Online Arbitration focuses on finding products at a very good price in one channel or market and offering them in another to make a profit on the difference.
To carry out a good arbitration, it is important to identify products at a significantly lower cost than the one offered on Amazon. To this, we add our operating costs and those that sending them to a specific platform entails. Currently, everyone is focused on using Amazon as a final sale platform because it has many advantages. In 99% of the cases where you find information about how to do online arbitrage, it will be about Amazon and/or Fulfillment by Amazon (FBA).
These calculations include: discounting the cost of the product, shipping and handling, packaging, labeling, etc. to get a real idea of profit and margins. It is an interesting technique that uses, above all, the intelligence and data that we can obtain after analyzing and comparing products. Currently, with good tools, we can know the potential of a product: how many are sold per month, how many vendors offer it, what price it has had over time, the stock in warehouses, its sales ranking, etc.
What is Online Arbitrage?
Online arbitrage is nothing more than the simple practice of using the price difference prevailing in the market. This price difference usually occurs between two markets, which is ideally known as scalping. In this case, online arbitrage is the best process to purchase various products at a discount from online retailers.
You can buy these discounted products to sell on Amazon. For example, a product is available for $25 on Walmart’s website. You can buy the product at Walmart and sell it for $45 on Amazon.
If you are confused about whether online arbitration is legal, it is worth noting that under the first sale doctrine, if you legally buy a product, you can resell it. However, you have to make sure that the product is in good condition.
How to Do Online Arbitrage?
You have already understood that Amazon retail arbitrage yields better revenue and a high-profit margin. Now, you are probably interested to know how you can start doing it. Here are some steps you need to follow.
1) Create Your Amazon Seller Account
Before you start selling your product, make sure to start your Amazon business or seller account. You will have two options when creating your account. The first is the individual seller account, which provides a free registration option. However, you have to pay a commission of $0.99 for each sale. Next up is the pro account, where you have to pay $39.99 per month.
2) Product Sourcing
Product sourcing when it comes to online arbitrage works like second-hand shopping. However, keep in mind that companies like Walmart and Target also compete with Amazon. You have to look for products, especially during clearance sales, so that you can get the best price.
3) List Your Products and Sell Them
After you find the products you want to sell, make sure you list the products on Amazon, so you can start selling. Also, you have to keep changing prices if you want to be competitive.
Pros & Cons of Online Arbitrage
Good organization and good monitoring of the costs involved are essential to undertaking online arbitration.
To summarize, the fundamental pillars are sourcing good products, reasonable price research, and realistic fee calculation. The pros and cons of this business model are:
- Pros:Online arbitration seems ideal for those who work from home, have their computer and internet connection and do not need much time to dedicate. However, it can easily evolve into a full-time job if the dynamics are successful and if the focus is on obtaining good margins and using the Amazon logistics and sales platform to its full potential.
- Cons: Generating money is not as easy as it seems; it is pretty simple to find differences in product prices, but the whole process requires having good information on product rotation, real margins, measurements, and shipping costs. The purchase price must cover all operating costs to leave us a margin.
Is Online Arbitration Still Profitable?
The short answer is YES! Online arbitration is a very profitable business venture that is easy to start and become successful. The statistics show that a large number of Amazon sellers are using this method and are very content with their profits.
Is Online Arbitrage as Same as Retail Arbitrage?
Retail arbitrage is the traditional method of doing arbitrage which requires you to visit brick-and-mortar stores such as outlet stores or retail chains to find discounted products. Sellers using this business model usually go to big retailers such as Walmart, Target, etc., to find clearance stock, liquidations, or reduced stock that can be sold on Amazon for a nice profit.
For example, you might buy ten T-shirt in Best Buy for $10 but find out that they are being sold for $20 on Amazon. This gives you a $15 profit on each item before Amazon seller fees.
Since retail arbitrage has the downside of petrol costs and time spent sourcing, online arbitrage is the more recommended method because it does not require traveling, allows you to source products anytime, and buy larger quantities from online stores.
Final Thoughts
Online arbitrage is a great way to get started in e-commerce. Just make sure you buy quality products that you can sell for the right price from the right online platforms.
