Have you ever considered selling products purchased wholesale on Amazon?
This is always a topic up for debate among sellers – an important caveat you need to understand right away is that more often than not, the profit margins for wholesale tend to be lower than say, private labeling your own brand.
That being said, it is possible to make a profit selling wholesale, but like anything in the online selling world, it takes a bit of work. You’re not going to find other sellers willing to hand you a list of possible suppliers – they already worked hard to identify suppliers and don’t want to invite competition for a free ride.
So, what do you need to know to get going with a wholesale business model? Let’s take a look:
What is wholesale selling?
Put simply, wholesale is where you purchase goods directly from a manufacturer, then sell them on Amazon for profit as a reseller. An example might be if you wanted to sell Nike apparel. You would approach them and negotiate to purchase at wholesale prices, then resell online (you probably don’t want to go with Nike specifically – they are already everywhere online).
The advantage of selling an established brand is that you don’t need to put time into branding, as you do with private labeling. You can find brands and products where there is already established demand and capitalize on them.
What do you need to get into wholesale business?
As a general rule, you will need to have an established business (so you need to have an Employer Identification Number (EIN) for your business). An EIN is easy to apply for online from the IRS.
Once you have your EIN, you’ll need to follow the rules specific to your own state. Most have something equivalent to a “wholesale license” – this is something you must obtain to legally operate as a wholesale business. Some states may refer to this as a “resale license,” “seller’s permit” or “resale certificate.”
The essential purpose of a wholesale license is that it allows you to purchase goods in bulk directly from manufacturers without paying tax. Of course, your customers will still have to pay applicable sales tax.
Wholesale businesses tend to work out better where you can develop good relationships with manufacturers and potentially negotiate exclusive deals. From the perspective of the manufacturer, they’re looking for someone who will be a successful, reliable partner to work with because that way they benefit as well. For this reason, having some purchasing power going into wholesale negotiations is important. Most will have a minimum order amount and products tend to come in case amounts. As a general rule, you’ll need at least $1000 of working capital available to you.
Wholesale pros and cons
As with any business model, there are pros and cons to going with wholesale products – let’s take a look:
- You don’t need to build a brand from scratch – you can usually use marketing collateral supplied by the manufacturer and there is already some brand recognition out there.
- Pricing tends to be fairly steady. You won’t be racing to the bottom for the buy box (this is especially because manufacturers won’t let just anyone sell wholesale and want to maintain the positioning and pricing of their products).
- This is an easily scalable business model.
- You don’t need to spend time developing and perfecting products.
- You can easily offer a wider range of inventory by exploring more options in the manufacturer’s catalogue.
- If you choose well, there is potential that you will have less competition on Amazon. For example, an item might be difficult to find offline at a reasonable enough price for anyone who uses a retail arbitrage business model, so you may be able to source and offer at a better price.
- Save time on sourcing, particularly as compared to retail arbitrage.
- Some manufacturers may not be keen on Amazon sales.
- You have to find manufacturers who aren’t already selling on Amazon directly.
- You need to order larger quantities so will need more capital to set up your business.
- Product margins are lower.
A note on “brand gating”
You may have seen the furor last year when Amazon suddenly restricted thousands of sellers from selling big brands on the site. The forums blew up and complaints flew in as sellers suddenly found they couldn’t add new listings.
This “brand gating” is a response by Amazon to the influx of counterfeit products that have come in. Their aim is to maintain good customer service, which includes preventing those knock-offs from having an avenue to sell.
If you find that a brand you are interested in is now restricted, this may be an opportunity for you as a wholesaler. Amazon requires evidence such as wholesale agreements to prove that you are permitted to sell genuine items – sometimes you will have to pay a fee. Your advantage as a wholesaler is that you can work to set up approval with your manufacturer and Amazon – other sellers, such as those who do retail arbitrage won’t be able to do this.
How to find profitable wholesale products
As mentioned earlier, you’re not going to find other sellers who are willing to hand over their lists of suppliers and contacts. It takes work to build up those lists, figure out who is reliable and build relationships with them.
Here are some general rules you can apply when looking for wholesale products:
- The product is not sold by Amazon themselves (you won’t be able to compete).
- The product has an established and admired brand history.
- The product has high monthly sales velocity or potential. (For example, similar products from other brands are selling well).
- You need to be able to offer the product at an enticing price. It can’t be something that people can pick up cheaper at the store down the road.
Let’s look at some tips for finding those profitable wholesale products:
Look at Amazon sales
No one ever claimed this would be a quick job – much like you would when choosing a private label product, a good place to start is with a deep-dive on Amazon.
Investigate niches, products and competitors by digging around with your criteria in mind. How many good competitors are there? What about an estimate of monthly sales for the product? Jungle Scout has a free, useful Product Estimator tool which can help with this process.
Check out trade shows and magazines
Taking a trip to trade shows is a great way to meet and deal directly with product manufacturers. For example, check out these U.S.-based trade shows:
There are also plenty of overseas trade shows if you’d like to source offshore, particularly in China and other parts of Asia.
Trade shows can be huge and a bit overwhelming, so go in with a plan of attack. It’s always good if you’ve already done some research and prepared a few questions you want to be sure you remember to ask. You can often view lists of manufacturers who are attending beforehand and make a shortlist to go and talk to.
Exploring any possibilities locally is a great option as a place to start. It can be an opportunity to get to know a local business personally and develop a mutually beneficial relationship – you may even be able to negotiate exclusive selling rights.
Look for those who aren’t already selling on Amazon and for whom you’ll be able to add value. Sometimes you can find a smaller manufacturer to get your start in the wholesale business, then after a while, you are better able to market to other suppliers and show them the value you can deliver.
Negotiating with manufacturers
Manufacturers don’t want to be represented by just anyone. Remember, as a resaler on Amazon, that’s exactly what you’re doing – representing their product and company. You will need to prove to them why it is a good decision to go with you.
As mentioned earlier, part of that will be demonstrating that you can add value to their brand. Perhaps they’re not represented on Amazon currently, or maybe they don’t have a great online sales presence period.
It’s always a good idea to go in with a plan you can show them – how will you represent their product well? Perhaps you can offer additional benefits such as professional product photography, or perhaps it’s just that you are a low-barrier entry for them onto Amazon because you deal with all the hoops. There are plenty of manufacturers who’d rather focus on product development than selling.
Importantly, of course, they want to know how you will ensure their products sell better. Having a multi-channel approach might even be attractive here. You might set up your own website as a reseller (for example, like a hardware store) and show them how you will market and represent them professionally.
Purchasing wholesale goods to resell on Amazon can be a profitable business model, particularly if you work to create strong relationships with manufacturers.
While margins on product sales are typically lower, you have advantages such as working with an established brand and the opportunity to expand your inventory simply by delving further into their catalogue.
For some sellers, you may even consider wholesale as a great way to diversify your current business model. If you already sell private label or retail arbitrage, consider adding another income stream to your portfolio.