amazon wholesaler.
The steps for selling as a private label seller are more or less the same as wholesale.
We hope that the above discussion helps you understand Amazon's wholesale and private label businesses in the right context. As for our verdict, we can’t declare a winner here. Both these Amazon business models have their virtues and vices.
You can go with wholesale if you want to add just another income stream without taking too much risk and putting too much effort. However, if you want to build a brand, earn handsomely, and flip your business for a good amount of money, private label is the way to go.
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