If you're not familiar with the term, online arbitrage is the process of sourcing and buying products online at a low price then selling them at a higher price elsewhere.
This can be done through online marketplaces like Amazon or eBay, or through specific websites that focus on arbitrage.
In our case though, we’re all about online arbitrage with Amazon FBA. It can also be done with Amazon FBM, if that's your preferred method.
Online arbitrage is a great way to make money if you're willing to put in the time and effort. It can be a bit of a risk, but if you do your research and choose your products carefully, you can definitely make a profit.
Just remember that like any business, online arbitrage takes time, patience, and dedication to be successful.
In this blog post, we'll discuss what online arbitrage is, how it works, and some of the pros and cons of using this business model.
What Exactly is Online Arbitrage?
Let's first give meaning to the word "Arbitrage". Arbitrage means to buy something at one price in order to sell it at a higher price. It's basically taking advantage of the differences in prices between two different markets.
Online Arbitrage is simply applying this same concept to the world of online shopping. You find products that are being sold for less on one website and then turn around and sell them for more on another website.
In our case, we do Amazon Online Arbitrage.
The key to successful Online Arbitrage is finding products that are being sold at a significant discount and most importantly, knowing how to source the right products where to find them.
If you can learn how to successfully source products online then you'll be able to make a nice profit with Amazon Online Arbitrage, without too much effort at all.
How Does Amazon Online Arbitrage Work?
The benefit of this method is that you don't even need to take possession of any products if you set your business up correctly.
You simply source products online, ship them to Amazon's warehouse and start selling. It's the ideal business model for those wanting a side hustle, or even those with an established Amazon business that want to boost their revenue even further.
One great thing about online arbitrage is that you don't need to setup an online store or an Amazon storefront (they're for "big brands" with their own product lines). You just list individual products on the Amazon marketplace which is easy once you get the hang of it.
You can do online arbitrage using Amazon FBA with just about any type of product, but it's important to remember that not all products are created equal.
In order to be successful with Online Arbitrage you'll need to choose your products carefully and most importantly, ensure that you're going to make a profit!
How Do I Find Products to Sell on Amazon with Online Arbitrage?
There's various methods when it comes to finding products to arbitrage on Amazon, two of which are manual sourcing and reverse sourcing.
Let's explain both of these sourcing methods so you know the options when it comes to scoring some hot inventory for your online arbitrage business!
Manual sourcing is pretty self explanatory and it really is one of the most straight-forward ways of sourcing products.
The first thing you need to do is familiarize yourself with various online marketplaces and retailers. Sign up to email catalogs and check retailer’s websites as often as possible.
You don't need to isolate your efforts to the big online retailers like Kohl's, Target, or Walmart etc. If you take some time to research smaller online retailers you're likely to find some hidden gems, giving yourself a competitive edge.
In order to be successful and start making some good money with this, we recommend to our OA Challenge students to spend at least one hour per day manually sourcing. You will become more efficient and you'll get more done in less time as you become more experienced, but you need to put in some hard yards to start.
Reverse sourcing is a little more technical than manual sourcing but it's a very popular method for sourcing products for Amazon FBA. Having said that, you should always do both manual and reverse sourcing.
The basic idea behind reverse sourcing is that you start with the product on Amazon, then work backwards to find out where it was sourced from.
You can do this by using various tools and extensions to find winning products on Amazon which I will introduce you to now.
Useful Software Tools for Online Arbitrage
There are various software tools available on the market to help you with your online arbitrage sourcing. The great thing is, you don't need to spend a fortune on software to actually make online arbitrage work for you.
The first tool I use in my own online arbitrage business, and one that I highly recommend for everyone else to use is called Keepa. It's very affordable and I actually spend two days of the OA Challenge explaining how it works and how you can use it.
Keepa is a Chrome extension that helps you find the sales rank and price history of products listed on Amazon. You can even use Keepa to help you find similar products to what you're sourcing. The idea here is that similar products may also be profitable. Once you get Keepa figured out sourcing actually becomes pretty simple.
I created RevROI to help me in my business, but I also offer it for other online arbitrage sellers to use at no charge.
RevROI allows you to browse online stores and when you’re on a product page, you click the RevROI chrome extension and it will scan other cashback and discount sites to find you the best site to increase your returns by stacking discount gift cards and cash back.
The whole reason I created RevROI was to save time with my online arbitrage sourcing efforts. Feel free to take a look at the RevROI Chrome extension and give it a try.
Calculating Profitability with Online Arbitrage
Now I don’t claim to be a math genius or anything, but the key to making online arbitrage work is ensuring that you’ll actually turn a profit. Otherwise it's completely pointless, right?
To start with, you need to keep track of your ongoing costs of running a business. This might include things like Amazon repricer tools, once your business grows a little, and other bits and pieces of software that you use to run your business. You’ll also be paying a small monthly fee to use Amazon FBA.
When it comes to sourcing products for online arbitrage, here’s the costs that you need to monitor to work out if a product is going to turn a profit for you or not:
Cost of Goods - what the actual products are going to cost you, including any taxes and shipping costs charged to you by the online retailer you’re sourcing from.
Amazon Prep Center Costs - before sending products into Amazon FBA warehouse you need to prep your goods according to Amazon’s specifications. I always use an Amazon prep center service for this. It's not required, you can prep and ship items yourself to save some money as you get started.
Amazon FBA Fees - Amazon charges to store your goods in their warehouses.
Amazon Selling & Fulfillment Fees - you will pay various fees depending on the category of your products, called a “referral fee”, in addition to fulfillment fees. Amazon makes these very transparent and easy to understand.
So to state the obvious, you need to add up all of the above mentioned costs and then deduct it from your selling price on Amazon. If you’ve done things right, hopefully you’re left with a big fat juicy positive number!
I’ve written in more detail about Amazon FBA Fees before, so take a look at that article.
Websites for Sourcing Amazon Online Arbitrage Products
My buddies over at Aura Repricer kindly published this list of retailers you can use to start your online arbitrage sourcing journey.
Christmas Tree Shops
Dick's Sporting Goods
Sierra Trading Post
Barnes & Noble
How to Start Online Arbitrage
Once you wrap your head around how it all works, running an online arbitrage business on Amazon is quite straightforward.
I run a very popular challenge called the OA Challenge, so obviously I am going to recommend that you join that to learn the ropes, but here as the basic steps involved in getting started:
- Sign up to be an Amazon seller
- Set up Your Amazon FBA Account
- Source your products online
- Assign inventory in your FBA account so Amazon knows its coming
- Ship your products into Amazon’s warehouse and get selling!
You don’t want to be stuck with a load of inventory sitting in your garage or even worse, in Amazon’s warehouse.
Online Arbitrage Frequently Asked Questions
Of course. I know many people that make an absolute fortune with this method of selling. In any online business the main reason for failure is giving up too soon. It takes determination, persistence and patience to succeed online.
Dropshipping is very similar, however usually you buy directly from a supplier after you have made a sale, and they ship it directly to your customer. There are lower startup costs with dropshipping however the risk is greater. The benefits of using Amazon FBA, such as Amazon Prime, present a very lucrative opportunity for sellers and you simply cannot get that with dropshipping.
Dropshipping is against Amazon terms of service in most cases. With dropshipping you usually you buy directly from a supplier after you have made a sale, and they ship it directly to your customer. There are lower startup costs with dropshipping however the risk to your account is much greater. The benefits of using Amazon FBA, such as Amazon Prime, present a very lucrative opportunity for sellers and you simply cannot get that with dropshipping.
Whichever one is going to make you the most profit! 🙂
In all seriousness though, products that need to be replenished often, called “replens” in the Amazon world, are a great option because you know there’s always going to be buyers for your products. Think undergarments, toiletries, tools and parts etc. Whatever people are always buying, you want to be the one selling them!
Very much so. There is no law against buying product for a low price and flipping them for a profit. This is how the world works. You’re the one putting in the time, effort, and money to source products at a low cost and if there are willing buyers, you deserve to turn a profit.
The Final Word on Online Arbitrage
Now we’ve covered online arbitrage and how it works with Amazon FBA, what do you think?
Is this a business model you can see yourself doing?
You can do it sitting on the couch watching TV at night, or on your lunch break. It's not difficult but it can be tedious and it just takes a little time and effort.
After a while, you will develop a sixth sense for what is going to sell and you can easily do this business as a side hustle or turn it into a full time job.
Imagine being that person that quits their day job because you made so much money selling shoes, socks and jocks online simply by browsing around and finding bargains!
I can certainly think of a lot worse ways to make a dime!
So as always, please feel free to join my email list in the little box below and stay in the loop when it comes to the ups and downs of Amazon life.
Until next time, thanks for reading!