The Merch by Amazon Business Model Explained
The Merch by Amazon business model is a Print on Demand (POD) shirt service. A POD is where the product is only created when it is actually ordered. In this case, the shirt is only created when someone buys that shirt, thus it is printed “on demand” and shipped to the customer.
This has been a popular business model for some time, and it has roots back in the glory days of TeeSpring when shirt designers were making money hand over fist with that POD platform. Nowadays, TeeSpring has died out for the most part, replaced by the Merch by Amazon model.
It makes sense that Merch by Amazon businesses are popular. After all, they can be incredibly profitable.
And, they are actual assets you can sell down the road. One of our clients was able to sell their Merch by Amazon business for $93,077.32 in just 19 days.
Let’s explore how this business model works, and how you can get it to work for you whether you’re a seller or someone looking to buy an asset like this.
Merch originally started out as a way for indie developers to create cool swag around their games, books and worlds they were creating. However, it wasn’t long before ambitious internet marketers saw an opportunity here and started signing up to the program in droves.
In fact, so many internet marketers signed up for the program that Amazon had to start limiting account approvals because they couldn’t keep up with the huge demand. Still, at the time of this writing, you often have to wait for 2-3 months before your account is approved by Amazon.
The basic business model is where you do keyword research, of what people are actually searching for on Amazon, and then create a winning T-shirt design that people will want to order from you. When people order that shirt, Amazon does all the sourcing of raw materials to create the shirt and the actual fulfillment to the customer.
While Merch by Amazon originally started off by only selling t-shirts, they have since expanded into a few other apparel items.
Here are all the different items you can create on Merch by Amazon at the time of this writing:
- Long Sleeve Shirt (US Only)
- Pullover Hoodie (US Only)
- Sweatshirts (US Only)
- PopSocket Grips (US Only)
As you can see, for most of the world it is still just t-shirts. This is likely to change in the near future as Amazon expands its overall infrastructure globally for its Merch program. It is likely that the other items are US only currently as a way for Amazon to test the waters and will roll out the products to other marketers if they found the experiment to be successful.
Merch By Amazon Commissions and Royalty Structure
You can see the basic commission structure for Merch businesses below:
As you can see, on the low end you can earn just under 15% of the sales price of the shirt, with the rest going to Amazon to take care of the heavy lifting for you. On the high end, you can make as much as 38% of the sales price, which is significantly more.
In addition to the shirt royalties, you can also add an additional 7% earnings if you are promoting all your shirts through the Amazon Associates program.
You might think this means you should only sell premium priced shirts, but this isn’t always the case. It is important to remember that the quantity of your sales could be significantly higher at a lower price point that equates to larger commissions than if you have priced your product at a premium price.
Keep that principle in mind.
Merch By Amazon Tiers and Moving to the Next Tier
Merch by Amazon uses a tiered system.
This means you can only sell the number of designs that you reached the tier for. When you’re starting out with a fresh Amazon account, you can only sell 10 different designs.
The Merch By Amazon tiers are:
- 10 designs
- 25 designs
- 100 designs
- 500 designs
- Pro (Invitation only)
How do you move up tiers? The answer is pretty simple. All you have to do is sell the same quantity of shirts of the tier you’re on. For example, to move from a 10 design tier to a 25 design tier, you’ll need to sell at least 10 shirts, and to go from 25 to 100 designs means you need to sell at least 25 shirts.
Amazon states that leveling up in tiers isn’t purely based on sales, but also the quality of the products being shipped out to clients. Obviously, since Amazon has quality control, a lot of what goes into maintaining quality isn’t up to you. Unfortunately, Amazon isn’t super clear what it means by the quality of your products, but we can safely assume that the quality is determined by no copyright infringement, a healthy amount of continual sales rather than just a sales spike, and good reviews on the actual product listing page.
Merch by Amazon Examples
So how does a Merch by Amazon business look like?
Well, they’re pretty straightforward.
Once you’ve created your design, uploaded it through the Merch back office, and get the approval from Amazon for the design, your design goes live.
The product page is like any other product page on Amazon. It shows the title of the shirt, an image of the shirt, the sizes and colors it comes in, who created it and of course the Add to Cart button. As with any other product page, there are also reviews by people that have bought the product.
In this example, the seller is “unknown”, but if it was known you’d be able to click on that link to see all the other products that brand is selling. When you create a shirt, you get to say whose brand name it is and thus link all of your designs together. Or, you can create an unlimited amount of brands that are only limited by how many designs you can have in your tiered level.
While not a big deal when you’re first starting out, the number of designs you can upload on any given day is limited based off your current tier level. This becomes a slightly bigger issue as your “tier up” to the upper levels where you can have 500+ designs at any given time, forcing you to batch your design uploads over several days depending how many designs you have.
Once someone buys the shirt, the royalties are collected and Merch by Amazon pays out your royalty on a net-30. This means that for all your products sold in November, you wouldn’t see that money until the end of December. This is pretty standard for Amazon, as it works the same way with their affiliate program too.
If you opt for direct deposit, there are no thresholds that you have to hit to get paid. If you choose to opt for a wire though, there are some minimum thresholds you’ll need to hit:
Now that you understand the basics of Merch, let’s take a deeper look into both the positives and the negatives of this business model. After all, every business model has pros and cons and this is no exception by any means.
The Pros of the Merch by Amazon Business Model
Let’s start off talk about the pros of a Merch by Amazon business.
No Customer Service
One of the real beauties of this business model is that you don’t need to handle any customer service. If a shirt shows up with a flaw in it, then Amazon takes care of it for you. Since they are handling the quality control and fulfillment of the actual product, you don’t need to spend time on any kind of customer service.
While Amazon has less than stellar customer service for people using its various business functions (Associates, FBA etc.), they excel with high-quality end consumer customer service.
Depending on how large your Merch business becomes, this is a significant advantage at later stages of growth.
Hands-Off Business Model
Unlike a traditional ecommerce business model or FBA business model, there is no need to do customer service, logistics, fulfillment, freight forwarding or getting in contact with reliable suppliers that can produce your products.
Because of this, your only real focus for growth is doing competent marketing, keyword research and creating shirt designs that people love. Once your shirt is live and making sales, this business can be pretty hands-off in a similar fashion that affiliate marketing business models can be.
Unless you’re doing some kind of paid promotion for your shirts, you can reliably leave it to the organic traffic rolling in to keep making you sales whether you’re looking at your account or not. Also, when compared to other business models the startup capital needed is relatively low. These are some of the reasons why this business model is incredibly attractive for someone just starting out or looking to create more of a lifestyle business.
Huge Amount of Built-in Organic Traffic
Considering that 38% of initial product searches begin with Amazon now, beating out Google’s 35%, Amazon’s organic traffic is hugely valuable. Everyone agrees that Amazon has a monstrous amount of traffic going to it every day, from organic traffic to direct traffic and more.
When you start your Merch business, you get to leverage this huge benefit to translate into shirt sales for the designs you’re uploading.
The majority of Merch by Amazon businesses rely on this organic traffic hitting their listings day in and day out to make their money. While some do run paid ads and do other external marketing, these are usually more the exception than the rule.
If you can build your shirts around capturing organic traffic, then you can set yourself up for an even more hands-off business as people just naturally find and buy your shirt designs.
You could argue that the Merch by Amazon business model is an ecommerce business in some cases. And if we follow that logic, we could also say that it is an ecommerce business with unlimited inventory.
While it is possible that Amazon will not be able to meet the demand of all of its Merch entrepreneurs, it is unlikely considering how heavily invested they are on fulfillment and logistics infrastructures.
In essence, you have an endless amount of inventory you can sell. You never need to worry about running out, or planning for the big bump in sales that usually occurs around the holiday season. This is a feature of the “on demand” business model that attracts many entrepreneurs to try it.
Forming Creative Partnerships
One of the cooler aspects of the Merch business is that you can form some very interesting creative partnerships. You can join up with a charity to make their charity run shirts, you can contact local churches to create shirts for their congregations or local businesses for that matter.
There are all sorts of interesting creative partnerships you can form both online and offline that could translate into sales for your company. While you can do this in any business model, it is especially easy in the Merch model considering how fast you can create relevant designs and the overall ease of fulfilling the orders.
An Extra Revenue Stream for Your Audience
If you’re already building an audience of some kind, then you might already have a great audience to market your Merch shirts with. Maybe you run a health and fitness content site or ecommerce store that has an audience that absolutely loves your brand.
While a Merch business may or may not add significant revenue to your current audience, it is for sure worth a test. You might end up creating multiple different designs around your brand that people proudly wear that not only counts as an extra revenue stream but doubles as free marketing for your brand.
The Cons of the Merch by Amazon Business Model
You’ve seen the positives of the business model, now let’s explore some of the negatives that should give you some pause before jumping into the Merch world with both feet.
You Don’t Own the Platform
In many ways, this is a critical point of failure for this business model. Its greatest strength is being able to leverage the platform Amazon has built in terms of organic traffic and fulfillment, but it is also its greatest weakness.
At any time, without any reason, Amazon could change its policies and procedures on you. They could ban your account and may leave you without any real recourse other than fighting a legal battle. Amazon has already changed the royalty payouts with their Merch program, and just like they did with their Amazon Associates commissions, they could change it again that might make the business less profitable.
If you’re making significant money with your Merch business, consider expanding outside of just the Merch model into other POD platforms. Or, you can take your profits from the Merch business to diversify with a different online business model.
Either way, you should make sure you are protected if the worse was to happen and Merch shuts down your account or the entire Merch program itself.
You Need to Hand Over Your Account to Sell the Business
A lot of people believe you can’t sell a Merch by Amazon business, in a similar fashion that people believe they can’t sell an Amazon FBA business. However, this isn’t true.
In fact, we work with Amazon every time we sell a Merch or FBA business. Amazon cannot disallow you from selling an actual business asset. Their policy against selling accounts is actually in a different spirit.
What they’re actually trying to prevent is account fraud. If they see your account is suddenly being logged in by a different IP, country etc. that’ll send some red flags and they’ll shut the account down to avoid one of their users becoming a victim of fraud.
That being said, it is important you realize BEFORE you start a Merch business that your Merch account has to be transferred over to the new owner in order to sell the business. That means you have to give up your email that is tied to your Merch account, which might be the same email you use for your Amazon shopping profile or your Amazon Seller Central Account and Associates account.
Please keep this in mind.
Nothing is worse than giving up tens of thousands of dollars when you go to sell because you realize you have to hand over your personal email.
If you’re just starting a merch account, create an email that you only use with that Merch account to avoid this potential issue down the road when you actually decide to sell your Merch by Amazon business.
Slow to Scale Due to Tier Restrictions
It can feel frustrating when you first start this business that you’re limited to only 10 designs initially. Also, this limitation by its very nature slows down your ability to scale.
You might have a designer that can create a hundred designs for you per week, but if you’re not at the proper tier that amount of production is overkill.
You’ll need to find creative ways to hit the next tiers if you’re just starting out and you want to go fast. The easiest method is creating shirts for some local organization in your community and selling it to them at cost.
This can at least let you tier up and bypass the lower levels quicker.
No Way to Collect an Audience
Since it is not your platform, there is no way for you to really collect an audience. You can’t collect email subscribers, you can’t get organic traffic to your site off Amazon, and when people go back to Amazon they’re not usually returning to the shirt brand they bought from in the past.
Because you can’t build an audience on Amazon, you’re effectively always at ground zero in terms of retaining an audience. This means you are limited to pure organic and paid marketing strategies to promote your shirts, unless of course you build a website outside of Amazon to start attracting a faithful audience.
Dealing with Trademark and Intellectual Property Infringement
Amazon is very careful when it comes to trademark and intellectual property infringement. If they see that your shirt design is trademarked by someone else, they will take down your shirt as fast as they can. If you infringe too often, this could even lead to banning your account completely.
It can be tricky to know what is trademarked and what isn’t. There are so many shirt designs and brands out there that you’ll likely do it on pure accident versus actual intent to infringe.
Keep this in mind when you’re creating your shirts as you’ll want to make sure your account is in good standing.
Amazon Can Change Your Purchase Price
Many entrepreneurs don’t realize that at the end of the day, your shirts are not your products. They’re Amazon’s products. That is why they call it a royalty fee rather than margin. Amazon can sell your shirts at any price range they deem acceptable and can often fluctuate the purchase price to be different than the actual list price you chose.
When this happens, you’ll see a price range given in your Merch account and you’ll get paid lower royalties.
This can be pretty frustrating to the entrepreneur and rightfully so. One thing that may happen though is Amazon is split-testing your product listing page to see how they can reach the best possible sales velocity for your listing. Ultimately, this can be a good thing if that is what is happening.
Again, since you don’t control the platform, you really have no say over what the final purchase price is going to be for your designs.
Your Royalties Get Hit on Returns
This is one aspect of business many entrepreneurs don’t think about. Amazon allows its customers to return the shirts for a full refund, sometimes weeks after the person bought the shirt. When this happens, you will get a negative royalty charge to your account.
Theoretically, this means you can go into the negative with your account. You might sell $1,000 worth of royalties in a single month, but if you had $1,500 worth of returns from a previous month you’ll be at a -500 balance in your account.
Fortunately, if your account is in the negative you’re not automatically charged for the difference from your bank account. Instead, you have to “earn” your way out of the negative balance as you sell more shirts.
Still, it is important to be aware of this – especially if you’re doing any kind of paid promotion of your shirts.
What Buyers Need to Know
Before you buy a Merch by Amazon business, there are a few things you should know first.
You Don’t Need to Be a Graphic Designer
Many people believe Merch entrepreneurs are experts in graphic design, designing all the graphics themselves. This is not true at all. The majority of Merch entrepreneurs I’ve met almost always have outsourced this part of this business to a freelance designer. If you are decent with Photoshop this might be a business model that interests with you but it is not necessary.
In fact, I would highly recommend you do this if the current owner isn’t because it’ll free up a lot of your time to focus on the marketing aspects of the business.
Is the Account in Good Standing?
You will want to make sure the account was never in violation of any Merch’s terms of service. Or if it was in violation, make sure that violation was resolved and a good amount of time has passed since that violation occurred to feel more confident that the account’s health is positive.
Does the Seller Have a Graphic Designer?
As I mentioned above, most Merch entrepreneurs already have a graphic designer. Typically, this is a freelancer they’ve hired and usually are more than willing to give you as the new owner. One thing you want to make certain though is that the expenses the Merch seller spent on the designs is reflected in the actual business’s valuation.
If they’re spending on average $300-500 per month on their designer, then that should affect the actual business’s overall price.
If they’re doing it themselves, then you should factor this into your negotiations or any other buying structure you create.
Do They Have Extra Designs Just “Laying” Around?
Many Merch entrepreneurs will get bulk discounts from their freelancers by ordering dozens of designs at once. The freelancer passes those savings onto the entrepreneur in exchange for the steady paycheck.
This means that the seller often has a lot more designs tucked away into a folder that are not yet live on Amazon. You should ask the seller if they do and if they would include those designs. More often than not, the seller will be happy to do this.
This could save you potentially dozens of hours and a good chunk of money going out and doing the research and design yourself if they do have this. It is a nice way to get the business going with new designs once you take over too.
Keep in mind, that some of these designs might not be live on Amazon simply because they were before and they didn’t sell at all. Ask the seller which designs were previously live so you don’t waste time getting a shirt design approved just to find out it was one of the designs that couldn’t achieve any kind of sales velocity.
What Sellers Need to Know
If you’re looking to make a profitable exit by selling your Amazon Merch business, then there’s a few things you should consider. Below are a few tips, but don’t be afraid to hop on a call with us either. We’re happy to create a custom exit plan for your business for free.
Are You Willing to Give Up Your Email?
Remember, the only way to actually transfer a Merch by Amazon business is by handing over the email associated with it. That means you’ll need to make sure it is not associated with any other Amazon product like Amazon shopping profile, Amazon Associates account, or a Seller Central Account.
If you already do have that email associated, then consider migrating your other accounts over to a new email. Unfortunately, at the time of this writing you can’t switch emails with your Merch account so the email is 100% required.
Sweeten the Deal with Extra Designs
If you did do a bulk order of designs from your freelancer or employee, consider giving these designs away at no additional cost to the buyer. It’ll help them get an early boost of confidence that they have a built in group of new designs for them to work with right away.
Offer 60-Days Worth of Support
The majority of sellers offer 30-days worth of email support with the buyer. These businesses likely won’t take more than a week’s worth of support. So why not make the buyer feel even more comfortable buying this business from you then by offering double the normal amount of support someone is willing to give?
You could even throw in a biweekly phone call, or something else along those lines. Of course, you never want to offer a window of support you’re not willing to commit to, so be honest with the amount of support you’re going to provide.
But keep this in mind, as just this extra show of support can be the final convincing point that makes the buyer buy your business.
Speak with Your Designer
Unless your designer works for you on many different businesses, consider letting the new owner use your designer. In most Merch businesses, the designer is a freelancer and would rather not lose a good working relationship with a client. Almost always the freelancer is going to be willing to work with the new owner if the terms are exactly the same as the terms you had with them.
The buyer will also appreciate knowing that the designer that created the money earning designs is willing to continue to work with the new owner.
If you cannot transfer the designer over, then you should help the buyer on how to hire a competent designer once they take over the business. This could come in the form of a hiring standard operating procedure (SOP), or design SOPs or a mixture of both that would be helpful for the buyer to have.
Know Your Design and Marketing Expenses
It goes without saying that you should know how much expenses you’re incurring every month. Look at the cost of your design creation and marketing expenses and then average them out over the last 12 months. This will be your operating expenses.
It is important to document this since a buyer will not want to buy a business that has hidden expenses tied to running it. If you need help figuring out how to do this, when you go to sell your business our vetting team can help you put together a Profit & Loss statement that documents this in a sellable fashion.
What Buyer Persona Best Fits the Merch by Amazon Business Model?
Someone looking for a lifestyle business that can fuel the things they really want to do in life, should consider a Merch by Amazon business. The business is hands off enough that you don’t need to be working on it every single day if you’re more focused on other things in life (like going to the beach).
This is a great alternative to other common lifestyle businesses like Adsense business models or your more traditional affiliate business.
Merch businesses make a great addition to a portfolio as well.
If you already have a few content sites under your belt, consider buying a Merch business. It is very likely you can use your portfolio of sites to feed into your shirt designs if you create designs around the same niche. And since Merch sales is reliant on Amazon organic traffic, you can diversify the risk of Google algorithm updates.
Since Merch businesses can be a lifestyle business, these businesses won’t take up a large chunk of your time when it comes to managing them versus other businesses that might exist in your portfolio.
If you like to roll up your sleeves and dive deep, then Merch offers you a pretty good entry point for someone that wants to remain a solopreneur. You can dive deep into Amazon’s seller rankings, keyword research for designs, and split-test various shirts. There are all kinds of growth marketing you can do as well with a Merch business that might appeal to someone that wants to really fine tune a business.
Because there are so few moving parts with a Merch business, this is often a great starting business for someone just getting their feet wet with the world of online business. The only true tasks you have before you is creating the shirt design, and then doing the marketing of the shirt you’ve designed.
Since there is no logistics, customer service or inventory you need to worry about, you can really dive into a Merch business with minimal upfront costs and skill sets. While the actual income ceiling with Merch might be more limited than some other business models (i.e you can’t just throw Adsense onto an affiliate site for an extra stream of revenue), you can make serious job replacement income using the Merch platform.
Considering the minimal cost, buying or starting a Merch business is a great way to get into the online business world.
Whether you’re building or buying a Merch business, you probably want to know what kind of avenues of growth you can tap into to make a Merch business more profitable.
This section is dedicated to that concept but keep in mind, this is by no means an exhaustive list of everything you can do with Merch. There will always be new opportunities out there for you to tap into if you stay on the pulse of the industry.
But, this should be plenty to get you going into an ROI positive trend.
Hiring More Designers
This can be a good method to scaling your Merch business if you’re already at one of the higher tiers. If you can produce a 1,000+ designs via the Merch platform but only have 200 designs live, then you’re missing out on a big opportunity with those 800+ design slots.
If your designer can only produce 10 designs per week, that is only 40 designs per month. You can increase the rate of designs quickly simply by just hiring more designers. By increasing the designers, you will also increase your ability to fill up all those design slots and start earning more money if the designs are winning ones.
Before you hire designers though, consider what has made your other designs profitable.
Do they share common elements? Common trends?
If so, make a design SOP for your designers to follow so you give them the best possible chance to create profitable designs for your business.
Most Merch businesses do zero external advertising from Amazon’s platform, which means they could be missing out on a ton of winning designs. Facebook ads can serve as a quick way for you to potentially tier up, and also a quick way for you to test the viability of your shirt design.
If you see there are conversions, and enough to be profitable, you can scale up that campaign and make even more money.
One other thing facebook ads can do is game the Amazon algorithm. If Amazon sees people are buying your shirts, they will want to promote your shirts for you. Amazon loves giving promotion to products that sell and will treat them well in the organic search when people are looking for items related to your shirt niche.
Use Merch Informer for Keyword Research
For people that really want to dive into Merch as a more serious endeavor, check out MerchInformer.com. Neil L, one of the software’s founders, has sold a few Merch businesses on our platform in the past. In fact, he created the software using capital that he gained by selling one of those Merch businesses.
Using this software you can do massive amounts of keyword research for winning potential designs for you to create, and you can make sure those designs do not infringe on any trademark or intellectual property rights using their scrapers.
You can do everything without this software, but it will take significantly longer. If you want to scale up your Merch business into having hundreds of winning designs filling those slots, then consider diving deep into the Merch Informer software.
Create Social Media Page
If you find yourself creating shirts that share a common niche, look into creating a fan page around that niche. Maybe you create shirts around the romance niche, or maybe all your shirts are for horror fans that love monsters.
You could create a fan page around these topics alone and promote the growth of it via memes, ads and posts that engage the audience. Every time you create a new shirt, you’ll have a somewhat captive audience to promote that shirt to and perhaps an audience to promote other related offers that they would like.
Reach Out to Websites in Your Shirt Niche
This strategy leverages the fact that in almost every niche you can imagine, there is someone that has an affiliate site and usually those site owners are also part of the Amazon Associates program.
It is a simple email to those site owners to ask them to include your shirt on their site somewhere. If you want to get strategic, you can use an SEO tool like Ahrefs.com to find the top performing pages on those sites and then reach out to the owner to see if you could get your shirt featured in those pages.
You may even find a good crossover to where you can build a custom shirt specifically for that page’s topic. Or perhaps a customized shirt for the site’s audience. After all, not everyone has a Merch account and it can take a couple months at times to just be approved. You can contact the site owner to see if they would be interested in you creating designs for their site’s audience and then they promote the shirt. They get free designs and earn money via the Associate program they’re linking out with, and you earn extra money from the referral traffic coming from their website.
Donate Shirts to Tier Up Fast
Another way to tier up fast with your Merch business is simply reaching out to local organizations and donating designs to that organization. You can give them a free design and list the actual shirt on Amazon at the lowest possible price point for them to purchase. Or you could buy the shirts yourself and donate the entire quantity of shirts to the organization.
It only takes a few organizations to tier up quick in this way.
A local chamber of commerce chapter that takes you up on this offer could lead to several hundred shirt sales just in that one outreach email.
Expand Successful Shirts into Other POD Platforms
While Merch is the largest POD platform out there, there are plenty of other platforms that you can sell your shirt designs in a similar fashion. If you find one design has a huge success, you might be able to successfully transfer that design over to another POD platform.
While outlining each POD platform is outside of the scope of the article, here are 10 others you can explore with your successful designs in no particular order:
- Design by Humans
Resources to Learn More
If you want to learn more about the Merch by Amazon business model, there is one resource in particular I would highly recommend for continued learning.
I already mentioned the Merch Informer software as a way to grow the business, but the Merch Informer blog is also a great portal of advanced marketing and business strategies in this business. It is frequently updated as well, so you can often find the most up to date information and new strategies there.
While you can build a Merch business from scratch, you could also contact us if you want to skip the tiers and just purchase a business that is already somewhat scaled up.
Of course, if you have already built a profitable Merch by Amazon business and want to get potentially 24-34 months of net profit upfront by selling the business, you can click here to submit your business for sale.
If you want to learn more about the different kinds of online business models that are out there, click here to see our full blog series on the subject.