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Online Arbitrage VS. Private Label

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When you want to start your business, different business models can make you confused. Amazon FBA, FBM, private label and so much more are different kinds of business models that you can choose. Everyone needs to choose his business model based on his scenario and condition. In this article, we are going to break down the advantages and disadvantages of online arbitrage and private label to help you make the best decision between these two models.
A man thinking about online arbitrage and private label

Table of Contents

Online Arbitrage

Online arbitrage means reselling a product to make a profit. The products are branded and a factory or a person owns the product. You can buy your inventory from anyone or anywhere, a garage sale or a famous website. In online arbitrage, you are always trying to buy something at a lower price and sell it at a higher price.

A woman in front of laptop doing Amazon online arbitraginh

Advantages of Online Arbitrage

If you want to make the best decision, you need to find the benefits and problems of each model. So here is a list of advantages of online arbitrage:

1. Easier than other business models

In online arbitrage, you don’t want to make or design a product from scratch and are selling what others have made before. So it has fewer hassles than other models.

2. Many different products ready to be sold

How many products do we have? Millions? Billions? We don’t know the accurate number of different products that we can sell using online arbitrage, but we know every product is an opportunity to make a profit.

3. Small capitals work too

In online arbitrage, you don’t need to invest hundreds of thousands of dollars to establish your business. Small capitals can work to start your business.

Read More: How Much Capital Do You Need to Start Online Arbitrage?

4. Selling different products for different customers

You are buying the products so what would stop you to have a different list from toys to kitchen appliances? You can supply many different categories and items like Walmart!

Read More: Amazon FBA Business, What Is it? & How to Start? [Full Guide 2021]

Disadvantages

1. The brand isn’t yours

A few years ago it couldn’t be a noticeable problem but now brand owners and Amazon are restricting more brands. It means sellers need to go through an approval process to be allowed to sell the items.

2. The profit margin is varying

Your profit margin depends on the product, time, and the provider you are buying from. It can be very small or very big. Your profit is limited because the retailer, brand owner, and Amazon want their shares from the profit.

3. So many hands-on responsibilities

Every day you have to spend time finding good deals, source the products, list them, and follow up on customers’ problems. If you want to do everything on your own it’s time-consuming and a bulky process. But if you can automate your business or hire a VA you can free off your time.

Private Label

Private labeling means placing your label or brand on a product. You can manufacture the product yourself or order a company to make them for you. When you are doing private label, you own a product. It’s your brand so you don’t need the approval process to sell your products.

Usually, the vendor is in China and you can find them through Alibaba.

Advantages of Private Label

1. Full control on the product

You decide how to design your product, how are the label and packaging and how much the price is. It is a great advantage because you can earn the biggest part of the profit.

2. Long term asset

If you can sell your product successfully you can keep producing it again and have a few products that sell so very well.

3. Selling your brand

When you have a successful brand, many want to buy it and you can sell your brand for millions.

4. No daily bulky process

Once you’ve decided to do private label, you don’t need to do research every day and spend so many hours. You can do it again and again and just should keep the selling high. Even you can put it on different platforms or open a brick-and-mortar store.

5. Optimizing a product

Sometimes you use a product and you think “it would be way better if it could do this”. Or you see the reviews about a product and understand the customers’ expectations and try to make the product better. So you can consider it when you are ordering the product. You can redesign or optimize the product.

Disadvantages of Private Label

1. High capital is needed

You have to invest highly upfront. The manufacture never accepts orders of 10 units. All the manufacturers have a minimum order quantity that costs high.

2. High risk

Before doing research and investing, you don’t know if your private label business will be successful. In online arbitrage, you face lower risk. Using different tools and software you can predict many things and do limit the risk.

Online Arbitrage or Private Label; Which One Is Better for You?

So, which one is better? Private label and online arbitrage? There’s no certain answer. You need to choose the best business model based on your situation. If you are starting your arbitrage business, we suggest you choose online arbitrage. It’s easier to learn and you don’t need to invest so much money upfront. But always there is the risk of facing a restricted brand that you cannot sell. You don’t need to choose one, you can make money from online arbitrage and private label together. Fund the money you make from online arbitrage to establish your private label business. 

Private label has many advantages like big profit margin and owning the brand. But you should invest a few thousand dollars upfront. So, you need to know the market beforehand and research a lot.

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