How to sell wholesale products on Amazon

This blog covers everything you need to know about starting a wholesale Amazon arbitrage business.

We answer four questions about selling wholesale products on Amazon:

1. What is wholesale arbitrage on Amazon?
2. What is the difference between retail arbitrage and wholesale arbitrage on Amazon?
3. What are the pros and cons of selling wholesale products on Amazon?
4. How do I start selling wholesale products on Amazon?

What is wholesale arbitrage on Amazon?

Wholesale arbitrage on Amazon is the buying of low-priced items in bulk from a wholesale business for resale on the Amazon marketplace.

Understanding the traditional wholesale model:

Before we dive into the particulars of wholesale selling on Amazon, let's take a minute to understand the traditional wholesale business model:

• Manufacturers sell their products in large quantities to wholesalers
• The wholesalers sell their products in bulk to retailers
• The retailers sell individual products to customers

Effectively, a wholesaler acts as an intermediary between a manufacturer and the customer. Typically, wholesalers do not sell to the end consumer. Instead, they impose minimum order amounts or values on the retail businesses that purchase from them.

Purchasing in bulk from wholesalers enables retailers to benefit from a discounted price. In turn, retailers generate profits from the markup applied to individual items.

How does the wholesale model work on Amazon?

In effect, the model remains the same. You (the retailer) purchase items in bulk from wholesalers, but rather than sell directly to end consumers, you will:

• Send your inventory to an Amazon fulfilment centre for Amazon to pick, pack and ship to the end consumer (also known as FBA - Fulfilled by Amazon)
• List your inventory for sale in your Amazon store and fulfil the orders to the end consumer yourself (otherwise known as FBM - Fulfilled by Merchant)
• Or both!

The aim is to generate profit by exploiting a difference in the wholesale purchase price and the Amazon retail price. The bigger the price gap, the bigger the profits.

What is the difference between retail arbitrage and wholesale arbitrage on Amazon?

Amazon retail arbitrage is the buying of low-priced goods in retail or online stores for resale on the Amazon marketplace. In comparison, Amazon wholesale arbitrage involves bulk purchasing items from a wholesale business.

For those of you who have yet to dip your toe into the Amazon world, you might be wondering, what the hell is arbitrage?! Here's a quick explainer:

What is arbitrage?

Arbitrage involves buying something in one place and selling it at a higher price elsewhere. You can do this with many commodities; currency, stocks, products - there's even a noun to describe arbitrage traders - arbitrageurs!

Want to learn more? Visit Investopedia to discover more about arbitrage and arbitrage strategy.

What is Amazon retail arbitrage?

Amazon retail arbitrage involves purchasing low-priced items from retail stores and selling them at a higher price on the Amazon platform, thereby exploiting a price difference.

Here's how to do Amazon retail arbitrage:

• You purchase individual items from retail stores and resell them for a profit on Amazon
• You will be looking for the lowest available purchase price and the highest possible selling price
• You will typically source products from discount stores or sales, and you might utilise vouchers or cash-back schemes to reduce your purchase price
• You can purchase from online stores or bricks and mortar shops
• You will have no formal business relationship with the retailer (although it might help to befriend store managers who are sometimes keen to assist you with large or repeat orders)

Here's how to do Amazon wholesale arbitrage:

• You purchase items in bulk from wholesalers, ready for resale on Amazon
• When buying from a wholesale business, you will often need to create an account and formalise your business relationship with a contract
• Wholesalers sometimes have retail premises - think of cash and carry shops like Bookers - or more commonly, they operate in warehouse-like facilities in which they fulfil their orders remotely
• You will typically be looking to develop a consistent and steady relationship with a wholesaler based on repeat orders

What are the pros and cons of selling wholesale products on Amazon?

Having outlined the basics of wholesale Amazon arbitrage and how it differs from retail Amazon arbitrage, you might be considering a wholesale sourcing strategy for your Amazon business.

Before you dive in, we discuss some of the benefits and challenges associated with the wholesale Amazon business model.

The pros of selling wholesale products on Amazon:

You can build repeat business: Unlike retail arbitrage, your supply of products will be far more consistent, meaning you can source items week in and week out for repeat purchasing.

You can negotiate better profit margins: Purchasing in bulk enables you to leverage better prices which means bigger profits.

You can sell brand and category-restricted items: Amazon requires proof of purchase from a registered wholesaler or distributor to sell many brands or types of products.

A good wholesaler will have your back: Occasionally, Amazon will throw a few legislative curveballs your way - a good wholesaler will be able to support you and ensure you remain compliant.

You can scale your business: You can grow a wholesale business model far more efficiently than a retail arbitrage Amazon business.

Top tip: If you couple the wholesale model with FBA, it's more hands-off!

The cons of selling wholesale products on Amazon:

You need a wodge of cash: A minimum quantity or order value can make your wholesale start-up costs prohibitive if launching your Amazon business on a budget.

You'll need a registered company: Many wholesalers will ask you to provide them with evidence of your company status, proof of sales volume, pass a credit check and sign a contract.

You must be confident in your purchasing decisions: Purchasing large quantities of one item increases your exposure to market fluctuations. Buying a broad range of inventory will insulate you from potentially damaging swings in pricing or demand. Research and diversification is everything in this game.

You will need to work with a prep centre: This isn't necessarily a con, but it is worth noting. Not all wholesalers will deliver to residential addresses, so if you plan to ship from your house, you may need to rethink your strategy.

Learning point: Not sure what a prep centre is? Check out the Profit Runner blog on How to use a prep centre to grow your Amazon business.

How do I start selling wholesale products on Amazon?

Before you begin, you'll need to get your Amazon business administration in order.

Working with wholesalers requires increased paperwork and organisation. To make your wholesale relationship a successful one, you'll need to:

• Ensure your company status is active
• Keep your bank account and records in good order
• Have enough capital to meet a minimum order value
• Understand your VAT obligations
• Purchase appropriate business insurance (advisable but not essential until your turnover exceeds the limit imposed by Amazon)

Learn more: Read the Profit Runner blog on Do Amazon sellers need insurance? 

In short, your organisation needs to be on point if you are to enter into formal business agreements with wholesalers. Getting the basics right before you reach out will ensure you give the right first impression.

How to find the best wholesalers for your Amazon business:

Finding reputable suppliers can be tricky, but taking the time to find the right ones will pay dividends.

If you are in the UK, you might want to take a look at some of these wholesale business directories:

• The Wholesaler UK - an online directory for retailers looking for stock to resell
• E Sources - a directory of UK wholesale distributors, suppliers and products
• Wholesale Scout - an exclusive wholesale supplier directory, for sourcing products in the UK

Think about the product categories in which you can operate and find yourself a niche! 

Create a list of wholesalers in that category and begin your research by reaching out over the phone. Start by introducing yourself and your business before enquiring about setting up an account.

Here are some key questions to ask your prospective Amazon wholesaler:

• What are your minimum order requirements?
• What are your payment options and terms?
• Do you offer quantity discounts?
• Are you aware of any brands restricting sales on the Amazon marketplace?
• What are your shipping and insurance policies?
• How do you handle missing or damaged inventory?
• What is your returns policy?

Purchasing products from a wholesaler is very different to shopping with a retailer. Reading the fine print will help you understand how to operate successfully and build a positive working relationship.

Insider info: Some wholesalers will not deal with Amazon sellers. If you only operate on Amazon, then honesty is the best policy. Do not lie about where you will be selling goods. It's not the end of the world if a wholesaler chooses not to do business with you. There are plenty of others who will.

How to find a profitable product for your wholesale Amazon business:

Once you've opened a wholesale account, you can begin thorough product research. Analysing your prospective stock is perhaps the most challenging step in the wholesale model, but researching your inventory is the cornerstone of a successful wholesale Amazon business.

1. Check whether you can sell the product:

• Does the product belong to a restricted category?
• Are there brand restrictions in place?

Understanding whether your Amazon account is compatible with the product you wish to sell is crucial - do not purchase anything until you know you can sell it!

2. Read the Amazon sales data:

• What does the product sales data tell you?
• Is Amazon currently listed?
• Is this product seasonal?
• What is the average FBA selling price in the last 30 days?
• Are there any other Prime sellers listed?
• How much stock do your competitors hold?

Analysing the current and past sales data will help you identify risks and opportunities in the market.

3. Calculate your profit margin:

• Based on your interpretation of the sales data, what is a realistic selling price?
• How much will it cost to package and ship your products?
• After expenses, what do you think your return on investment will be?

Pro tip: You can use software to help you analyse and interpret the Amazon sales data. Profit Runner can help you research a product, spot potential for profit, add your packaging and shipping costs and calculate your exact return on investment.

How to make your first wholesale order for your Amazon business:

Taking this step for the first time might feel like a leap of faith, particularly if you're building this business on a shoestring. Committing to large order quantities can be daunting, but taking the time to research and follow the steps outlined above should help you find profitable wholesale products to sell on Amazon.

Check before you order:

Does your order meet the minimum requirement? Your order will need to surpass this threshold. Many wholesalers also offer free shipping above a certain amount, be sure to take advantage of this.

Take note: Does the minimum order amount include or exclude VAT? Be careful to understand how prices and VAT are displayed.

Have you purchased a broad range of inventory? As previously discussed, purchasing higher quantities of any product can increase your market risk, so be sure to offset this by choosing a broad range of inventory.

Helpful hint: Try to diversify across both products and brands.

Have you finalised the details of your delivery? Wholesalers sometimes charge for missed deliveries or incorrect delivery details - an instant dent to your profits.

Don't forget: If you are utilising a prep centre, keep them in the loop with your expected delivery date.

Hopefully, this blog has helped you gain insight into selling wholesale products on Amazon. 

To learn more about selling on Amazon, check out the Profit Runner blog for free tips and insights. Good luck!