Online arbitrage (sometimes referred to as retail arbitrage) is, like all sales ventures, based on the concept, “buy low and sell high,” but in this case it’s “buy lower and sell higher.” You buy goods online at a lower price than they’re currently selling for on Amazon, and then resell them on Amazon at a profit, taking advantage of that price mismatch.
Unlike some other forms of arbitrage or reselling, in online arbitrage you buy online only, not from brick and mortar stores. And you do so as a consumer, at retail prices, not as a business buying at wholesale prices directly from a manufacturer or distributor.
Online arbitrage is not the same as Amazon-to-eBay Arbitrage, which involves finding items available from Amazon and listing them for sale at a higher price on eBay but not actually buying them until the items you’ve listed sell on eBay. In online arbitrage as discussed here, the arbitrager buys merchandise before listing it for sale. You can limit your online selling activities to Amazon, or use online arbitrage in addition to selling through another channel, such as your own website or a Shopify store.
In order to list items for sale on Amazon, you’ll need to set up a seller account. There is an Individual seller option, but most people who are serious about giving online arbitrage a try will establish a Professional Seller account. You’ll need to familiarize yourself with Amazon’s rules for selling. You don’t want to find that your account is suspended over an infraction of a rule you weren’t even aware of.
Here are some ideas that should help you get started on the path to success in online arbitrage.
- What to Buy
- Where to Buy
- How Much to Pay
- Automated Tools
- Fulfilment by Amazon (FBA)
- Keep It Legal
- It’s a Home-Based Business
- Use Social Media
- Invest in Your Success
- Start Small
1. What to Buy
Aside from price, which we’ll look at shortly, the most important consideration in selecting products to buy for resale is that you want to sell them off quickly, not stockpile them long-term in your garage or basement. Two indicators of a product that will sell well are decent product reviews and a good Amazon seller ranking.
Since you will be taking delivery of the goods you buy, you will need to consider your storage capacity as well. If your only storage space is a hall closet in your home, you probably shouldn’t be looking to buy and resell pianos or big-screen televisions. Buying smaller items will also help keep your shipping costs down.
Some online arbitragers leverage their knowledge of a particular niche, such as toys or consumer electronics, or high-end cookware, to develop a specialized business. Others prefer to remain flexible and buy an eclectic assortment of merchandise.
2. Where to Buy
In online arbitrage, you buy from online retailers that are known for their low prices and frequent promotions and clearances. In the United States, Walmart.com is a prime example. However, that means that plenty of other online arbitragers will be looking for bargains there, too. You may be better off searching in niche stores, especially if you are specializing in a particular product niche.
3. How Much to Pay
Online arbitragers typically look for items selling at no more than half of their current Amazon listing price. The price difference needs to be large enough to cover shipping charges and your listing fees and still leave you with a good profit margin. Bear in mind that prices can change unexpectedly, turning what looked like a profitable deal into a losing proposition.
4. Automated Tools
Finding arbitrage opportunities could easily eat up every waking hour if you let it. There is simply no way for one person to monitor enough products and enough sources without using some of the many available automated tools designed specifically to support online arbitrage.
Amazon’s price tracking software gives you the price history of all of the products sold on Amazon. Amazon price trackers make it easy to distinguish temporary price anomalies from the typical price for a product over time, helping you avoid acting on a short-term price increase that may well disappear by the time you have purchased units to list for resale.
Amazon also offers revenue calculators to help you determine how much you need to charge for an item to cover fees and make a profit. There are separate revenue calculators for North America (US, Mexico, Canada) and Europe.
There are a number of price monitoring tools that yield daily lists of products you may want to consider buying for resale on Amazon. The Web Retailer Directory is a good source of information about arbitrage deal finders. Most of these tools are available for a monthly fee (typically from $20 to $100 per month).
5. Fulfilment by Amazon (FBA)
When you use Amazon’s FBA program, you take delivery of the items you have bought for resale, label and package them, box them all up, and ship them to Amazon’s warehouse. From that point on, Amazon takes over, assuming responsibility for fulfilling customer orders and providing after-sale customer service. You’ll pay the FBS fee, but in the long run, it can save you a lot of time and money that would otherwise go to packaging and shipping each individual customer order. It also means you get to use your hall closet for its intended purpose: storing coats and umbrellas, not merchandise waiting to be sold.
6. Keep It Legal
Some online arbitragers have received “cease and desist” letters from the manufacturers of goods they are reselling on Amazon, raising questions as to the legality of online arbitrage. Rest assured that the practice is legal, based on the legal concept of the “first sale.” The first sale doctrine establishes the legality of reselling any authentic item that you have obtained through legal means, the word “authentic” being very significant.
You could find yourself in hot water if you sell counterfeit items even if you buy them from established retailers, believing them to be authentic. If the manufacturer becomes aware that you are selling counterfeits, you could be sued for trademark infringement. The simple solution is to avoid buying designer products that carry major, well-known labels, because those manufacturers keep a close eye on Amazon, eBay, Etsy and other online sellers to try to maintain control over their valuable trademarks and avoid dilution of their brands.
Even so, manufacturers of trademarked goods often distribute their products only through authorized sellers, and if you don’t have a distributorship agreement with them, you might receive one of those “cease and desist” letters.
7. It’s a Home-Based Business
Another aspect of keeping it legal is to run your online arbitrage operation as a legitimate home-based business. Set up a legal business entity, whether it’s a sole proprietorship, a limited liability corporation (LLC), or something else. Get some legal and tax advice to make sure that you’re in compliance with applicable local, state, and federal laws and regulations.
Keeping detailed records of your income and expenses will facilitate the preparation of tax returns and give you a realistic picture of your cash flow and the profitability of your online arbitrage activities. Consider using off-the-shelf accounting software to automate your bookkeeping, check writing, and tax preparation.
8. Use Social Media
Successful online arbitragers typically use social media to drive traffic to their Amazon listings, so try to learn something about social media marketing if the concept is new to you. Try embedding a link to your Amazon page in your posts on Facebook, Instagram, Twitter, and any other social media platform you use.
Getting your social media followers to Amazon, which has a higher conversion rate than any other website, should boost your sales significantly, especially if your followers share your posts with others. Try setting up a business page on Facebook and using Facebook ads to direct visitors to your Amazon page.
9. Invest in Your Success
Invest the time to learn more about online arbitrage before diving into it headfirst. There are numerous online resources, from blogs to YouTube videos, to full-blown courses that will help you educate yourself. Decide how much money and time you’re able to put into launching your arbitrage business. Be prepared to spend at least a few hundred dollars to get started.
Learn as much as you can about all of the fees and expenses you’ll incur so that you can set your pricing to yield a reasonable profit. And understand that online arbitrage involves some degree of risk, most notably the risk that the price mismatch could disappear before you sell out your inventory of an item.
10. Start Small
Try wading before you venture into the deep end of the pool. Once you have a firm grasp of the process, try it out with a few select items, or even a relatively small quantity of one item, to test out your assumptions about demand and pricing. Many online arbitragers work at it for only a few hours a week, regarding it as an additional income stream rather than a primary source of income. Others eventually become full-time arbitragers, but the majority fall somewhere in between. You’ll find the involvement level that suits you best once you’ve gained some experience in online arbitrage.
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