How does Amazon Wholesale work?
Selling wholesale on Amazon involves buying bulk products directly from the manufacturer or supplier of the product at a discount, then selling them as a reseller on Amazon for retail prices. This model allows you to sell products from established brands with existing demand.
Before you can place a wholesale order for most brands, you must open what is known as a “wholesale account”. This account will give you access to their product catalog and allow you to buy the products in bulk.
Setting up a wholesale account with a good brand or supplier is the biggest barrier to entry for most people trying to get started with wholesale on Amazon. Another barrier is that a minimum order quantity will apply to your orders, meaning there will be a minimum amount of each product that you have to order. This increases the startup costs associated with wholesale when compared to arbitrage strategies.
This is why most beginners are better off getting their first sales on Amazon with retail arbitrage and then leveraging the experience they gain to have success with wholesale. You can read more about getting started on Amazon in this post.
An example of a wholesale order would be buying a bulk lot of mixers directly from KitchenAid (or one of their distributors) for a discount and then listing those mixers on Amazon for the regular retail price (or whatever a reasonable price is based on what other sellers are asking).
After purchasing a product from the manufacturer or distributor, the product can then be sold via your online retail distribution channels.
These channels can include Amazon, eBay, Jet, Walmart, your own website, and any other marketplaces where you are selling products. In this post, we’ll be focusing on selling the items on Amazon, as that’s where we are seeing the best results right now. Even if you want to sell on other channels as well, we recommend you to start on Amazon.
When purchasing an item via wholesale sourcing, you will generally pay around 50% of the manufacturers suggested retail price (MSRP). The industry term for items offered at 50% of retail is “keystone pricing.”
Some suppliers will have additional discounts based on purchase volumes, and many will have the ability to provide discounts after you have worked with them for a period of time. In general, the margins of products sourced from wholesale suppliers will be lower than what you would get from inventory sourced via retail and online arbitrage, but wholesale provides its own distinct advantages over other sourcing methods.
What do you need in place to start wholesale sourcing?
In this section you’ll find three things that are absolutely required in order to get started with wholesale, plus two things that will dramatically increase your odds of success.
- An Amazon seller account
- A sales tax ID number / resale certificate
- Money to buy inventory
The most basic thing you will need to get started with wholesale sourcing to sell on Amazon FBA is an Amazon seller account.
The next thing that you will need is a sales tax ID so that you can have a resale certificate to provide to suppliers you will end up working with. This will be required for the vast majority of suppliers. The process of setting this up will vary by state, but all of the information should be available on the secretary of state’s website for the state you live in. Google and your secretary of states website will be the main tools you’ll need to get this setup.
The third required thing is starting capital. We recommend having at least $2500-$5000 available for inventory before getting started with wholesale. More is definitely preferable, but you will be able to find suppliers where you can do opening orders for less than this. If you are starting with less capital than this we would recommend doing retail or online arbitrage first.
Now for two things that will dramatically increase your odds of success.
The first is a website and an email at your company’s domain name. While you can technically start with a gmail address, it is very unprofessional. Setting up a nice website that talks about your company, and how you can help the suppliers that will be working with you is cheap and relatively easy, but it greatly boosts the image you convey and the odds people will work with you.
Setting up a website is a simple process and can be done for around $50. We’d recommend setting it up through either Hostinger or Siteground. These are 2 companies we using right now for websites in our businesses, and both have been more reliable than other options. If you aren’t comfortable setting up a site yourself, let us help you here too our in-house wrodpress developers will do it for you.
The above is by no means and exhaustive list and are just a few things to give you a jump start. Think about these things in advance, and give suppliers a reason to work with you. These are the types of things you should include on your website as well.