Arbitrage is buying an item for a reasonable price and then reselling it for profit. You can also define the term as purchasing an item for less than its selling price. When you're an Amazon seller, you have two main options: Online arbitrage and retail arbitrage. Both can be profitable, but they require different skill sets and strategies to be successful.
This guide explores online arbitrage vs. retail arbitrage on Amazon in 2023. We'll compare the two methods of buying and selling goods and look at the advantages and disadvantages of each. That way, you can decide which method is best to use for you!
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What Is Online Arbitrage?
Online arbitrage is when you buy products from third-party sellers on sites like eBay, Craigslist, or Facebook Marketplace and sell them again at a higher price elsewhere. You typically seek deals, discounts, and holiday sales and try to secure products at the lowest price. Once you have the product, all you have to do is list it on Amazon or eBay and wait for it to sell. You can also do online arbitrage with Amazon FBA, which stands for fulfillment by Amazon. You ship the products to Amazon and let them handle packing and shipping.
How Online Arbitrage Works On Amazon
Amazon resellers are individuals (or companies) who purchase products at the lowest possible price and resell them later in the marketplace. They earn from the price difference between their sale price and sourcing price. Resellers purchase ready-made products in large quantities at wholesale prices. They browse platforms like Alibaba, AliExpress, and eBay to find the lowest-priced products and make profits once they sell to the end customer.
Benefits and Limitations of Online Arbitrage
Online arbitrage is the easiest way to make money on Amazon without much risk but requires a lot of time and effort. If you're willing to spend some time sourcing products and shipping them to Amazon, you can start making money from day one.
- A low-cost entry into the business
- Diversification of goods
- Most people engage in ecommerce to make a quick earning
- A long time is required for a refund
- Challenges due to frequent inventory updates
- Highly competitive space
What is Retail Arbitrage?
Retail arbitrage is buying items at retail stores and selling them at an online marketplace like eBay or Amazon FBA (Fulfilled by Amazon). This method has been around longer than online arbitrage. It requires you to find physical products for low prices in stores near where you live. You then sell the products online by listing them in your marketplace. Is retail arbitrage legal? Yes, absolutely! You just have to make sure you don’t over-purchase discounted items from a single store with limits on them. For example, stores that sell discounted essentials like butter may limit customers to purchasing only 2 or 3 packets at a time.
How Retail Arbitrage Works on Amazon
Retail arbitrage is another way of making money through Amazon, but instead of buying the product from an online store, you buy it from a nearby store. You then sell it on Amazon for a profit. To do retail arbitrage, you need to find a product selling for less than its retail price. Then you buy it from the store and sell it on Amazon for a profit.
Benefits and Limitations of Retail Arbitrage
The retail arbitrage industry has grown significantly in the last few years. Read on to discover the pros and cons of getting into the business model.
- Offers a quicker, simpler, and lower-risk option for barter trading
- Quicker business setup
- You can start your business with any budget
- Business success depends on your ability to acquire inventory
- You are limited by what's in stock and on sale
- It takes some serious physical searching and driving to different locations to find great deals.
- There are fewer opportunities for profits because you have limited options for research and access.
Online Arbitrage Vs. Retail Arbitrage - Which is Better?
It's a tough call: You can make money by buying items at retail stores, then selling them online, or you can buy items at wholesale prices, then sell them at retail prices. Whatever route you choose requires research, time spent learning how the process works, and a lot of patience.
Fortunately, you don’t have to choose between online arbitrage and retail arbitrage when selling on Amazon. You can do both.
When it comes down to it, both methods are great ways to make money on Amazon. But which one is right for you? That depends on what kind of seller you are and what type of lifestyle you want to live.
If you fancy being your own boss, have much time and energy to devote to a business, and don't mind researching before jumping in, then online arbitrage might be right for you. On the other hand, if you don't want to worry about getting deals shipped to you and are looking for an immediate return on investment, then retail arbitrage may be better suited for your needs.
How to Start Online Arbitrage?
Online arbitrage is a popular side hustle that can be done from anywhere. It's also a great way to supplement your income if you're trying to make extra money.
There are many methods to do this, but the most common way is through Amazon. You find an item selling for less than it should be and then buy it from eBay, Craiglist, or any online store. You then ship it to an Amazon fulfillment center and create a product listing on the platform. I’ve shared some additional tips and tricks below.
Analyze Products to Resell on Amazon
You first need to find a product selling for less than it should be. It's not always easy, but you can get lucky if you're patient and keep your eyes out for deals. You can go through the Amazon Best Seller lists or check out some websites where people sell their products for lower prices (such as eBay).
The key is to look for products in high demand but with low prices. You want something that sells quickly, so if you find a product selling well but with a low price tag, it could be worth buying and reselling on Amazon.
Where to Get the List of Profitable Products?
Online arbitrage software helps you research the data to find profitable products. Product Research for Amazon is an easy-to-use, intuitive tool that makes the research process smooth and straightforward, even for newbies on Amazon. You’ll find many explanatory tips inside the tool. You can apply smart filters that sort out the most profitable products for resale automatically.
Analyze Your Competition
Once you've chosen a product, the next step is to see how it will stack up against other sellers. You'll want to analyze and study the top products in your category and see how they're doing. Check out their reviews and sales numbers to see if your product can compete with theirs.
If there are over 1,000 listings for similar products on Amazon, consider finding another niche with fewer competitors. The Traffic Insights for Amazon tool from the Semrush App Center can help you analyze competitor listings.
Conclusion - Is Arbitrage on Amazon Worth the Effort?
When it comes down to it, arbitrage on Amazon is a great way to make some extra income. Whether you're looking for a side hustle for extra earnings or you want to build your own business, selling on Amazon can be a fun and profitable experience.
However, arbitrage should only be considered the first step in your ecommerce journey. Excessive competition and unpredictability of inventory can impact your Amazon's success. In the long run, it is better to trademark your own products and build a brand on the platform. Arbitrage will help you reach six figures, but trademarking lets you scale beyond that!
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Arbitrage is just one newbie selling model on Amazon. New sellers can benefit from dropshipping as well. Read our Complete Dropshipping Guide for Amazon Sellers to expand your business further.