The Best Guide to Online Arbitrage in 2022
You’ve probably already heard of private label selling on the Amazon marketplace. With so many Amazon gurus talking about this lucrative way of building a brand, it may seem like the only option. But, did you know that there are many ways to make money on Amazon, besides private label?
One of the easiest ways to do so is through Amazon Online Arbitrage (OA), a legal business model that doesn't restrict you to a brick-and-mortar store. For many people, when getting started on Amazon, the biggest hurdle is to figure out where to source goods to sell. You can use several strategies, but the simplest is Online Arbitrage. Online Arbitrage works exceptionally well when used alongside the Amazon FBA program.
Let's find out what Online Arbitrage is and what you need to do in order to get started.
What is Online Arbitrage?
Online Arbitrage has the same benefits as Retail Arbitrage but without driving all over town and standing in store lines waiting to buy products for sale. Retail Arbitrage involves purchasing products at a low price from a retail store and reselling them in an online marketplace, at a profit. For Online Arbitrage, you buy products from online marketplaces and flip them on another online marketplace, for a much higher price.
Why is Online Arbitrage so popular? This business model means you never deal with suppliers or large order quantities. It is also a business you can grow right from the comfort of your own home. The whole concept of OA is looking for the difference in the pricing of certain products on different online marketplaces. Often, products are priced cheaper on some websites than on others. In such cases, you can take advantage of that price difference by purchasing the product where it is cheaper, and selling it on another marketplace where it is priced higher. How much profit you make depends on how big the price difference between the two is.
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With Amazon Online Arbitrage, you can order as much inventory as possible if you have the resources to ship it to Amazon’s fulfillment centers. At the same time, products arrive at your doorstep already packaged, which means you’ll never have to invest in packaging materials. However, despite all these, OA does have its downsides:
- There is a higher learning curve because you have to move from one online marketplace to another, and then back to Amazon to compare prices
- If you're not tech-savvy enough to use price tracking software, prices may change on Amazon before your inventory even arrives
- Inventory mismatching across the different marketplaces is a possibility (It can be hard to tell if the item you want to buy matches the Amazon listing, especially if the website you are sourcing from doesn't list the UPC)
- Sourcing for inventory online means more competition as more and more sellers shop on the same websites rather than at physical stores
- It's tedious and time-consuming since it means a lot of back and forth between retail sites and Amazon to compare prices
- Calculating profit can be challenging because, while there are tools to help with that, many are not easily accessible or easy to use. These tools often cost money
- Profits are also lower compared to Retail Arbitrage
What Do You Need To Start Amazon Online Arbitrage?
Starting with Online Arbitrage takes the same shape as any Amazon business strategy; creating an Amazon Sellers Account first. With Amazon, you can sell inventory in two ways - Fulfilled by Merchant (FBM) and Fulfilled by Amazon (FBA). If you're selling Online Arbitrage, though, the FBA program makes more sense.
With Amazon FBA, your products automatically become eligible for Amazon Prime and 160 million Amazon Prime members. Another reason to choose Amazon FBA is that sellers who use this program generate more sales over time because of increased purchase box representation. The Amazon Buy Box is the box buyers on Amazon utilize when purchasing goods. The buy box is rotated between different Amazon sellers based on factors like seller reviews, prices, and whether the item is considered FBA. Sellers who don't sell through Amazon FBA miss out on Buy Box representation and typically don't have the required sales volume to really succeed.
Once you have your Seller account up and running, there isn't much left to do. All you need is a computer, internet access, and money to buy your initial inventory. There are also a few Online Arbitrage tools that you can purchase to help you source products more efficiently. However, starting on a limited budget, you can do without them for now.
The most important factor in succeeding with Online Arbitrage is purchasing products that will fetch you a decent revenue on Amazon. The mistake most new Amazon sellers make is buying products without analyzing the numbers to calculate their potential profit. Don't make this mistake. You are running a business at the end of the day, and the most important thing is making a profit.
Where can you find products for Online Arbitrage?
Getting started with OA might seem complicated at first, especially when finding products to sell. It will involve a lot of research and, of course, Arbitrage software. Plus a few hits and misses until you develop a system that works for you. First, decide on what niche you want to sell in. Some niches do better than others in Online Arbitrage. Some popular niches you can sell include home & kitchen, toys & games, books, and beauty & personal care.
You can then start sourcing for products when you have a niche in mind. There are many places to look, but starting with a marketplace you are already familiar with is always a good idea. So, if you frequent certain stores such as Walmart or Target, go to their websites and try looking through their clearance section for deals. You can also take advantage of SmartScout Amazon arbitrage software using the product finder feature to help you find the best products for OA.
Large Retailers With an Online Presence
With Online Arbitrage, consider sourcing products from large retailers with an online presence to scale your business. Chances are, such a retailer already has large quantities of the product you want, at low prices. And, these stores always have clearance sales where you can buy as many items as possible. As you get the hang of Online Arbitrage, you will come across other online retailers, some well-known and others not so well known.
Niche stores are also an excellent place to source products to sell. The thing about niche stores is that they are not as popular to find Online arbitrage deals. But, this is a good thing because there aren't a lot of sellers who visit them looking for products. Deals they offer might work in your favor since you will be selling products that not many other sellers have in their inventory.
Promotional sites typically have offers on different products. It’s important to go through the numbers and compare the promotional price of a product to what it is selling for on Amazon. That way, you will know if your profit margins will be good enough to continue.
Other Online Marketplaces
When selling on Amazon, you can source products from other online marketplaces as long as the profit margin is good. This could include e-commerce stores like eBay, Etsy, Craigslist, OfferUp, Let Go, Walmart.com, and Facebook Marketplace.
Once you've identified the store you believe will work for your business, register to their email subscription list. Their emails will update you on new stock, clearance deals, and low prices. You might also want to sign up for the reward programs they offer to score even better prices.
Is Online Arbitrage Lucrative?
Amazon Online Arbitrage is a very lucrative business model when done right. The whole point is to find products retailing at lower prices on one marketplace and are selling at a much higher price on another online marketplace, such as Amazon. OA sellers are some of the highest earners, making six figures per year. While most do various Online Arbitrage practices, many involve selling on e-commerce stores such as Amazon. To get there, you need to set yourself up for success from the beginning.
Online Arbitrage involves using Arbitrage software to find good deals and compare prices on different marketplaces. Ultimately, you want a business with a good profit margin. Ideally, to succeed in Online Arbitrage, you want to find products that are being offered at less than half of what they are selling on Amazon. Why? Amazon takes a certain percentage cut in referral fees every time you make a sale. There are also storage and fulfillment fees to consider if you are also selling through Amazon FBA. So, you’ll want a good profit margin that allows you to pay for such costs, and still have enough money to buy more inventory and keep a worthwhile profit.
Can You Scale an Online Arbitrage Business?
Yes, Online Arbitrage is a very scalable business model. What matters is where you source and buy your products and sell them. But, that's not all. You must also consider other costs like shipping, storage, and referral fees. Doing Online Arbitrage on a platform such as eBay is a disadvantage because you will have to ship every order to your customers. Scaling such a business this way will not be easy; at some point, it will take a toll on you and your bottom line.
Amazon, on the other hand, works differently. Amazon has programs that take the stress off of online sellers, so that you can focus primarily on scaling your business. With Amazon FBA, all you need to do is source products, buy them, ship them to Amazon, and they will handle the rest. Amazon FBA handles customer shipping, customer service, returns, and a few other aspects of your business for you. If you find the right products that move fast, you can make profits quicker and really scale your business in a short time.
Amazon Online Arbitrage is a legitimate business model for anyone looking to start an online business on one of the world's largest e-commerce platforms. While Online Arbitrage can work on any marketplace, Amazon makes it easy to start selling and scale your business quickly.
Check out the SmartScout tool suite to help you source the best products for your OA business. Get a free demo today!