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I’ll be going through the advantages and disadvantages of both, and depending on your situation, you might want to use this blog post to make a choice on which business model suits you! It’s really up to you, wherever you are in your life to make the best decision for you. I started with online arbitrage and it was the right choice for me!
Online arbitrage
Online arbitrage and private label are fundamentally very different.
With online arbitrage, you will be purchasing a product from a retailer, you will be purchasing products that are already branded and you will be selling them for more money. That is what arbitrage is.
Essentially, you could be purchasing products from anywhere, from your local retailer to your next door neighbour. You will be purchasing at a low price and selling at a high price!
Advantages:
If we dig deeper into online arbitrage, the major advantages of it is that you don’t need to own that brand. You basically just purchase the products that are already branded and people will be looking for a particular product. You can purchase that product at a low price and make it available at a high price, and then somebody then buys it from you!
- There’s not an awful lot of work involved for you. You just have to make that smart buying decision when you’re deciding which products to sell.
Ultimately, you need to keep that ball rolling. You need to keep purchasing products, selling them, purchasing more products, and selling more products!
- This is a major advantage because the abundance of products for you to choose from is incredible. We’re talking millions, maybe even billions of products that you can purchase. Every single product is an opportunity for you to make a profit.
- You don’t have to think about designing products. You don’t have to think about who you’re trying to sell to because it’s already there. You’re just taking advantage of something that’s already there for you!
This is why I think it’s one of the easiest things you can do in terms of business. It is one of the easiest business models out there. Business is all about providing a product or service for profit or for pay.
Fundamentally, purchasing a product at a low price and selling it at a high price for profit, you can’t get any simpler than that! This is business in its simplest form.
- The barrier of entry is small. I started my online arbitrage business for £50. I purchased four Monsters Inc teddies for £50, for £12.50 each and I was selling them on Amazon for £26. The difference after I had paid Amazon was my profit!
That was my first experience in making profit with online arbitrage. The barrier of entry is so, so small! This is a major advantage because I can’t think of any other business model that allows you to enter a market for so little!
- The ability to snowball is basically what happens with online arbitrage.
As a rule of thumb, you want to go a mile wide and an inch deep. So you want to have hundreds of products with maybe only three or four in quantity at any given time.
You can be another Walmart or another Tesco. You could have a store that’s got thousands of products and you’re always purchasing and selling. You could have thousands of products all in different markets and niches, so this is another major advantage!
Disadvantages:
- Fundamentally, the products are not yours. You will have to leverage other people’s brand by purchasing and selling it on and then you do get into a situation where the brand is not yours.
We’re experiencing a bit of that in the Amazon space at the minute with brand restrictions, which causes problems. There are specific brands that can no longer be sold.
Like I’ve mentioned in the advantages of online arbitrage, there are millions of products so that is only a small disadvantage. But in reality, keep in mind that brands can be restricted. This is only on Amazon. If you were to go to eBay or any other platform, you would still be able to sell that product.
- The profit margin is going to be a lot smaller. You can get some huge margins and some really small margins in online arbitrage.
It really depends on how good your product is. Essentially, when you are purchasing a product, the retailer you’re purchasing it from wants a slice, the brand will want a slice, Amazon will want their slice and of course, you want your slice!
So it’s always cutting into your margin, whereas with private label, you are the brand, so you can decide what margin you want to sell at!
- The amount of work and how bulky the process is. I’ve got a warehouse and we’ve got hundreds of products in stock, going through our warehouse all the time. It’s bulky work. There are so many different elements to the process and it’s really, really bulky work.
It’s so hands on – you’ve got to research, source, review, purchase, look after the receipts, do your account management, upload, reprice, packing and prepping.
If you’re doing all of this yourself, it’s a lot of work.
Private label
Private label is something that I’m now focused on because of what I’ve done with my online arbitrage business. I’ve given myself that freedom to focus on private label.
I have gone through the process of automating and systematising my business to help me free off my time. I now have a team of people who do the sourcing, reviewing, purchasing, prepping, and shipping, I have all of this in place, which allows me to focus on other things!
I’ve got my blog and videos automated so I now have even more freedom to focus on private label, because the advantages is huge.
Advantages:
This is your own brand, your own asset, nobody can restrict you from purchasing and selling your own brand.
- You have complete creative control. You decide what it looks like, what it is, the price, the packaging, the branding, the name, you decide everything.
This is a huge advantage to have because you take control and take the majority of the margin. If you’re purchasing a product for as low as £2 and selling it for £15 or £20, that is a huge margin to have.
- Builds an asset long term. If you launch one product and it’s successful and then you keep up that cycle, you could have five to ten products that all sell so much that you’re not having to share the buy box with anybody else.
It can easily take over your online arbitrage business within five products. That’s the incredible potential of private label.
- You can sell your private label brand. If your brand does well, you could have people purchase your brand. If you already have a million pound revenue per year in your private brand, that’s an asset for you to put on the market to sell!
You can become a millionaire just by selling your brand, but you don’t have that option with online arbitrage because you don’t actually ever own anything.
You own the products in their value but you don’t own what’s behind the products, the brand.
- It’s not as bulky. In terms of the pieces of the puzzle and thinking about the research (which is 80%-90% of your efforts), once you’ve decided on the products you’re going to private label, that’s it!
You can source more products, but you don’t have to do any more. You just have to get your product selling and top it up! There’s never the issue that you can have with online arbitrage where products may be out of stock.
With private label, you can re-order as many times as you want forever! That’s what you and your manufacturer want! You’ve got brand security and you can launch it on multiple platforms or even open your on physical store!
You could put an order on for ten thousand units, forget about it and just watch the sales come in. it’s all done for you. You can then get into marketing and really start building a customer base and solve their problems on a larger scale.
Disadvantages:
- The barrier of entry is somewhat difficult. In my experience, you have to invest upfront. A lot of manufacturers have a high minimum order quantity and you might have to purchase 200, 400, 500, 1000 units before they even speak to you.
- Until you do all the research and invest, you don’t really know if it is going to be successful or not. So there is a risk there of losing money, whereas with online arbitrage, you can do all the research and you know there is limited risk.
You will only have maybe, three products in stock and you will be confident they will sell in the next three months for example.
- You need to decide what niche you’re going in and what products you’re going to sell. When you start to private label things, you’re going to have to think about simple, smaller products.
One thing with private label is that it is ultimately, the long-term solution for changing your life on a bigger scale. You have the asset and you will have the ability to sell it on. You really own the whole thing.
In terms of starting, I always advise to start with online arbitrage and get that cash flow it, get that profit and spit it out in private label and testing. Some people try to do this all at once, but it’s all about the one thing.
If you can the time and freedom, get into private label and start working. Online arbitrage is a great starting point for beginners who don’t really know how to operate Amazon.
This is why I’m on this journey starting my private label brand. I’ve got lots of content coming to you about private label soon and I’ll be sharing my journey with you!
