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Online Arbitrage: What is it and How Does it Work?

I’ve spent countless hours over the past decade researching every “make money from home,” opportunity I could find. This stemmed from my own desire to make some money on the side while I was in college and raising a small family. After tons of flops (I’m looking at you surveys for cash) I eventually found a method that worked like gangbusters.

The method was Amazon arbitrage. Particularly, online arbitrage. Within a couple of months, the process started providing me with much more than just the side money I was looking for at first. It started to shift from a hustle to a full blown business that provided me with enough money each month to quit my decent paying (but highly unsatisfying) full time job at a yarn mill in the deep south of Georgia.

online arbitrage using sites like Amazon is a great way to make a living

Although I have since left Amazon behind in favor of other entrepreneurial ventures, it’s a beautiful opportunity that ANYONE can start and it almost guarantees results if you’re willing to put in some elbow grease and invest a little bit of time.

Big promise, right? Well, I stand by it. Online arbitrage is my absolute favorite method to teach aspiring entrepreneurs.

In this article, I’m going to explain:

  • What Amazon online arbitrage is.

  • How you can get started with online arbitrage (and Amazon FBA in general)

  • The online arbitrage tools that make the process much easier.

Ready? Let’s go!

What Is Amazon Online Arbitrage?

Amazon online arbitrage is the process of buying products low from one website and then selling them at a higher price on Amazon and netting a profit after all costs and fees.

This is also called “flipping” or “reselling.”

This works because there are thousands of different websites selling the same products with varying prices.

The formula for a flip would look like this:

Final Sale Price (Amazon or eBay) – Buy Price (3rd party store) – Fees (Fulfillment, Inbound Shipping, Misc) + Cash Back (Optional) = Profit

Repeating this process over and over can lead to serious profits over time.

Here is an example of a lead found using a software called Tactical Arbitrage.

Note: Tactical Arbitrage scrapes from hundreds of 3rd party websites automatically, matches products with Amazon, compares pricing information and filters out only leads that have the potential for profit after removing buy costs and adding cashback opportunities.. Click here to start a $1 trial 10 day trial.

In this example, we found a product at Pharamaca.com (one of the hundreds of sites Tactical Arbitrage scans):

I could purchase the product at the source site for $44.80. Plus, there is currently a 20% discount code available.

On top of that I am able to receive 6% Cashback from a reputable cashback site (there are tons of them and you will want to do your homework on them).

This means my buy cost is $38.54 (as long as I pay no sales tax).

The current price on Amazon is $68.91 and it has an incredible rank or current sales velocity.

The fees would be approximately $13.60 to ship this product to Amazon, pay Amazon their commission, as well as their pick and pack fees to ship it for me.

Let’s do the math:

Now you multiply this by 50, 100, or 200 products and you have the opportunity to make some serious money doing this.

I recommend using Amazon as the site for selling the products but the process can also work on other sales platforms like eBay, Etsy, Walmart or any site that you own yourself.

Amazon is ideal because we can leverage their fulfillment by Amazon program and have them handle our orders for us. There is nothing saying you can’t leverage multiple channels though.

Why does online arbitrage work?

Many people ask me, “why don’t these companies just sell the products at higher prices OR list them on Amazon themselves?”

There are a number of reasons that can play a role in why 3rd party stores aren’t pricing their products as high as Amazon:

  • Apathy or laziness (the most basic reason)

  • Human error

  • Liquidating to free space

  • Promotions and coupons that result in “arbitrage” opportunity externalities

Many online arbitrage sellers are able to make money on products that aren’t priced extremely below Amazon thanks to the magic of cashback cards and discount gift cards, but that is a post for another day.

The reasons why stores price their products “too low,” aren’t as important as the fact that they do AND thanks to the vast number of e-commerce sites online, there will always be arbitrage opportunities.

According to Robert Moore of RJMetrics.com, 10-12% of the internet is comprised of e-commerce sites and as of 2014, there are over 110,000 e-commerce sites generating revenue of “meaningful scale.”

Yes, this concept will never go away. It constantly changes and can get more difficult over time BUT it is going to be a constant in any capitalistic economy. Unless prices are fixed, there will inevitably be arbitrage opportunities.

Another question I get is, “why don’t people just buy products from these other sites instead of Amazon?”

There are several possible answers to this but the biggest reason is that people are willing to pay more to buy from Amazon. They don’t bother scouring the internet for a better price because they want to take advantage of Amazon’s awesome Prime benefits and buyer protection.

This is why I recommend Amazon as the end site you resell on. People go “Amazon blind,” and are ok with accepting that they MIGHT over pay from time to time (although it is rare, Amazon is usually the lowest price) but they will enjoy all the amazing Amazon perks.

How to Get Started with Amazon Online Arbitrage

If you’re sold on the online arbitrage concept, here is what you need to do next.

Step #1 Open an Amazon selling account

This is relatively easy. You can start an account for free if you plan on doing under 40 products per month or for $39.99 if you plan to do more and want the additional perks of being a professional seller (highly recommend you go pro).

Click here to learn more or register.

Step #2 Get familiar with fees and sales ranks

To succeed at Amazon online arbitrage, you need to have a good understanding of how fulfillment fees work and how products sell.

Step #3 Join free selling communities for support

You are going to have a LOT of questions along the way so you’ll definitely want to join at least one free community to ask questions in.

I run a free Facebook group called FBA Today that you can join by clicking here. There are many other great communities on Facebook, LinkedIn, Reddit and other platforms.

Step #4 Go make some mistakes!

Yes, you’re going to make a lot of mistakes when you get started so go out and lean into them. Don’t put off getting started because you’re afraid of losing a little time and money upfront. It’s the “Amazon selling tuition.”

Online Arbitrage FAQs

What tools exist for online arbitrage?

There are a number of tools that make the process of online arbitrage much easier. The two most important tools are free and I share them in the video below. If you want to read more about the available tools click here to read a full list.

What websites can I use for online arbitrage?

Technically, any site can work. Some sites don’t love resellers but they are few and far between. The worst thing that could happen is they cancel your order and maybe close your buying account. If you want some inspiration for online arbitrage sites, here is a cool FREE tool with 800+ online arbitrage sites for you to source from.

Is online arbitrage legal?

Yes! Arbitrage is capitalism in its purest form (buy low, sell high). 3rd party stores can of course block the buying accounts of resellers if they don’t want their products to be flipped but there is no legal issue with online arbitrage. Some products that are marked “not for resale” shouldn’t be resold of course.

How much money does it cost to start online arbitrage?

When I started, I spent nothing except the cost of my pro sellers account ($39.99). I started with books around my house and once I saw that the process actually worked, I started to spend actual money. I recommend being prepared to invest about $1,000 in your first month but you can start at any pace you want. The key is to just start!

how much money does online arbitrage cost?

How much money can I realistically make with online arbitrage?

The beauty of online arbitrage is that it is scalable if you want it to be. Most sellers expand from arbitrage into wholesale, online retail or private label as they collect more capital to invest, but there are many online arbitrage sellers who earn a full time living and I know a number of 7 figure online arbitrage sellers. The sky’s the limit when it comes to online arbitrage.

What is a good ROI for an Amazon flip?

There is no “one size fits all,” answer to what your target ROI should be. You’re optimal ROI is the number that will produce the highest net profit for you month after month and this varies based on a number of factors.

If you have more capital than buying opportunities, you would take lower margins (possibly as low as 10% if necessary). If you have less capital and more buying opportunities, you would expect higher margins (possibly 50%-100%+).

Many sellers find more leads than they can buy at first so the logical thing to do is buy as many of the best leads as possible. Best meaning:

Highest ROI + Fastest Sales Velocity

The goal is to make as much of your capital “work” for you as possible. This means buying as much product as possible and turning it as quickly as possible at the highest margins you can.

How long does it take to start making money with online arbitrage?

If you’re pumped to get started, don’t go quitting your day job just yet. When you do online arbitrage you will need to have a little patience if you really want to scale.

First, you have to wait for your product to actually sell. Next, you have to wait for your payout.

Then, you have to decide how much profit to take out and how much to reinvest. I recommend reinvesting 100% of your profits if this is just a side hustle for you and you want to turn it into something much bigger.

Capital is king and if you take out profits early, you will slow your growth. Realistically, you can be profitable within 2 weeks but you will want to generate more revenue before you start taking profits. This can take many months, but it’s worth it!

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