For ecommerce entrepreneurs, two of the most popular business models for selling on Amazon leverage the power of Fulfillment by Amazon (FBA) to tap into Amazon’s built-in traffic: wholesale FBA and private label FBA. But these two approaches have very different pros, cons, costs, and overall frameworks.
So, how do you determine which strategy is right for your goals and capabilities? This comprehensive guide examines the critical differences between wholesale vs. private label for Amazon FBA, providing side-by-side comparisons across critical factors to help you make the best decision for your business.
FBA Wholesale and Private Label Overviews
First, a quick explanation of each model:
FBA Wholesale: With this model, you source products in bulk from name-brand manufacturers at wholesale rates to resell on Amazon. You handle fulfillment and customer service through FBA.
FBA Private Label: You identify market opportunities to create your products here. You handle manufacturing, branding, and packaging. Like wholesale, FBA handles fulfillment and service.
While both leverage FBA, the critical difference lies in selling existing products vs. creating new products. Now, let’s compare the two approaches in depth:
Upfront Costs and Investments
A significant point of comparison is how much money you need upfront.
FBA Wholesale Costs
- Inventory: Expect to spend at least $1,000 to buy enough units to begin selling. High-profit products run $5,000+.
- Shipping: Budget for inbound shipping costs to Amazon FBA centers.
- Tools: Useful software aids product research, repricing, accounting, etc. Around $100–$200 per month.
FBA Private Label Costs
- Product research: Budget time and money to explore niche opportunities. Tools like Jungle Scout cost around $50/month.
- Product design: Hiring designers for branding and packaging runs $1,000-$5,000+
- Manufacturing: Minimum order quantities are often 500-1,000+ units at $2-$10 each.
- Shipping: You must also cover freight costs to ship your inventory to Amazon.
- Tools: Repricers, analytics software, etc. still required.
The takeaway: Wholesale requires less upfront investment to launch. With private labels, creating new products demands significant capital.
Ongoing Expenses
It would be best if you also accounted for recurring overhead expenses:
FBA Wholesale Expenses
- Inventory costs: constantly reordering wholesale inventory
- Storage fees for Amazon inventory storage
- Return processing: managing customer returns
- Amazon seller fees: referral fees, subscription charges
FBA Private Label Expenses
- Production costs: repeat manufacturing orders
- Storage fees for Amazon inventory storage
- Return processing: managing customer returns
- Amazon seller fees: referral fees, subscription charges, advertising
The takeaway: Both models incur ongoing expenses managing inventory, returns, and Amazon fees. Wholesale requires regularly reordering stock, while private label demands repeated production runs.
Control and Customization
The amount of control you have over your products varies significantly between the two approaches:
FBA Wholesale Control
- Little control over product design, branding, and packaging
- Reliant on manufacturers’ production schedules and capabilities
- Compete against other wholesale resellers
- Can test different bundles/pricing strategies
FBA Private Label Control
- Complete control over product development
- Manage own production timelines and manufacturing
- Differentiated branding helps you stand out
- Complete control over packaging, pricing, promotions, etc.
The takeaway: Private labeling enables complete product customization and differentiation. With wholesale, you are constrained by your reliance on third-party brands.
Competitive Landscape
You also face very different competitive dynamics with each strategy:
FBA Wholesale Competition
- Compete for sales with other resellers of the same products
- Race to the bottom on pricing due to lack of differentiation
- Compete against major retailers and marketplaces
- Established brand recognition is challenging
FBA Private Label Competition
- More insulated from price wars if products are valued
- It is easier to differentiate between significant brands
- Low barriers encourage high competition once prosperous.
- Must build brand recognition and loyalty
The takeaway: Private label lets you discover uniqueness, but wholesale means directly competing on price for commodity products.
Profit Margins
Profitability also differs quite a bit between the two approaches:
FBA Wholesale Profit Margins
- Typical margins are around 15-20%
- Aggressive undercutting impacts margins
- Can lower COGs with volume discounts
- The middleman model limits profit upside.
FBA Private Label Profit Margins
- Margins typically exceed 30–50%+.
- Premium pricing is possible with solid branding.
- Higher control over production costs
- Keep all downstream profits
The takeaway: Private label enables significantly higher profit margins by controlling production and distribution.
Growth Potential
Both models offer paths to scaling your business, but essential differences exist:
FBA Wholesale Growth Potential
- Grow by expanding the product catalog.
- Add new brands and complementary products
- Expand to other marketplaces beyond Amazon
- Limited by wholesale distribution rights
FBA Private Label Growth Potential
- Launch complementary private labels
- Expand catalogs with new offerings
- Move into new niches and categories
- Explore additional sales channels
- Pay-to-play advertising drives visibility
The takeaway: Private labeling provides more flexibility to expand catalogs and distribution channels under your brand umbrella.
Final Considerations
Some final points to weigh when deciding between FBA wholesale vs. private label:
Ease of Entry: Wholesale has lower barriers to begin selling quickly
Control: Private labeling enables customization and differentiation
Margins: Private label typically produces higher profit margins
Competition: Wholesale means competing directly on price
Growth: Private labeling provides more branding and expansion flexibility
Work-Life Balance: Wholesale requires less hands-on management
Risks: Private labeling carries more upfront risk when creating new products
Conclusion
Deciding between an Amazon FBA wholesale business model and a private label model requires carefully weighing factors like required capital, ongoing costs, competitive dynamics, profit potential, and capabilities.
Wholesale FBA provides a faster, more straightforward route to begin selling with less risk and a lower upfront investment. However, the ceiling for customization, branding, and profit growth is limited.
Private labeling can demand more effort and capital to launch, but it enables greater control over products and distribution for increased margins and expansion flexibility.
Ultimately, matching the model that best aligns with your goals, risk tolerance, and resources is critical. Many successful sellers leverage both wholesale and private labels. Combine the strengths of each approach for optimal results.
With the differences spelled out, you can make an informed strategic choice on the best e-commerce model to build your ideal Amazon FBA business.
