You've heard of retail arbitrage, but you're not sure if it's a real thing or just a scam.
The truth is that you can make money by reselling items on Amazon. But the problem with most guides out there is that they focus more on theory than practice, making them hard to follow and apply in real life. In this article we will explain everything you need to know to make money with retail arbitrage on Amazon.
This guide will teach you how to find profitable products for resale on Amazon using simple tools like the Amazon seller app with no technical skills needed. We show you exactly how to effectively use the tools when sourcing new products for your business.
You'll learn step-by-step how you can buy low from stores like Target or Walmart then sell high on Amazon within days or weeks at a profit.
What Is Retail Arbitrage?
Retail arbitrage is a strategy that involves buying low and selling high on online marketplaces like Amazon. The idea of retail arbitrage goes back decades and has recently seen a resurgence with the rise of global on-demand shipping and low-cost warehousing.
Retail arbitrage has been around for decades, with its first recorded mention in the 1800s. Even then, the idea was to buy low and sell high – back then, it was for purchasing cotton in America and shipping it to England to be sold at higher prices. Even though technology has evolved since then, retail arbitrage is still based on the same principle - low price > high profit.
Here is an example of how retail arbitrage works. Imagine you are in a store looking for low-priced items that might sell well on Amazon. You spot a set of screwdrivers that cost $25.00 on Amazon. You purchase this product at a local store for $15.99, and after putting the cost of shipping, fees, and other expenses (you will learn more about them later), you sell it at $23.99. You sell it lower than the retail price, and you maintain a healthy profit margin.
Comparison Between Retail Arbitrage And Other Business Models
Now that you know what retail arbitrage is, let us compare it with these business models: dropshipping, private label, wholesale, and online arbitrage.
Dropshipping
Dropshipping is a business model where the retailer does not keep the product they are selling in stock but instead has it drop-shipped directly from a third party. A dropshipping order is fulfilled and shipped by an independent third party. Please read our blog post on: Is dropshipping dead? 2021 dropshipping trends to learn more about this business model.
Private Label
Private label involves creating a brand from existing products by adding your branding to it. The strength of a private label product comes from its brand exclusivity and differentiation from the competitors.
Wholesale
A wholesale business model means buying in bulk from the manufacturer or other suppliers and reselling to customers. You must have a warehouse, staff, inventory storage, order processing, and shipping resources in place.
Online Arbitrage
Online arbitrage is buying at a low price from online marketplaces like eBay, Amazon, Aliexpress, etc., and selling at a higher price on other online marketplaces or your eCommerce site.
Is Retail Arbitrage Legal?
The short answer is yes. Arbitrage is a legal and legitimate business practice. The legal issue arises when you begin to make high-volume purchases that might lead to "anti-competitive" behavior or with distribution networks, particularly online.
A good example would be purchasing hundreds of products from a source for resale at a local garage sale. This could be considered anti-competitive behavior by the Federal Trade Commission (FTC) because you are creating an unfair advantage over other resellers or distributors of the same product.
Repeat purchases of inventory by Amazon FBA is another excellent example. As long as you make all your purchases through the Amazon FBA program, you are operating within their terms of service. However, suppose you made large purchases outside that system or purchased directly from a supplier or manufacturer. In that case, it could be seen as an attempt to monopolize the market for that product.
The FTC uses what is called the "rule of reason" in antitrust cases. This means they will look at the overall effect the business practices in question had on the market, not just individual instances. So one or two large purchases that didn't directly compete with any existing products wouldn't likely be seen as problematic by the FTC.
Keep in mind that if you are engaging in arbitrage, there is no guarantee your resale prices are legal. It is up to you to ensure your pricing practices are compliant with all laws and regulations.
Why Choose Amazon Retail Arbitrage?
There are a few advantages of working with Amazon.
The first advantage is that this business model is easy to start. Most beginners have reported that they launched their business within a few weeks.
The second advantage is that it requires low start-up costs. The start-up cost is determined by the products you intend to sell, but most people start with less than $500.
The third advantage is that there's no limit on how much you can sell and profit. There's no company telling you what prices to set or what products you can buy. The only limit is yourself.
So, how do you join other retail arbitrage sellers?
Getting Started With Retail Arbitrage On Amazon
Create An Amazon Seller Account
To create a seller account, go to the Amazon home page. There are two options here: click on "Sell" in the top menu or scroll down to the bottom of the page and click on "Sell products on Amazon."
Picture above: Amazon homepage
Picture above: Amazon homepage
Clicking either of these will take you to the Amazon sellers sign up page. There are two types of seller accounts: professional and individual.
Professional Account
To create a professional account, click one of the "Sign up" buttons.
Picture above: Amazon seller sign up page
This account costs $39.99 per month plus selling fees. With the professional account, you can:
Individual Seller Account
To start selling with an individual Amazon seller account, scroll down and click on "Sign up to become an individual seller."
Picture above: Amazon seller sign up page
An individual seller account costs $0.99 per item sold plus selling fees.
With this account, you are restricted to selling 40 items only, and you cannot advertise your products. You also cannot sell in restricted categories.
The additional selling fees on these two plans are referral, fulfillment (FBA or FBM), inventory, high-volume listing, and refund administration fees.
Get The Amazon Seller App
The Amazon seller app is a free tool for Amazon sellers. This tool gives you control over your Amazon business because you can use it for scanning, listing, and fulfilling orders.
To get the Amazon sellers app, download it from Google Play or the Apple store. Then, log in to your seller account to manage your business remotely.
Picture above: Amazon seller app
With an Amazon seller account and the seller app, you're now ready for the next step which is sourcing for products.
Source For Products
To source retail arbitrage products, visit local retail stores especially big-box retailers and discount stores. Depending on your locality, you can visit one of these retail stores to get started:
These are some of the retailers we recommend for retail arbitrage sourcing, but you don't have to visit all of them.
When visiting your local retail stores, check clearance items and sale products.
Pro Tip: Use BrickSeek.com to check available deals in local retailers and online stores. Simply type your zip code to get all deals available in categories such as electronics, toys, and games.
Picture above: BrickSeek home page
Scan Products
Once you are in the store, use the Amazon seller app to find profitable products that you can start to sell.
To scan clearance and sale products with the app, click on the camera icon in the top right. Use the camera to scan a product's barcodes.
Image credit: Dummies.com
When scanning products with the Amazon seller app, you will know if you are eligible to sell a product and see the sales rank. The sales rank tells you how fast a product is selling in the Amazon marketplace.
A lower sales rank means it is selling more compared to a higher sales rank. Remember, sales ranks also rely on product categories. If a product has a low sales rank in a category with many products, that is a profitable product.
Determine the base sales rank you want to follow and stick to it as you learn the trade. For example, you might want to sell products that have a sales rank of under 100,000. This is the first milestone to master before moving on to the next one.
Buy Profitable Products
After scanning the products, the next step is to check how much profit you'll get and calculate the investment return. The profit is visible on the Amazon seller app, so you need to set a base that you can stick to.
For example, you can set a profit base of $4 per item. Then calculate returns on investment (ROI) and have a set figure (for example, 60%) to make your work easier. To calculate ROI, divide profit by cost of purchase.
If a product meets all your set criteria: sales rank is low than 100,000, profit is $4 or more, ROI is 60% or more, and you are eligible to sell, go ahead and buy the product.
The number of units to buy depends on how much you are willing to invest and risk. We recommend starting with a few products between 5 and 10.
List On Amazon
After purchasing the discounted products, the final step is to list them on Amazon. When listing the products, you will choose between Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM) for shipping.
We have a detailed review and comparison guide of FBA and FBM that will help you select the best option for your retail arbitrage business.
You can list products using the Amazon seller app or using your seller central account.
Retail Arbitrage Tips
To help you succeed in your retail arbitrage business, here are a few quick tips.
Sell Seasonal Products
To make a killing with retail arbitrage, stock up on items that sell well during certain seasons. Examples of these are Christmas decorations and supplies, Easter candy and toys, etc. People tend to buy more of these kinds of goods around the holidays.
Before you even set foot in a retail store or yard sale, ask yourself what kinds of items are most likely to sell quickly. Will people want Barbies for Christmas? Will they ask for air conditioners during the summer? Be prepared with answers to these questions. Researching this can make you a successful Amazon seller.
Sell Discontinued Products
Discontinued products are sought after because they're harder to find. If you happen to have a popular discontinued product on hand, put it up for sale on Amazon. You can expect people to search high and low for discontinued items, making them good targets for your retail arbitrage business.
To get discontinued products, look for them at small local stores or search on eBay.
Be Patient
Patience is one of the most important traits you can have when it comes to retail arbitrage. You will go through the process of understanding the business and finding what sells before you reach your goal.
Give yourself enough time to learn the ropes before you start getting impatient with your business. With time you will know which products are profitable for the retail arbitrage business model.
Is Retail Arbitrage On Amazon Possible? FAQ
No, Amazon does not consider it to be. According to Amazon's Terms of Service, you are allowed to sell any item that can lawfully be sold. You are also able to buy products from other sellers. Amazon is completely neutral because they have no control over what the product is or who listed it, so long as you abide by their rules, you should be fine.
When you first hear about making money through arbitrage, it can seem a little daunting, but it's much easier than you think once you get started. The main things to keep in mind are knowing the rules, researching comparable products, and making sure your listings are visible to buyers.
First, make sure that you know which category your product falls under for selling on Amazon. Certain categories require approval before you can sell them. Research the product and find out what other sellers are selling it for. You will also have to know what your profit margin is going to be.
To ensure your product listing is on the first page of Amazon, read our guide with 11 tips on how you can rank on the first page of Amazon.
You want to send your products to Amazon FBA because the storage fees are much cheaper than shipping them yourself. When you are sending an item, be sure that it is labeled correctly with the barcode and the retail price. Once your product arrives in Amazon warehouses, they will label it with its correct information.
Yes! You can make a lot of money if you know how to do it right. Retail arbitrage is all about finding the price difference between what something costs and what it sells for. It might sound complicated at first, but with a little bit of practice, it's easy.
With a retail arbitrage business, you can make as much as $10,000 per month if you do it right. Starting an ecommerce business is actually one of the side hustles listed on how to make over $10,000 per month.
Final Thoughts
Retail arbitrage is a great way to get started with making money online. If you have the correct information, as we have provided above, and take action, it won't be long until you make your first sale!
If you want to succeed with retail arbitrage on Amazon, be sure to check out our article on 6 ways you can convince a customer to buy. It will teach you about the six principles of selling that can help you as a retail arbitrage seller.
