What is Arbitrage?
It's one of those pretentious words that, despite its fancy sound, is incredibly easy to understand. It is essentially a buy-and-sell business in which the seller profits from variations in a product's price at various locations.
You can buy a lot of pencils from town A and sell them in town B to make money from the difference if a pencil costs $1 in town A and $5 in town B.
We're here to show you how you too can create a successful online business using this straightforward idea that has helped thousands of people.
In this article you will learn:
- Amazon Arbitrage: What Is It?
- Other Business Models VS. Arbitrage
- Dropshipping vs. Amazon Arbitrage
- Amazon Arbitrage vs. Private Labeling
- Comparing Amazon Arbitrage and Wholesaling
- Benefits of Amazon Arbitrage
- How to Begin Using Amazon Arbitrage
- How to Select the Correct Items
- Expenses You Should Consider
- Where to Purchase Goods?
- Conclusions
Amazon Arbitrage: What Is It?
Purchasing goods and reselling them on Amazon for a profit is known as Amazon arbitrage. With Amazon serving as the reselling platform, it functions exactly like any other form of arbitrage.
For instance, I find a $3 plush Olaf toy at a Walmart clearance sale, but it costs $60 on Amazon. I could spend $55 on ten of those toys and make $55 on them.
The products can come from a variety of sources, such as other e-commerce sites or real brick and mortar stores.
To get really technical, we refer to purchasing goods from physical retail stores as retail arbitrage, and purchasing them from an online retailer as online arbitrage. In either case, the practice of reselling goods on Amazon is known as "Amazon arbitrage."
Amazon permits online and retail arbitrage. As long as you're selling goods that are in acceptable condition and can be lawfully resold, Amazon policy does not specifically forbid arbitrage. Be aware, though, that some brands forbid third parties from reselling their merchandise on Amazon without their consent.
Other Business Models VS. Arbitrage
There are numerous methods for making money through internet sales. Dropshipping, wholesaling, and private labeling are a few of the most popular.
Let's contrast each of these with arbitrage on Amazon.
Dropshipping vs. Amazon Arbitrage
Dropshipping is an online retail method where the seller doesn’t keep any inventory. Instead, he acts like a middle man. The customer orders from the seller who in turn forwards the order details to a supplier. The supplier is then responsible for fulfilling the order.
With Amazon arbitrage, the seller at some point owns the inventory. He actually pays for it so if it doesn’t sell, the burden and loss falls on him.
Amazon Arbitrage vs. Private Labeling
Many people have become 7-figure brand owners through private labeling. The products in this business model are marketed under the seller's brand even though they are manufactured by outside companies. The owner of the brand decides how the product should be made, packaged, and designed.
Sellers who engage in arbitrage, however, lack this control. The goods they handle are prepared for resale right away. It cannot be sold under their own brand name, and they have no control over the specifications.
Comparing Amazon Arbitrage and Wholesaling
The product source is where the two diverge most. To enable bulk purchases, wholesalers deal directly with suppliers. Conversely, arbitrage resellers get their merchandise from retailers and typically make smaller purchases than wholesalers.
Because of their volume purchases and skill at haggling, wholesalers depend on discounts, while arbitrage resellers profit greatly from clearance sale discounts.
Benefits of Amazon Arbitrage
For convenience, customers are prepared to pay. They can click "Add to Cart" far more easily than they can run to the nearest Walmart, wait in line, and hope to find what they're looking for—which may or may not be there. Additionally, social distancing is now required due to COVID, which Amazon arbitrage resellers can benefit from.
These are some additional explanations for the effectiveness of Amazon arbitrage.
- First, it's comparatively simple to accomplish. Finding a supplier, coming up with new product concepts, or creating specifications that sell a product are not necessary. That's already taken care of for you, and there are millions of products to pick from.
- Second, compared to wholesaling and private labeling, you can begin with less money. To see if the system works, some sellers first test the waters by buying $100 worth of goods.
- Thirdly, since the brands are handling their own marketing, you won't need to exert much effort. For example, if you can sell a well-known brand, someone else has already done the advertising for you. Additionally, Amazon offers you marketing choices like pay-per-click (PPC) advertisements.
How to Begin Using Amazon Arbitrage
It's not too difficult to run a buy-and-sell company on Amazon. It essentially turns your regular visits to your preferred retail establishments into a successful business endeavor.
Create a profile. Making an Amazon Seller account is the first step you must take. This should be fairly apparent as you cannot engage in Amazon arbitrage without first creating an account on the website.
Individual and Professional are your two available plan options. While Amazon charges you for each item you sell, there are no monthly fees associated with the former. The monthly cost of the Professional plan is $39.99; however, there are no per-item fees.
Which one then fits you best? We can calculate this easily: if you sell more than 40 units per month, you should definitely upgrade to the Professional plan.
If you would rather not deal with order fulfillment yourself, you can also choose to enroll in their FBA program. Essentially, all you need to do is hunt for deals, list the items on the website, and ship them to Amazon's fulfillment center.
Locate the appropriate goods. Fortunately, not much speculating is required in this case. You can use apps to find out which products are selling and if it makes sense to buy them. I go into more depth about this in the section that follows.
Add your goods to Amazon.com. The next step in Amazon arbitrage is to notify people that you are selling after you have identified a product to sell. To get an advantage over your rivals, make sure to optimize your listing as you go.
Keep an eye on your listing and sales. It would be equally simple to stop at the previous step and watch the money come in. However, if you're a serious seller, you'll need to keep an eye on your listings and sales to make sure everything is still operating as it should. Sellers on Amazon who fail to keep a close eye on their listings frequently experience stranded inventory.
How to Select the Correct Items
This is arguably the most important step in the procedure. There are a few things to think about and some apps that can assist you in making the best choice when selling through Amazon arbitrage.
Make use of a seller app. Use seller apps to determine whether it's wise to invest in a particular product, unless you want to buy a cartload of stuff you can't sell, or at least can't sell for a profit.
We're affiliates of Jungle Scout, so please excuse our bias, but this app continues to be the most widely used tool for conducting product research. You can find out how much any product is selling for on Amazon each day by using Jungle Scout. For instance, the Scan Disk Memory Card that is being offered for sale on Amazon is selling goods for about $53,050 every month.
When you're out conducting retail arbitrage hunts at local retailers, the Amazon Seller App (available for both iOS and Android) comes in very handy as it lets you quickly find the sales rank (which is different from the actual number of units being sold) and how much a product is being sold for by simply scanning its barcode.
Make sure the product is not restricted when you search for it. Before engaging in Amazon arbitrage, keep in mind that not all products are suitable for resale.
Some brands prohibit the resale of particular products. There is a list of prohibited items on Amazon that you are unable to sell. The Amazon Seller app and other comparable apps make it simple to verify this. Therefore, it makes no difference if you can charge $60 for each item. It won't be worth anything to you if you can't sell it.
Select items based on the appropriate category. It goes without saying that you should avoid choosing goods with a short shelf life. Choose long-lasting products if you're unsure of how quickly they will be delivered from the warehouse to the buyer's door. The most favored classifications consist of books, video games, and toys.
Products with an expiration date are safe to experiment with, but do so at your own risk.
Think about your margin of profit. If you'd like, you can make Amazon arbitrage your primary source of income. Since it's a business, the possibilities for profit are endless. Being a business, though, also means that losses may exceed profits.
Generally speaking, you should buy products with a minimum return on investment of 50%. Naturally, this is only after all shipping charges and other Amazon fees have been subtracted.
Think about the size of the item. The ideal scenario would be to purchase the goods and resell them right away to avoid paying storage costs. Still, unless you possess J's power. K. Rowling during a new Harry Potter release, you will have to pay a fee to store your inventory, either in a third-party logistics company or one of Amazon's warehouses.
Expenses You Should Consider
Amazon arbitrage resellers frequently earn more than 100% in profit, which makes it simpler to match rivals' prices. However, there are additional costs to be mindful of.
Shipping charges or FBA? Whether you use Amazon FBA or not, if you're filling the orders yourself, you'll still be responsible for paying shipping and storage fees.
Amazon charges. Amazon uses a variety of fees to recoup its costs from independent sellers. Whichever of the two available plans you select is irrelevant. Fees from Amazon will still apply, so keep that in mind when setting your price.
Seller applications. Although the Amazon Seller App is free, you also have the option to use a paid app like Scoutify.
Where to Purchase Goods?
Where can you find these products now that you know what kind to look for?
Anywhere that offers it for a lower price is the straightforward response. This can include dollar and thrift stores as well as retail establishments like Home Depot, Target, and Walmart. On the other hand, if you'd rather engage in online arbitrage, you can search for deals on the official websites of the aforementioned retailers.
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Shopping at thrift stores is a great way to find used goods to resell. Make sure, though, that they fall into an area where Amazon permits secondhand resale. You can proceed if there is a possibility to sell it used.
Conclusions
One of the simplest and least expensive business models you can use is Amazon arbitrage, particularly if you're new to e-commerce. Even though it may seem straightforward, it's still a business venture that needs the seller to put in effort and prepare ahead of time.
It's simple to go to Home Depot and list products at a discount on Amazon, but building a business that can generate a consistent income and allow you to leave your day job requires planning and hard work.
The Amazon arbitrage scheme has attracted a lot of followers because it is effective. Please share your experience in the comments section if you have previously tried this business model.
