An introduction of Amazon Arbitrage
Buy low, sell high. You’re likely familiar with this saying and this is basically the meaning of arbitrage. You may have heard the term arbitrage in reference to stocks, but it just means purchasing something and selling it for a higher price and netting the profit. Amazon arbitrage refers to the different types of arbitrage methods that happen in Amazon’s marketplace. It’s one of the best online businesses for new entrepreneurs to start.
Sellers on Amazon find a product for a good price in their local area or online and they sell the same product on Amazon for a profit. Amazon Arbitrage is one of the most popular ways to sell on Amazon because anyone can do it. Since prices are not the same for the same products nationwide, the opportunities for arbitrage are endless.
Successful sellers which engage in Amazon arbitrage are great at taking advantage of opportunities like sales, discounts, liquidations, etc. to find products that sell well on Amazon and can provide a good profit. There are two main types of Amazon arbitrage: retail arbitrage and online arbitrage.
Retail arbitrage is the practice of finding discounted physical products in stores and selling them on Amazon at a higher price. Retail arbitrage sellers on Amazon use the Amazon seller app or other apps to scan products in stores and purchase the products that sell well on Amazon and turn a profit. Retail arbitrage can be time-intensive, but sellers can find tens of products to sell in a single store.
Once sellers find a product, they list them on Amazon and send the products to an Amazon warehouse. Once this is done, Amazon stores the product until it’s sold and then ships the product to the end customer. Retail arbitrage sellers only need to focus on finding the products and shipping them to Amazon. This enables them to scale their business without having to deal with returns, customer service, etc.
With retail arbitrage, the better you can source, the higher your profits will be. For example, if a seller has access to a certain place to source that others don’t, they can have much higher margins. This can include estate sales, garage sales, wholesale distributors and more.
Online arbitrage is practicing arbitrage with online websites instead of physical stores. A retail arbitrage seller may look through Walmart or Home Depot, but an online arbitrage seller will use software to look through walmart.com and homedepot.com. With online arbitrage, the software tools you use can make or break your business.
Retail arbitrage is free because you are using your own resources. In contrast, many of the best online arbitrage tools cost a monthly subscription. Some sellers have private groups where they share tools and resources, but the best online arbitrage software programs are available to the public. Although the monthly subscription for online arbitrage can be costly, you can make that money back many times over if you learn how to do online arbitrage correctly.
Online arbitrage sellers follow the following process to sell products: They use a software tool to find hundreds of deals to choose from. They select a product and purchase it. The product is sent to their home/office or directly to Amazon. They make the sale on Amazon and the process repeats itself. For online arbitrage sellers that don’t want products arriving at their homes/offices, there are prep centers that can ship products to Amazon for them at a low rate. This can enable sellers to build great Amazon businesses without ever seeing or handling any products.
Can you make a full-time income from Amazon Arbitrage?
Yes! There are many sellers who make their livelihoods doing Amazon arbitrage and you can definitely do it if you put in the work. Let’s break it down. The median household income in the U.S. is roughly $60,000 per year give or take a few thousand dollars. This means you’ll have to make $5,000 in profit per month to get to that $60,000.
It’s important to differentiate sales from profit because your net profit after all the Amazon fees and the money you purchased your product with is your take home pay. Let’s assume you have 30% profit margins (that’s very doable with arbitrage). You will have to have roughly $180,000 in sales to have $60,000 in profit.
You should keep several things in mind. First, $180,000 seems like a huge number, but it’s definitely doable over a few years of work. In 2019, it was reported that more than 200,000 sellers sold over $100,000 and more than 50,000 sellers sold more than $500,000 on Amazon. This isn’t a statement saying “if I can do it, you can do it”; if 200,000 people coming from all types of backgrounds can do it, you definitely can do it.
It’s very likely mathematically that if you put in the work and reinvest in your business, you can do it. Lastly, I’m assuming you’re going to reinvest back in your business if you make profits. Selling on Amazon can be a good side hustle to earn a few thousand dollars here and there, but if you want to see full-time income, you’ll need to change your mentality.
Unless you’re working crazy hours on Amazon, it’s highly unlikely you’ll make $60,000 profit in your first year. If you reinvest back in your business after your first year on Amazon, it’s very possible you can make $60,000 or more profit in the following year.
Why Amazon Arbitrage is the best way to get started selling online:
Amazon arbitrage is honestly the best way to get started selling online. Since you are leveraging Amazon’s logistics and you have access to literally hundreds of millions of customers, all you need to focus on is finding good products and sales will come. Some of the best reasons why you should give Amazon arbitrage a try include:
Low barrier to entry: There are many opportunities for sellers online to get started in ecommerce. Amazon arbitrage is one of the best because there is a low barrier to entry. Anyone can fill out a seller application and be approved to sell on the platform. Once your application gets approved, you can get access to millions of customers immediately. There’s no other platform that’s as willing as Amazon to give you access to so many customers. The ease in which Amazon allows sellers to sell on their platform makes it the best way for new sellers to get started.
Allows you to get familiar with Amazon while making sales: Amazon arbitrage enables new sellers to get acquainted with the Amazon platform while making sales. Since it’s easy to get started, you can find free products like used books lying around your house and send them into Amazon.
You don’t need to take months to learn everything, you can learn as you sell and that’s one of the best ways to learn. You can learn about product research, shipping and everything else you need to know simply by doing it. Once you get a hold of the basic concepts, you can create systems for your business and scale it.
Ungating of categories: Doing Amazon arbitrage is one of the best ways to get ungated for products. When you start selling on Amazon, there are many categories that you cannot sell in (gated). Amazon requires things like invoices and purchase orders for certain categories and brands. While doing Amazon arbitrage, you’ll likely run into many gated categories and brands.
Over the course of a year, you can easily get ungated for all categories and many brands simply by doing Amazon arbitrage. The receipts from your purchases can be used to help get you ungated in categories. By ungating your seller account to many categories, you’ll put yourself in a favorable position for future selling endeavors.
Scalable: Amazon arbitrage is great because it allows sellers to scale efficiently. If a seller were to sell on any other platform (eBay, Walmart, etsy, etc.), their overhead goes up as their sales go up. This doesn’t occur in Amazon arbitrage because sellers can leverage Amazon’s FBA (fulfillment by Amazon) infrastructure. With FBA, sellers can send products into Amazon and Amazon will ensure the products are received by customers within 2 days or less.
Additionally, by using FBA, sellers get access to more than a hundred million Amazon prime customers. More than half of households in the U.S. are Amazon prime members. By leveraging this valuable consumer base, you can increase the sales of your product significantly.
No customer service: One of the most difficult parts of running any ecommerce business at scale is dealing with customer service. When you do Amazon arbitrage, all of your products will be in Amazon’s warehouses. This allows Amazon to take care of everything related to customer service including returns, questions, etc.
With Amazon handling all the dirty work, sellers can focus on things that directly relate to sales: finding more products and shipping them in. You can run a multi-million dollar business on Amazon without having to deal with any customer service. This can’t be done with any other ecommerce platform on the internet.
Low cost: You can get started with Amazon arbitrage with a few hundred dollars or less. If you are looking to start sourcing from stores, you should have a budget of a hundred or a few hundred dollars to get some experience. You can go to local retail stores, discount stores, garage sales, etc. to find very low cost products. With a few hundred dollars, you can get tens of products into Amazon relatively quickly.
If you’re on a very tight budget, I would recommend starting with used books in your house. If you’ve recently been to college or if you have family members who don’t use their old books, you may be sitting on a few hundred dollars in inventory. You can scan the books on the Amazon seller app and see if it has a listing. The majority of books are already listed on Amazon, so you can ship those books into Amazon and wait for them to get sold. Once you do that, you can use that money to go to stores and do retail arbitrage.
Can be done part-time: A huge benefit to doing Amazon arbitrage is that it’s a self-paced business. You only need to work if you want to. Many sellers have full-time jobs and other priorities and they can still sell on Amazon. There have been many sellers who have built six figure business on Amazon with part-time hours. All of the work can be done in the evenings and weekends if that fits your schedule.
Even though Amazon arbitrage can be done on part-time hours doesn’t mean it’s easy work. You’ll have to endure working your 9-5 and spending your free time sourcing and shipping products. If you invest time and effort today, you can likely replace your income with selling on Amazon. Don’t quit your day job until you have an established business on Amazon that can easily replace your income.
Personally, I would recommend getting started with retail arbitrage prior to exploring online arbitrage. This is because it can be overwhelming for new sellers to learn all of these new things at once. I’d prefer if you can learn while making sales. Once you establish yourself as a good seller, you can start exploring online arbitrage and other selling strategies.
Amazon arbitrage is an opportunity for regular people who want to start a serious and sustainable side hustle. With the right amount of work and knowledge, sellers can start doing Amazon arbitrage full-time. Now that you’ve learned what Amazon arbitrage is, here are some actionable steps you can take today to start doing Amazon arbitrage.
- Register for an Amazon account: Here’s a direct link to the Amazon seller application. Start the application today and you can submit it within 10-15 minutes. Take your time on the seller application and fill it out with as much detail as possible. It will ask for some identification questions and will require you to upload documents to verify your identity. Submit the application and Amazon seller support will tell you if there’s anything else they require.
- Watch a few videos on Amazon arbitrage: I’ve linked two basic tutorials for how to do retail and online arbitrage here and here. Check it out to get some more understanding on how the process works.
- Familiarize yourself with Amazon seller central. Amazon seller central is the site that sellers use to sell on Amazon. This is where you will do most of your work like listing products, shipping them, etc. I’ve linked a tutorial here.