What’s the Better Amazon E-commerce model in 2021: Private Label or Arbitrage?
The last year has been a real struggle for many but has also been a blessing in disguise for a lot of people.
One thing it’s shown everyone is how perilous having one income stream is – no matter how many times they say “you’re part of the family” a company won’t hesitate to get rid of you if and when they need to.
Job losses and increasing job insecurity have created a real back-against-the-wall moment and pushed so many to finally start that online business they’ve been thinking about for years.
Does that mean you should be handing in your notice ASAP? No, far from it! In fact I always suggest the opposite – build up your business alongside your 9-5 as that way there’s so much less pressure and risk for you. Only quit when the time is right.
Probably the first question you’ll face in your online selling journey is which business model to go for? There really are countless opportunities online but I’ll stick to the main 2 which both involve buying and reselling products – private label and flipping.
Let’s cover what they are, the differences between them, and which one I recommend for you in 2021!
What’s Private Label on Amazon?
Private labelling is buying unbranded products from a manufacturer, adding your own brand and then selling them under that brand name.
It usually involves everyday products that you typically find on Amazon. A couple of random examples would be baby toothbrushes or dog bandanas:
Now there’s a lot more to it, especially at the adding your own brand part, but that’s the basic model.
Private labelling does NOT include buying and selling generic unbranded products. The key to private label and what makes it such an amazing business model is that you customise and improve the product – which is exactly what I teach in my Amazon Sharks course.
Please don’t be one of those lazy sellers who just slap their own brand on a product and sell exactly what everyone else is! You won’t last long doing that.
What’s flipping (arbitrage)?
Also known as arbitrage, flipping is when you buy products from retail or online stores and resell them on Amazon, eBay, or other marketplaces.
For example LEGO is a very popular product for flippers. You buy them on discount or when a set is going to be retired and re-sell it for a profit.
Unlike private label, flipping usually involves branded products that everybody knows and it can be split into two main types: Retail Arbitrage and Online Arbitrage.
Exactly as the names suggest, retail is when you buy from physical stores to resell and online is, you guessed it, when you buy your stock online.
There are advantages and disadvantages to both, which we’ll go over in more detail.
But let’s start off with the pros and cons of private label vs flipping.
Advantages of Selling Private Label on Amazon
• Scalability and Potential: With a private label FBA business there’s a clear path to growing your business and the potential really is almost limitless.
Amazon UK > Amazon EU > Ecommerce > Retail… you really can take your business as far as you want when it comes to building your own brand and products.
The same just can’t be said for flipping.
Maybe I find an amazing deal at my local Tesco – they have a popular Lego set (or another toy or a PlayStation game or anything, it doesn’t matter!) for 50% off which I know I can immediately sell on Amazon for more than double the price – leaving me with a 100% ROI after fees.
Sounds amazing right? Well yes it does, but how many of those sets are available? 5? 10 max?
It’s not as if you can order 1,000 sets from Tesco and that for me is one of the big limitations of flipping vs private label.
And the limited scalability also means limited potential.
With Amazon FBA and your own brand the sky really is the limit – I personally hit £50,000 in sales and over £15,000 net profit in my first 3 months on Amazon and I’ve seen those results achieved many times by my own Amazon Sharks members. And in some cases they’ve even beaten my start by a fair bit – making £14,000 PROFIT in one month!
• Building an Asset: With a private label business you’re not only making profit you’re also building a valuable business and brand, which can be sold in the future. Now maybe you don’t ever want to sell and instead you want to grow your FBA business and hand it down to your kids. But maybe you want to sell in 3 years and retire to Hawaii!
Whatever your plans are, with private label you have the choice whereas with flipping you’re selling other brands and products, so it’s not something you can sell on.
• Time: One of the main benefits of private label combined with Amazon FBA is how little time you need to maintain and grow your business once it’s up and running.
Initially yes there’s a lot of work to do and I won’t pretend otherwise. You have to do market research, source products and suppliers, arrange samples, arrange your first order, design packaging etc. etc.
But 6 months later once you’ve got everything up and running your business consists of:
- Maintaining inventory and arranging re-stocks when needed
- Monitoring and optimising your PPC campaigns on Amazon
- Searching for new products to add / launch
And that’s really it! Amazon takes care of pretty much everything else for you when you use FBA, including picking and packing orders, customer service, returns etc.
It’s no exaggeration to say you can easily maintain your business working a few hours a week.
Of course with flipping you do get all the same FBA benefits if you’re fulfilling your products via Amazon but the product sourcing by itself can be a huge time constraint – especially if you’re relying on retail arbitrage.
Now I know it sounds like I’m trashing on flipping and making it sound like a bad business but in reality it’s really not. There are in fact a lot of benefits to flipping, so let’s go through them:
Advantages of Flipping or Arbitrage on Amazon
• Investment Amount and Risk: One thing I’ve always hated is when people keep saying you can start an online business for “nothing!” because in 99% of cases it’s just not true. Of course the investment needed is much less than if starting an offline retail store but it’s still definitely not £100 if you want to do things right.
In fact I personally suggest having at least £3,000-£5,000 to start an Amazon FBA business and even that won’t be enough for all products and niches.
But with flipping you really can start with any amount and build up from there. Only have £100 to start? That’s fine – you can buy five £20 items and turn that £100 into £150.
In fact you can even take it one step further and start a flipping business completely risk free! How? By buying items and then listing them and if they don’t sell within the returns period you take them back. You really can’t get any safer than that! So this is one area where the win has to go to flipping.
• Immediate Returns: When you invest in a private label Amazon FBA business your initial investment is tied up for a certain amount of time.
You normally have to pay 50% upfront to the manufacturer before production, which can take a few weeks or longer, then there’s shipping and customs clearance and prepping everything for FBA.
Overall you’re realistically looking at a few months at least before you start to see a return on your money.
But with flipping the turnaround is much faster.
Yes if you sell via Amazon your money will be held for a few weeks but if you sell locally on Gumtree or Facebook marketplace for example you can buy and sell a product within days or even hours!
Not only does this give you an immediate return it can also lead to huge ROIs if you use the power of compounding.
Say for example you get a 20% return on investment (ROI) on average for your flips after all fees and shipping costs.
If you start with £1,000 and flip that amount once a month, after one year you’ll have £8,916…
And what about if you flip it within 2 weeks every time instead? Well after 12 months that £1,000 would be almost £79,500!
Now I’m certainly not saying that’s feasible or looking too deeply into the numbers and timeframes, I just want to illustrate what a huge difference it makes to your overall ROI and profit how long it takes you to flip your items.
Conclusion: Flipping is great, but Private Label is Better
In conclusion I think flipping is a great business model when you’re just starting out selling online or only have limited funds initially, but later on it suffers from a big problem which I call having an “online job” where your earnings are almost directly correlated to the amount of hours you work.
If you’re sick or take time off to go on holiday your profit will suffer as a result.
On the other hand private label is to me the perfect business model. I’ve been selling private label products for more than 15 years now (before Amazon or even eBay were popular marketplaces) and I’ve taught thousands of people how to create their own successful business in the same way.
For scalability and potential – it just can’t be beaten.
If you want to learn more about how you can get involved in the Amazon FBA goldmine, then take a look at my course Amazon Sharks which covers everything you need to know to build your own Amazon empire.
If on the other hand you’ve decided that flipping is right for you, then not to worry! If there’s enough interest then I’ll be posting some more in depth guides on my blog over the coming months, including:
• Flipping groups – are they worth the money?
• What products to flip?
• How to automate your flipping business and increase your profit!
So stay tuned!
Also, check out my Amazon FBA course, AmazonSharks.com, which you can try out for free for a week.
Until next time!
All the best,