Dustin and Kris talk about wholesale vs private label on Amazon and the pros and cons of each business model as a new seller.
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– Hello everybody. And welcome to episode 17 of Two Amazon Sellers and a Microphone. I’m Dustin Kane and with me as always, is Kris Gramlich. What’s happening?
– Not much Dustin, how you doing?
– I am great. It’s a beautiful day here in Kansas city today. A little windy, but nice.
– It’s like the sun is out shining and fall is about, around the corner, so it’s coming.
– Exactly, exactly. But yeah, I’m excited about today. This’ll be good for anybody early in their journey or just wanting to learn maybe how to expand and do other revenue streams. But we’re gonna be talking about the differences between selling wholesale on Amazon, as opposed to selling your own private label product on Amazon. Both you and I are predominantly private label.
– Yeah.
– We sell there’s, there’s some advantages there which we’ll talk about, but–
– Hopefully, hopefully, in future episodes, we can get somebody on here that’s doing, you know, a lot of wholesale and they can break it down a little bit for us a little bit further. ‘Cause I would be interested to see why they chose wholesale over private label or done both, but maybe in future episodes, we can get somebody out there that’s really killing it on wholesale.
– Yeah, oh for sure. And you and I talked to very successful wholesalers who are on Sellozo on a daily basis and I’m really intrigued by the business model. It wasn’t what I wanted initially, when we’ll talk, as we dig in, you’ll see the benefits of private label in that regard, in terms of, you know, owning your own listing, et cetera. But some of the guys that do wholesale really well are killing it.
– Yes, and they’re doing it really well, ’cause they’ve created like really good relationships with brands. They bring a lot of value when they approach those brands as far as what they can offer on Amazon. They may even run some ads for those products. So it’s not just a, like not just contacted a brand and say, I want to sell your product. They’re creating value. And I think that’s why they’re able to sell some of these bigger brands compared to some other people.
– Absolutely. So let’s break it down real quick. Let’s just talk about the main differences between the wholesale and private label. And then we’ll dig into some more depth as we go. Essentially, wholesale is where you’re, like you said, you develop a relationship or you get a contract with a brand, so you can be a distributor for them. And then you’re making purchase orders from them and then reselling them on Amazon. So the main thing with wholesale is typically you’ll be competing with other distributors who are selling the same product on the listing. That’s called, owning the Buy Box, which we’ll talk about. But the big benefit of wholesale is that you don’t have to do things like create the listing or do a lot of marketing. Those there’s, they’re already brand names, or they’re already selling and ranking well. So you get to just put your product around on that listing and get the benefit of that traffic. So we’ll touch more on that as well. But once you break down what a private label is.
– Private label is where you are the one creating the listing, you’re doing that from scratch. So you’re gonna need to do things like keyword research try to understand how to build a better title. You’re gonna do things like make good photos or get photos created, so you’re in charge of the listing. The benefit of that, is obviously you’re gonna own the Buy Box and you’re gonna be able to control the messaging that you sent to customers, buying the product on Amazon. You and I both do private label. It’s the business model we selected because we’ve worked, for current brands. And then the whole end game is obviously to turn around and sell those brands. But the private label, yeah, you’re creating a brand, you source a product, you get it from a manufacturer put your logo on it, create the listing same day on Amazon. And you’re essentially the only ones selling the product on Amazon.
– Right, so there’s a lot more work up front with a private label product. You touched on, you know a few of them, but just selecting a product negotiating with manufacturers, quality control on the product, branding it, you know, packaging, et cetera, et cetera. But what happens to the end game benefit of private label is when you can do all the things with advertising and pay-per-click and et cetera to get your product ranked high on Amazon, you are going to get 100% of the sales of that product. And on Amazon, that can be just a ton of sales. If you get up there. You’ll, every review left is for your product. You know, it’s just, there’s a lot that can be a big benefit with a private label.
– Yeah, your margins are a little bit higher. You’ve got a little bit more profit margin there. So that’s something that can also help out as well. The difference between wholesale and private label.
– Exactly, so now let’s just go back to wholesale for a little bit, because this is a model we know enough about wholesale for sure to talk about it. Like you said, we’d love to get somebody who’s killing it because that’s not our business model, but it could be. I’d be more than open to going down that road, for sure. But I think the difficulties in wholesale, is number one getting the relationship with the brand so that you can become a distributor, you know? And then like you said, if it’s competitive, if there’s a lot of sellers, then those margins can get squeezed for sure when you’re selling, ’cause there could be a lot of price competition, which there’s tools there designed just for that. If you guys aren’t familiar with what the Buy Box is if you go to any listing on Amazon, if you could go to any real big name brand, you’ll see this for sure. But if you go to the search for a product and then you look at the, where you click the button, add to cart, it’ll show under there, it’ll show sold by and that’ll be which seller won the Buy Box. And then if you look below that, it will be, there’ll be a note to say, sold by additional sellers. And you can click that and you can see the list of all the additional sellers who are selling it. So the seller who wins the Buy Box each time is typically the seller who’s selling at the lowest price. So you see this competition amongst sellers to change their pricing and there’s tools out there called Repricers where they will automatically reprice the product every day. We have one of those at Sellozo as well where they’ll reprice your product and in order to give you the lowest price to win the Buy Box. So you can see there’s a negative right there, is that it can really squeeze your margins. Also some manufacturers, they have a set price. They won’t let you sell for anything other than their set retail. So in that case, if you’re in, they call that MAP Pricing. So if you’re, if you have to abide by MAP Pricing with your distributor, then theoretically everyone on that listing should have the same price. And then Amazon will rotate the Buy Box. In theory, if there’s four sellers, you should win at 25% of the time. And so that can be lucrative. I do know stories of people that have that situation and they know those other four sellers and they work together on strategies, like splitting the advertising cost, you know, to tell that our rank I’ve seen that happen. So, a wholesale model is great, I think the Holy Grail in the wholesale model, is you can find a brand owner who’s not selling on Amazon currently and you get the exclusive rights to be their distributor that sells on Amazon. If you can find that, then you are essentially a private label product. You don’t have to do any of the work of manufacturing, you can just make purchase orders. So it’s a very interesting model. I think it would be like you said, be super fun to talk to someone who’s got a ton of experience on that.
– Yeah, and you could, and you can find prance to like reach out to. Some of the places that I’ve seen people do, or I’ve looked at, personally as like Kickstarter, where you can go on a Kickstarter and see if there’s a product that’s getting a lot of backers and maybe you can come to the table with them and show them that you can offer their product on Amazon and maybe be the distributor for them. Another one is, I’ve seen people look at like Facebook ads. We all get targeted with Facebook ads. But if you see something that sparks your interest and it’s a product that may not be on Amazon, you may be able to chat to that brand and get them to get an agreement with you, as far as wholesaling it. “Shark Tank”, I’m guilty “Shark Tank”, is a series I love to watch. And if there’s ever like a product that is not on Amazon you might want to reach it, you can always reach out to them and maybe try to establish a relationship. And you could be the wholesaler for that product that already has eyeballs on it due to “Shark Tank”, and you could sell it on Amazon for them. So there is ways to like think outside the box a little bit, on where to find these brands, not just like the big name brands, you know, like Sony and Nike and, you know, Hewlett-Packard and all those. You could find smaller brands that have not yet established an Amazon presence. And then you can be that presence for them.
– For sure, and you brought this up on a past podcast about even going to like farmer’s markets or where you have some, you know mom and pop shops where they’re doing organic soaps or candles or anything where you could approach them. I mean, they, chances are, they are not in the Amazon sphere or even aware that that’s a possibility. And so you could approach them, you could work out a good deal, and then you could be the one to facilitate selling their products wholesale on Amazon. Lots and lots of opportunities, I think the amount of brands and products that are out there is just unimaginable. I mean, there’s so many and they sell a ton on Amazon. So if you can, if you’re able to get in there and find somebody, it can be a very good model. And especially in those cases where you’re one of the few sellers, or you’re the exclusive seller then you’ll be able to use all of your knowledge on product listings, PPC, et cetera, to help that product be a success. That’s the other negative on if you’re doing wholesale for you know, a really popular product. And there’s a lot of distributors and you’re trying to compete, is you really have no say on what the listing looks like. You can’t, you can try to update the picture but it’ll probably get a shutdown. You know, there’s just, you don’t have as much control. So that’s a good segue now though, into private label. Because if you want to control if you wanna be able to create a brand, if you want to get a hundred percent of the sales, a private label is the way to go, go on Kris.
– Yeah, this is like a long-term plan. You’re creating a brand, you’re creating products around this brand. You can create multiple brands, you can flip your brand meaning you could sell one brand and start a new brand for me, this is much more interesting. I like to start from scratch and create a brand and like, see it come to fruition and then eventually sell it. Like, that’s just more fun for me than wholesaling just personally. But yeah, what you’re doing is you’re creating a brand, there’s unlimited potential here. There’s less competition with these but we mentioned this earlier. You’re gonna have to be the one doing all the listing creation, the photos, the product research, the negotiations, the payments upfront it takes a little bit longer to get started with these, but the potential for a really really high-profit margin and good revenue is gonna be there.
– Yeah and you, and like we said before, you have full control, you’re never gonna lose that distributor contract. You know, there’s, you’re never gonna be worried about the brand offering up more contracts for more distributors or any other things that can possibly happen with that on, in that wholesale model. But to do private label there, you’ve really gotta layout a plan. And one thing that you wanna probably be aware of is one thing you don’t wanna do in private label, is compete directly against a really successful big brand. It’s very difficult for a lot of reasons. But product selection in the private label is the key as opposed to wholesale, if it’s popular, get it and sell it. Or if there’s a chance that you can do it as a private label, you’ve gotta make sure that you’re gonna go into a niche that’s maybe underserved for that product. And you have a really good chance of competing and gaining traction and ranking organically.
– Yeah, and I’m with you on that. ‘Cause, you know, you can again, you’re creating your own message. So you’re gonna be able to control the customer experience as well and portray that message with your branding.
– Yeah. So some of the basic steps to private labeling is number one selecting a product. Number two, you’ve gotta find a supplier somewhere. Number three, you’ve gotta create your demand. Four, you’ve gotta create your packaging. Five, you’ve gotta create that whole listing. And then six, once it’s in Amazon, you’ve gotta market it. And then you’ve got to do all the tactics. And we’ve got hours of content on our podcast about how you can market your product, once you’ve got it live in Amazon. But once you’ve done that, it’s a great game. It’s a great game because you’re gonna see sales coming in and hopefully, you’re gonna see that product move up the rankings on Amazon.
– Yeah, again, we’ve been talking about private label a lot. I just, that’s the model I’ve liked. I’ve done a little bit of wholesaling. I’m not just, I always go back to private label ’cause again, the margins are there, the better margin, it’s fun to source products. I find it fun to create listings and images and get creative with that on wholesale. You’re just taking a product that’s already selling well and you’re just being another seller on it. So the excitement’s not there for me on that, but I do, and we do know some really good wholesalers that are just killing it on Amazon. And I would love to get them on here, so we can really break it down because I’m sure they got their own opinions between the private label and wholesale. And also maybe they’re doing both, there are people that do both. And you could do wholesale like at the beginning and see what’s selling. And then if you find a product that’s really killing it for you, maybe you make your own little product private label product. That’s different from that product that you’re wholesaling. ‘Cause, you already know it sells well on Amazon. So that, that could be a way to like test out products, to see what’s, you know, what’s has demand before you commit to a big private label order. So yeah, you could do all that before, you know, you jump into private label, but I think you and I both, would like private label a little bit better.
– Absolutely. I do think that there is a model for different types of people. You know, there’s people that will gravitate more towards that wholesale model and there’s people that will gravitate more towards the private label model. For sure, they can both be successful. Typically, that means some of the large sellers on Amazon, that in revenue and in product number of products itself are wholesalers. I mean, and they’ve got just unbelievable, just networks of connections and algorithms on selecting products and reaching out to those suppliers. I mean, there’s no doubt that you can have an incredibly successful business in that regard. But like we said, there’s the model, a model for everyone out there. And hopefully, this helped you understand the difference between these two models. ‘Cause, there’s completely different tactics that you take, when you go different routes on Amazon. So hopefully this was educational, that you learned a little bit about the different, two different models. If you, whichever model you choose, if you’re on Amazon and you’re looking to advertise, Kris and I would love to talk with you. Kris and I are both account executives at Sellozo as you all know, and you can book, you can go to Sellozo and book a call with us and we’ll talk about your account how Sellozo can help automate and optimize your ads for you. That was fun, Kris.
– Yeah, we’ll do another one.
– All right everyone, have a great day out there. We’ll see you tomorrow.
– See you.
– Bye.