ECommerce has several standard business models, from private label, through wholesale and retail to dropshipping. However, private and wholesale brands are the most popular of these business models. Several studies are showing at least 65% of Amazon sellers sell personal label products, and 28% sell wholesale products, including sellers who can use both. Because the two methods are so popular, they constantly face each other in an endless debate of an amazon wholesale versus a private label.
This article will explain each model, go over the pros and cons, and provide a brief comparison.
What is wholesale?
Wholesale is a business model in which sellers buy products in bulk at a discounted price and then sell the individual units in a retail market or online marketplaces such as Amazon. Wholesale products, in most cases, are existing products with a proven sales record; you’ll most likely be able to find them on Amazon. Amazon wholesalers act as distributors for those products.
Pros
- No listing creating
- Less time-intensive
- Quick ROI
- No advertising
- Smaller budget
Cons
- Lower margins
- Fierce competition
- Finding Profitable Products & Reliable Suppliers
- Required licenses
- Building partnerships
What is a private label?
The Private labeling business model is where sellers buy products manufactured by a 3rd party manufacturer and then rebrand them and sell them on Amazon under their brand name. In this case, the manufacturer can produce your product but does not have rights to the “label.”
Pros
- Allows you to differentiate and compete on more than just price
- Higher margins
- Asset building
- Full control
- Line expansion
Cons
- More setup
- Advertising required
- Long lead time
- Patience required
Comparison of Wholesale vs. Private Label
You probably wonder which one is better; your circumstances and goals lie in the answer. There are pros and cons to both methods, and it comes down to one thing: which model works for you as a seller. There are so many factors but let’s look at some of the most common ones:
Profit Margins
You’ll get higher margins with private labels. In the Wholesale model, you can expect a markup of around Margins on the private labeling model are higher. Markups expected in the wholesale model are around 2x of the landed price of your product, while private label model markup can range from 3x to 6x of the landed cost.
Product Quality
You will be entirely responsible for the quality of your products when you are private labeling them, and Product quality is crucial in both models; in the private label model, you are entirely responsible for your product quality and any liability arising from quality issues, something you don’t have to worry about if you work in the wholesale model. We understand it might seem like an arduous task, but product quality assurance shouldn’t be a concern for the big majority of products that follow the industry guidelines.
Brand IP Value
To become a retailer of a brand, you need to become their authorized reseller. The terms and conditions under which you are retailing their products establish constraints on what you can and cannot do with their products – repackaging, co-branding, etc. This limits your ability to build any intangible assets of your own. But in a Private Label model, you can create a brand value through innovation in product and packaging design and even explore selling your brand later (potentially earning a large one-time payout).
Product sourcing
Creating a private label means finding and vetting the right supplier to manufacture and package your product. Additionally, this model will also have to manage several other aspects of sourcing – logistics, quality checks, packaging, etc. The wholesale model is easier, and you won’t need any communication with the manufacturers or deal with shipping time optimizations.
Final thoughts
Private label and wholesale are two of the most popular business models adopted by Amazon sellers. After covering the pros and cons, and limitations, one cannot be said to be better than the other. We hope our comprehensive breakdown of the pros and cons of each method and precise comparison between them will help you decide which one is best for you. If you are still unsure, contact us, and we’ll help you make the right decision.