How to Set Up a Profitable Wholesale Business with Amazon’s FBA

If you’re looking for a lower-risk, reliable way to make money selling products on Amazon, wholesale is one of your best options.

Amazon Marketplace currently has over 2 million third-party sellers worldwide who saw a combined $80.5 billion in revenue in 2020. Of those sellers, 26% use a wholesale business model. Wholesale is easier to set up than any model other than online arbitrage (which we will go over in a future post), and a majority of wholesalers start to turn a profit within just three months.

In this blog post, we’ll give you a rundown of how to set up a profitable wholesale business using FBA or Fulfillment by Amazon. Optimyze Digital does all these steps for you, including using our proprietary software and algorithms for pricing, product selection, and store management. However, if you prefer to undertake this process on your own or simply want to know what’s involved, read on.

What Is Wholesale Selling?
Wholesale involves purchasing branded items in bulk from a manufacturer or supplier and reselling them, in this case through Amazon. Wholesale takes advantage of existing demand for a product from a well-known brand, meaning less investment in marketing and branding and more focus on scaling your business.

Unless a product is not yet listed on Amazon, it will have multiple sellers. The Buy Box, which contains the “Add to Cart” and “Buy Now” buttons on an Amazon product page, allows customers to make a purchase without browsing different sellers who offer the product. The Buy Box winner is the seller featured in the Buy Box. 83% of all Amazon sales happen through the Buy Box, so winning the Buy Box is essential for wholesalers.

Amazon determines the winner based on the price, fulfillment method, shipping time, stock availability, order defect rate (ODR), valid tracking rate, late shipment rate, delivered on-time rate, customer feedback, and other factors.

Research is the most time-consuming aspect of wholesale retail, since you must narrow down which products are in high demand, are offered at a price that will allow you to turn a profit, and don’t have too many sellers already offering them. The research process also involves finding and establishing a relationship with suppliers.

What Sets Wholesale Apart?

Amazon vendors have several options available to them, of which wholesale is only one. Each model has its pros and cons. We advise our clients to diversify their business by participating in several different models at once so that the benefits and drawbacks balance out.

Wholesale vs. private label. Previously, we’ve gone over the benefits of private label selling on Amazon [link to “The Exciting Advantages of Private Label Selling on Amazon Marketplace”]. Private label selling involves creating branded products, whereas wholesalers sell existing branded products. Private label sellers have to invest significantly in marketing and create their own product listings, whereas wholesalers often simply have to add their offers to an existing listing, provided the product is sold on Amazon.

Wholesale vs. arbitrage. Online arbitrage also involves buying and selling branded products. The difference is that while wholesalers buy bulk quantities directly from suppliers and manufacturers, arbitrage resellers buy discounted products via retail. Arbitrage handles smaller quantities of products, while wholesale involves purchasing and warehousing enough stock for a few months of sales at a time.

Online arbitrage is easier to set up and manage than wholesale and represents less risk for the seller. However, wholesale usually offers higher profit margins, since negotiating directly with suppliers and manufacturers results in a lower per-unit cost for products.

Wholesale vs. dropshipping. Dropshipping is another popular, low-risk business model for Amazon sellers. Instead of keeping inventory, dropshippers wait until their products are purchased on Amazon before placing an order with their supplier, who then fulfills the order. 

Wholesale has significantly higher risk than dropshipping, which absolves sellers from needing to pay for warehousing, manage stock, or be responsible for shipping. However, dropshipping also offers the possibility for significantly higher profit margins and a wider audience. 

Why Use Fulfillment by Amazon (FBA)?

Amazon wholesalers have two different options for fulfilling orders: Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM). With FBA, sellers pay Amazon to handle warehousing, packing, shipping, and customer service. FBM, meanwhile, requires the seller to handle all these responsibilities themselves.

FBA has significant advantages over FBM for the majority of Amazon sellers. In most cases, the fees for FBA are less than the cost of shipping products yourself. FBA allows you to focus on scaling and marketing your business rather than on logistics and fulfillment.

While it is possible to make your products eligible for Prime shipping with FBM, you have to make sure to meet Amazon’s high standards, whereas enrolling in FBA automatically makes your products eligible for Prime. Prime eligibility and excellent fulfillment metrics, which FBA guarantees, are some of the main factors that determine the Buy Box winner.

Additionally, scaling your business is much easier if you are enrolled in FBA, since you don’t have to add staff or warehouse capacity as more orders start coming in.

What Is the Process for Setting Up an FBA Wholesale Business?

Wholesale selling through FBA has three basic steps: finding the right product to sell, determining and contacting the best supplier to fit your needs, and finally selling your products.

Before you start, however, you should register as an Amazon Professional Seller. While you can participate in wholesale with a free individual account, paying the monthly fee for a professional seller account gives you access to inventory and reporting tools, eligibility for the Buy Box, the ability to sell in specific categories, and access to use of promotional tools like Sponsored Brands and Sponsored Products.

Also, once you start to sell a moderate amount of products every month, the monthly fee becomes more affordable than paying the $0.99 commission charged to each sale by an individual account.

Once you have registered as an Amazon Professional Seller, you can enroll in FBA through the Amazon Seller Central.

Another important prerequisite for wholesaling is to get a wholesale license or business license. While Amazon itself doesn’t require you to have a license to sell on their platform, the state where your business operates will have its own requirements. Additionally, most suppliers will only work with licensed sellers.

Avoid fines and even legal action against your business by obtaining your wholesale license, state sales tax license, and EIN (Employer Identification Number). You can seek help from accountants, tax advisors, or FBA consultants to ensure you are in full compliance.

Finding the right product to sell. Once you’re licensed and fully set up as a seller through FBA, you can begin the market research process. As mentioned previously, this step is the most time-consuming aspect of the wholesale business model. Since you will be making a bulk purchase of this product, you want to make sure it’s a sound investment before diving in.

Here’s a list of things you should keep in mind when searching for the best product:

  • Don’t compete with Amazon. Make sure the product is not being sold by Amazon or a private label seller. Amazon is willing to sell products at a loss in order to out-compete smaller businesses, so it is very unlikely you will be able to perform well with a product they offer.
  • Private label sellers, meanwhile, often block wholesalers from listing their products.
  • Don’t compete with the manufacturer. Also avoid products the manufacturers themselves are already selling successfully on Amazon. Not only will they be able to offer lower prices than you, but they will also have much less incentive to work with you.
  • An exception to this rule is if the manufacturer’s product is popular elsewhere but their Amazon product page is underperforming, such as with poor product images or SEO that could use improvement, and you believe you would be able to improve these aspects of the listing. This can also be an excellent negotiation tool when you are establishing a relationship with the manufacturer (more on this later.)
  • Brand. Look for established brands with name recognition that will not require you to market their products for them. One of the biggest benefits of FBA wholesaling is the opportunity to cash in on a well-liked brand’s success. If you’re selling a product already in high demand on Amazon, you can simply focus on winning the Buy Box as often as possible and scaling your business.
  • Demand. Make sure the product is in high demand, with at least 300 sales per month. You can use online tools such as AMZ Scout or Jungle Scout to estimate monthly sales. Then you can divide total monthly sales by the number of sellers offering the product within 2% of the price listed in the Buy Box to estimate how many monthly sales you will receive. It’s also a good idea to choose a product with a sales rank of less than 100k.
  • Price. Look for products priced $20 or higher for the best balance between profits and sales.
  • Competition. Avoid products with too many sellers or reviews to give yourself a better chance of competing in the space. However, you also want to avoid products with fewer than 10 reviews and sellers, since this is a sign the product isn’t successful.
  • Profitability. Calculate how much money you can make if you price the product within 2% of the Buy Box. Only products in that price range will have a chance of winning the Buy Box. Once you’re set up with your seller account, you can use the FBA Revenue Calculator to get an idea of whether a product could generate profit for you.

Finding the right supplier. After finding the right product, you can reach out to suppliers to find the best match for your business. You’ll have to contact the brand owners directly and negotiate deals with them.

You have no end of tools at your disposal for finding suppliers. Google is your obvious first choice. Browse suppliers’ websites and publicly available information before deciding whether to contact them.

Trade shows are another great opportunity for connecting with wholesale suppliers. Not only will you be able to see products for yourself, you will also be able to speak in person with potential suppliers rather than cold-emailing them. This method is excellent for establishing business relationships and long-term partnerships. Even if you’re not able to attend a trade show, the event website can provide you with contact information for supplier representatives.

Industry trade publications and wholesale directories are your friends. There’s no shortage of publications and directories targeting wholesalers and distributors in any category you might be interested in. Jungle Scout’s Supplier Database is a comprehensive tool that can help you find vetted and trusted suppliers, find the supplier of any specific product on Amazon, manage and compare supplier quotes, and more.

Finally, you can harness the networking potential of social media platforms like Facebook and LinkedIn to discover, vet, and find points of contact for potential suppliers. 

When deciding whether to work with a supplier, consider the following:

  • Affordability. This is an obvious one. Make sure that you can afford to pay the wholesale price the supplier offers and that this price will allow you to make a profit.
  • Geographic area. Look for suppliers who serve your geographic area. One of the advantages of wholesale over private label selling is that it allows you to work with suppliers based in the United States. You’ll have less waiting time, you won’t have to worry about customs clearance or overseas shipping fees, and your suppliers may be able to ship directly to Amazon for you.
  • Trustworthiness. Make sure a potential supplier is transparent, straightforward, and efficient in their communications with you. The ideal supplier is open to feedback and takes responsibility for correcting issues at their end. They are easily reachable by email or phone and open to third-party inspections of their facilities.
  • Ethics. As consumers grow increasingly conscious of where their money is going, supply chains are receiving greater scrutiny. Make sure you choose a supplier who shares your values. Also look out for suppliers who have a history of complying with Amazon’s rules and regulations to avoid any costly setbacks down the line.

Contact and negotiate with your suppliers. When contacting potential suppliers, remember that you’re initiating a reciprocal relationship. It’s not just about what they can do for you by selling you bulk products and allowing you to make a profit. It’s also about what you can do for them.

Part of the rationale for avoiding products already being successfully sold on Amazon by the manufacturer is that such manufacturers will have no incentive to work with you. You’re essentially doubling up on something they’re already doing well just to make a profit off their product.

However, if the manufacturer is not offering the product on Amazon, you will be automatically adding value to their brand and helping them increase their sales. Selling on Amazon can be time-consuming and requires a degree of specialized knowledge. Many established brands may be interested in selling on Amazon, and may already offer their products there, but if they have not seen success on the platform yet, you can offer to solve a problem for them.

Reach out to your potential supplier’s brand representative, sales representative, brand manager, or territory representative through email or a contact form. You can likely find their contact information through Facebook, LinkedIn, and/or the supplier’s website. If you don’t receive a response within a week, follow up with another email or a phone call.

Suppliers will require you to submit a wholesale application, your resale certificate or wholesale license, and complete an EIN form.

Launch your product. While wholesale does not require nearly as much marketing as private label selling and all the branding work has been done for you, you still need to do some advertising. There’s a lot of competition in the world of FBA wholesale, even if you find a product in high demand that not as many sellers are offering. Improving the ranking for your product listing should be your top priority when you’re starting out rather than making sales.

Amazon Pay-Per-Click (PPC) Ads is an extremely valuable tool for wholesalers as well as private label sellers. It allows you to target Amazon customers who are searching for or viewing products similar to yours. You can also enroll in the Amazon Early Reviewer Program by paying $60 per SKU to generate honest reviews for your product listing. Amazon will reward reviewers  with $1-3 Amazon gift cards during the first year or until your product receives five reviews.

External advertising can also be beneficial for your listing’s ranking. Email marketing, influencer marketing, and social media marketing can all pay huge dividends for your new wholesale business.

How Does Optimyze Digital Optimize Wholesaling?

FBA wholesale is a much more approachable business option for Amazon sellers than private label selling, but it still requires time-consuming product research, networking, and contract negotiation. While wholesale does require upfront investment, it does not have a large financial risk—but neither is it guaranteed to make huge profits. 

Optimyze Digital handles this whole process for you using an excellent system we have refined over ten-plus years of eCommerce experience. We partner with experienced vendors, distributors, and fulfillment teams that we know and trust and employ proprietary software and algorithms for pricing, product selection, and store management. The wholesale businesses we manage have a predicted ROI of 15-20%, significantly higher than many self-managed wholesale businesses.

We are currently managing stores for over 1,000 clients and partners, which represents eight figures in monthly eCommerce sales. With access to thousands of exclusive vendors for brand-name products and an 18-month money back guarantee on all stores if you do not start to see a profit within that time frame, Optimyze is a great option if you want to generate passive income with an automated FBA wholesale business.

To find out more, visit our Automated eCommerce page.