The Amazon marketplace is not a monolith. It’s an ecosystem of different business models under one roof. As a seller, you must know the best Amazon business model for you before entering the marketplace. In this blog post, I will break down the best Amazon business types for 2025, their benefits and challenges, and the factors you should consider as you enter the Amazon marketplace.
Overview of Amazon Business Models for 2025
Let’s explore the different Amazon business models you can leverage.
Private Label

Private label is an Amazon business model where sellers sell products under their brand instead of reselling the same product from an existing brand. Private label sellers typically source products from third-party manufacturers and brand them as their own, hence the term “private label.” This business model is best for sellers who want to build a long-lasting brand and have the resources to invest in product development and marketing.
Benefits of Private Labeling
Here are the reasons why the private label model is worth the investment.
Owning Your Brand
Unlike some of Amazon’s other business models, private label lets you create a unique brand that you can market on and off Amazon. You can design your branding, price your products, and market them as you see fit. Establishing a unique brand is also an excellent long-term strategy for sustained growth.
Product Differentiation
One of the greatest advantages of private labeling is the ability to create unique products. Product differentiation helps you stand out in a competitive marketplace like Amazon. With a private label, you can design your product and keep improving it based on customer feedback and market trends.
Greater Profit Margins
Although setting up a private label business can be capital intensive, it makes up for it with its ability to generate massive profits. Sourcing directly from manufacturers means you get better prices, especially for large orders. And depending on how you market your brand, you can sell the same item for a significant margin.
Zero Brand Restrictions
With Amazon’s private label, you can craft your brand from the ground up without limitations. This freedom extends to every aspect of your product, from its name and design to its messaging and packaging.
Winning the Buy Box
One of the biggest advantages of private label as an FBA business model is the exclusive ownership of the Buy Box for your products. You don’t have to compete with resellers for this prime placement. Private label listings automatically secure the Buy Box for your brand. This means your products are prominently displayed to customers, significantly increasing your chances of conversion.
Challenges of Private Labeling
Let’s explore the challenges of the private label Model
High Start-up Cost
The high initial investment requirement is one of the biggest challenges for sellers entering the private label business. Manufacturers need you to commit to large order quantities, not to mention the costs of creating a brand, labeling the products, and marketing them to penetrate the market. But with thorough research and planning, the initial investment is worth it.
Inventory Management
Inventory management for this Amazon business model is complex since manufacturers have minimum order requirements. You may need a third-party logistics company to store the inventory before shipping it to Amazon warehouses. You must also predict demand to avoid ordering excess inventory that would lead to dead stock.
Market Penetration
Penetrating the market and establishing customer trust with a new brand isn’t a walk in the park. To win over new customers, you must invest heavily in marketing and exceptional customer service. You also need to look for ways to improve your product.
Retail Arbitrage Amazon Business Model

Retail arbitrage involves buying products from retail stores at a lower price and selling them on Amazon for a profit. This Amazon business model is suitable for sellers who have access to various brick-and-mortar stores and are willing to visit them to find the best product deals.
Benefits of Retail Arbitrage
These are the reasons to consider retail arbitrage.
Low Entry Barrier
Retail arbitraging has a low barrier of entry compared to private labels. For retail arbitrage, you’ll only need to find clearance items in physical stores and resell them at their original price on Amazon. Your investment is the cost of goods and shipping fees.
Fast Profits
You can move inventory fast and make quick profits if you choose the right products. This results in fast profits with little initial investment
Low Marketing Investment
Retail arbitrage sellers leverage the items’ brand reputation to sell. You don’t need to invest heavily in marketing because the products you sell already have a powerful brand presence.
Challenges of Retail Arbitrage
Here are the challenges you’ll face with retail arbitrage.
Inconsistent Inventory Supply
Inconsistent inventory is a major challenge in this Amazon business model since you resell items from clearance sales. Your inventory depends on the items you find on clearance and the quantity the retailer allows you to buy.
Time-Consuming
Scouring different retail stores to find suitable products for retail arbitrage is time-consuming. The investment in time compounds if you want to scale your retail arbitrage business.
Inability to Build a Customer Base
Retail arbitrage is not a good strategy for building a loyal customer base because you’re selling other brands’ products without focusing on a single product or category.
Online Arbitrage

The online arbitrage Amazon business model operates similarly to retail arbitrage except for one small detail. Instead of sourcing products from physical stores, you source them from online retailers offering deals.
The benefits of the challenges of online arbitrage are similar to those of retail arbitrage I mentioned above. However, finding products is slightly less time-consuming for online arbitrage since you source products online and don’t have to visit brick-and-mortar stores.
Wholesale

Amazon wholesale sellers purchase products in bulk directly from manufacturers and sell them at a profit on Amazon. This is one of the Amazon business models that gives sellers more control over their inventory and supply chain.
Benefits of Amazon Wholesale
These are the reasons to consider Amazon wholesaling.
Scalability
The wholesale Amazon business model is scalable because it relies on existing products and supply chains. Once you identify a profitable product, you can scale by increasing supply and marketing without investing in product development.
Relatively Easy to Start
Entering the Amazon wholesale business model is relatively straightforward. You can begin by researching potential suppliers and negotiating terms for purchasing products in bulk, then start scaling once you have a profitable product.
Reliable Inventory Sourcing
Wholesale typically involves forming partnerships with established manufacturers or distributors, ensuring a reliable supply of inventory. This eliminates the unpredictability of inconsistent inventory.
Customer Loyalty
Amazon wholesaling lets you tap into existing customer trust and loyalty. Customers prefer recognized brands, leading to higher sales conversion rates and repeat purchases when you wholesale products from reputable brands.
Challenges of Amazon Wholesale
These are the challenges of Amazon wholesale.
High Order Quantities
Manufacturers typically require high-order quantities to offer competitive pricing. This can result in sellers needing significant upfront capital.
Low Profit Margins
The wholesale Amazon business model lets you leverage existing products. The downside is that you will compete on price, where the primary determinant is not brand but cost competitiveness.
Competition
When selling wholesale, it’s common to find several sellers stocking the same branded products. This drives prices down as sellers compete for visibility and sales.
Dropshipping

In Amazon dropshipping, the seller lists products without physical inventory. When a customer orders, the seller forwards the order to their supplier, who ships the product to the customer. This Amazon business model suits sellers seeking a low-risk entry into Amazon.
Benefits of Dropshipping
These are the benefits of Amazon dropshipping.
Low Overhead Costs
One of the most significant advantages of the dropshipping model is its low overhead costs. You don’t need to pay for inventory upfront, which is one of the highest overhead costs associated with Amazon.
Zero Storage Fees
Dropshipping eliminates the need for physical storage of products, thus avoiding warehousing or storage fees. You don’t have to worry about stocking and handling inventory, which eliminates storage fees.
Low Barrier of Entry
You can start dropshipping with minimal capital since you won’t incur upfront inventory costs or storage fees. This makes it one of the easiest Amazon business types to enter.
Challenges of Dropshipping
Here are the challenges of the Amazon dropshipping model.
Competition
The dropshipping model faces intense competition, with countless sellers listing similar products on Amazon. The low barrier of entry fans the flames of competition because anyone with access to a supplier can join dropshipping.
Lower Profit Margins
As a drop shipper, you’ll generally operate with thin margins because you don’t benefit from bulk discount shopping. And since you buy the products at a higher price, you’ll have to sell at a fair price on Amazon to stay competitive.
Longer Shipping Times
Most Amazon dropshippers use overseas suppliers, which means the product will ship from overseas to the customer. This can take weeks to months, which is too long for Amazon customers who are used to getting their items in a few days.
Amazon Handmade

The Handmade Amazon business model is for sellers who want to sell products they’ve made by hand. Items sold via Amazon handmade must be hand-assembled or hand-altered. Amazon doesn’t allow mass-produced items on handmade. This business model is suitable for artisans and creators of handcrafted items.
Benefits of Amazon Handmade
Here are the benefits of selling handmade items on Amazon.
Low Startup Costs
Starting an Amazon handmade business requires relatively low startup costs compared to traditional retail models. You can set up your storefront with minimal investment, primarily focusing on the material costs.
Flexibility
This Amazon business model offers flexibility. You can produce and scale according to your schedule, choose the item to sell, set the pricing, and set the production timelines.
High Profit Margins
Handmade products often command higher prices due to their unique nature and artisanal quality. Product pricing is based on craftsmanship and material quality without the need for mass production, and you can enjoy higher profit margins.
Complete Control Over Inventory
Amazon handmade gives you complete control over inventory. You can produce items based on demand, minimizing overproduction and waste. This control ensures inventory levels are optimized and aligned with sales, reducing the risk of excess stock and storage issues.
Challenges of Amazon Handmade
Let’s break down the challenges of Amazon handmade
Highly Competitive
Despite targeting a niche audience, the Amazon handmade marketplace is surprisingly competitive. As an artisan, you’ll compete with other artisans offering comparable products, making it challenging to gain visibility.
Higher Commissions
Amazon charges artisans a 15% selling fee on each sale. And even though Amazon handmade sellers don’t pay for a professional selling account, the commission is still higher than other marketplaces charge.
Difficult to scale
Scaling in the handmade Amazon business model poses unique challenges, primarily due to the nature of handcrafted production. Unlike mass-produced goods, handmade products require individual attention and time, limiting the ability to meet increasing demand quickly. Maintaining quality while attempting to scale can be difficult, as artisans may need to consider expanding their production team.
While Amazon FBA and FBM may be considered Amazon business types, I won’t discuss them here. Check out this blog post for a full Amazon FBA and FBM breakdown.
Key Considerations When Choosing an Amazon Business Model
Choosing an Amazon FBM or FBA business model should be a strategic decision. These are the key factors you must consider before selling on Amazon.
Budget and Investment
When choosing an Amazon business model, your budget and the required investment are crucial. Each model varies in terms of initial capital requirements. For example, private label requires about $3,500 to $5,000 to start, while dropshipping requires $500 to $1,000 to start. If you have a small budget, it will make sense to sell via Amazon dropshipping
Time Commitment
How many hours are you willing to invest in your business every day? Time commitment is a crucial factor, and different Amazon business models require different levels of time commitment. A business model like Amazon handmade requires investing more time because you’re creating individual items by hand. Dropshipping requires less time because once you have a product and a reliable supplier, you accept orders from customers, and the supplier does the rest. Understanding the time needed for daily operations, growth strategies, and customer engagement will help you select a model that fits your lifestyle and availability.
Scalability
The scalability of your chosen model directly impacts your potential growth and revenue. Handcrafted products may face scaling challenges because they are made by hand, and Amazon doesn’t allow mass production for Handmade sellers. On the other hand, private label can scale more effortlessly because you can stock as much product as you can sell or as much as your manufacturer can produce.
Product Type
The product you sell should align with your chosen Amazon business model. Handcrafted items will align with the handmade business model, while easily brandable, mass-produced items will go well with the private label selling model.
What Amazon Business Model Works for You?
Understanding the different Amazon business models can help you create a profitable and scalable business on Amazon. Whatever business model you choose, the fundamentals remain the same: sell high-quality products, invest in marketing, offer great customer service, and monitor your KPIs with My Real Profit Amazon analytics tools.