A third-party seller is an independent merchant who uses an established online platform, such as Amazon or Walmart, to sell products directly to that platform’s customer base. This model offers access to a vast audience without building a website from scratch. By operating on a major marketplace, sellers can tap into existing traffic and a trusted e-commerce infrastructure.
Choosing Your Marketplace
Selecting the right online platform is the first strategic decision. The most prominent marketplaces include Amazon, Walmart Marketplace, and eBay. Amazon boasts an unparalleled global reach and a massive customer base accustomed to fast shipping. Its sophisticated fulfillment network and high consumer trust make it a primary choice for many sellers.
Walmart Marketplace is a rapidly growing competitor, offering access to a large and loyal customer base within the United States. eBay provides a flexible selling environment that accommodates both auction-style listings and fixed-price sales, making it a versatile option for a wide range of products.
Establishing Your Business Entity
Before making a sale, you must establish the formal structure of your business. The two most common options are a Sole Proprietorship and a Limited Liability Company (LLC). A sole proprietorship is the simplest structure, as it does not legally separate the owner from the business, meaning you are personally responsible for all business debts.
An LLC creates a legal barrier between your personal and business assets, offering liability protection. If the business incurs debt or is sued, your personal assets are protected. Forming an LLC involves more paperwork and fees but provides a layer of security that is valuable as a business grows.
Regardless of the structure chosen, obtaining an Employer Identification Number (EIN) from the IRS is a necessary step. An EIN is required to open a business bank account to keep your finances separate and is often a prerequisite for registering as a seller on major marketplaces.
Sourcing Your Products
Wholesale
Wholesaling involves purchasing branded products in bulk directly from a manufacturer or distributor at a discounted price to resell for a profit. This model allows you to sell products with existing demand and brand recognition, which can reduce marketing efforts. Buying in large quantities results in a lower cost per unit, creating the potential for healthy profit margins.
Retail Arbitrage
Retail arbitrage is buying discounted products from retail stores and reselling them online for a higher price. This method is popular for new sellers because it has a low barrier to entry and requires minimal initial investment. The main challenges are the time spent finding profitable deals and the difficulty in scaling, as inventory depends on what you find in stores.
Private Label
The private label model involves creating your own brand by sourcing generic products from a manufacturer and applying your own branding and packaging. This approach offers the highest potential for profit margins and brand building, as you have complete control over the product and its pricing. It allows you to differentiate yourself from competitors and build a loyal customer base. The primary drawbacks are the significant upfront costs for product development, manufacturing, and marketing, as well as the risks associated with launching a new, unproven product.
Dropshipping
Dropshipping is an e-commerce model where the seller lists products for sale without holding any inventory. When a customer places an order, the seller purchases the item from a third-party supplier, who then ships it directly to the customer. While it offers flexibility and a wide product selection, profit margins are often slim, and you are reliant on the supplier for product quality and timely shipping, which can impact your seller reputation.
Listing and Pricing Your Products
To attract buyers, you must create a compelling product listing. A successful listing begins with a clear, keyword-rich title that helps it appear in search results. High-quality product photos from multiple angles are also necessary, as they allow customers to visually inspect the item. The product description and bullet points should be descriptive, highlighting the features and benefits.
Your price must cover the cost of the product and all associated expenses. These include marketplace referral fees, payment processing fees, and any fulfillment or shipping costs. After accounting for these variables, the final price must leave a profit margin. Analyzing competitors’ pricing for similar items can provide a benchmark, but your final decision must be based on your specific costs.
Managing Fulfillment and Shipping
You must have a plan for getting the product to the customer after a purchase. The two primary models for fulfillment are using a third-party service or handling it yourself.
Many marketplaces offer their own fulfillment services, such as Fulfillment by Amazon (FBA) or Walmart Fulfillment Services (WFS). With this model, you send your inventory to the marketplace’s warehouses, and they handle storage, packing, and shipping the product to the customer. These services often make your products eligible for expedited shipping programs like Amazon Prime, which can significantly boost sales. While this option provides convenience, it comes with various fees for storage and fulfillment.
The alternative is self-fulfillment, also known as Fulfillment by Merchant (FBM). In this model, you are responsible for storing your own inventory, packing orders, and arranging for shipping. This approach gives you complete control over the process and can be more cost-effective, especially for items with lower profit margins. However, FBM demands a considerable investment of time and resources to manage logistics and meet the marketplace’s shipping standards.
Handling Customer Service and Returns
Excellent customer service is necessary for long-term success. This includes responding to customer inquiries professionally within 24 hours to maintain good seller metrics. Addressing questions before they escalate can prevent negative feedback and build trust.
A clear return policy is also necessary. Marketplaces require sellers to match or exceed their own return policies, which allow customers to return items within 30 days for a full refund. If you use a service like FBA, the marketplace manages the entire returns process. Managing returns effectively protects your seller account’s health and demonstrates reliability.