How does Amazon arbitrage work, and is it still a profitable business model?
💡 Quick Answer: Amazon arbitrage is an ecommerce strategy that involves buying products from a retail store or online marketplace at a lower price and reselling them on Amazon for a higher price. Retail arbitrage can be profitable with the right product selection and sourcing.
When was the last time you made a purchase on Amazon?
It could have been anything from a shiny new toaster to an expensive birthday gift.
The chances are Amazon itself didn’t actually sell the item you bought. Instead, it was likely a third-party seller.
And here’s the real kicker.
That seller probably didn’t manufacture the product either. They likely acquired it from another retailer and flipped it for a profit on Amazon.
This ingenious business model is called Amazon arbitrage.
You may have heard this term tossed around in side hustle circles. Or, you may have read about it in an article or watched your favorite entrepreneur YouTuber talk about it.
Retail arbitrage involves buying a product at a discounted price and selling it for a higher one to generate profit. This is done on many platforms, including Amazon.
Buying low and selling high is a basic concept in retail selling.
And here’s where it gets exciting. It is a perfectly legal and highly lucrative strategy.
Amazon arbitrage can be VERY lucrative. Don’t believe me?
Scores of sellers have made remarkable profits by selling on Amazon. E, or as she’s affectionately called in the Amazon community Retail Rogue (don’t be alarmed by the name!), earned $40,000 in the first year, including $12,000 in the first month. Former Speech Language Pathologist, Nichole W earned a whopping $140,000 in her first year.
Now, you need to know what you’re doing to earn big profits.
But that’s what we’re going to reveal in this guide.
You’ll learn the step-by-step process you can use to get started with retail arbitrage on Amazon. We’ll cover how much cash you need, what to look for in a product, and everything else you need to know to make your first sale and scale.
So, strap in, and let’s dive headfirst into the world of Amazon arbitrage.
How much do you need to begin Amazon retail arbitrage?
If you were expecting to need a huge capital investment to start earning, it’s time for a big sigh of relief.
You can start with as little or as much money as you’re comfortable with. There are sign-up fees, fulfillment fees, and even a commission you must pay Amazon, but beyond that—you can be as careful with your capital as you want.
Sellers have begun to sell on Amazon for $500 and found success. It’s all about the techniques and strategies you use.
With a bit of creativity and a lot of hard work, you could be raking in thousands of dollars in profits by this time next year!
Here are some of the costs you will need to consider:
- You will need to buy products to sell.
- You will need to ship the products you sell to your customers.
- You will need to create an Amazon Seller account which costs $39.99 per month.
You don’t need to invest a lot of money to get started with Amazon arbitrage.
The best way to start selling is to focus on a few products and gradually increase your inventory as your business grows!
How Amazon arbitrage actually works - step-by-step
Everyone knows that Amazon is an eCommerce monster!
Its unrivaled scale, customer-centric approach, technological prowess, and robust marketplace have propelled it to the forefront of e-commerce, earning its crown as the king of the industry.
By 2024, it’s estimated that Amazon will generate over $108.8 billion in revenue annually.
Amazon arbitrage lets you get a piece of the pie and make money on the world’s largest ecommerce platform.
And we’re going to show you how to get started.
But before we get to the step-by-step guide, let’s quickly cover the basics:
What you actually need
Aside from a little start-up money, you’ll need a few other essentials to become an Amazon retail arbitrage seller:
An Amazon Seller account
You will need to create an account to sell products on Amazon.
You will need to find products selling for a higher price on Amazon than in retail stores. You can find these lucrative gems by visiting brick-and-mortar stores, online marketplaces, and liquidation sales.
A shipping method
You will need to ship the products you sell to your customers.
A way to track your inventory
You’ll need to track your inventory to know what products you have in stock and what products you need to order. Amazon offers a free inventory management tool for professional sellers, and there are several other paid and free tools that can help.
Retail arbitrage isn’t the only way to make money with Amazon. Discover how you sell products without holding any inventory in our beginner’s to Amazon dropshipping.
Amazon arbitrage step-by-step guide
Ok, we’ve covered the basics.
Now it’s time to get started.
And it all kicks off with finding products to sell.
1. Research profitable products
Start by researching popular and in-demand products on Amazon.
The most lucrative retail arbitrage products have a high sales rank, good profit margins, and a history of steady sales.
It’s not too hard to do this manually. But you can use tools like Jungle Scout or Helium 10 to analyze product data and identify potentially profitable products.
Here’s what to look for:
Demand and Sales Rank
Choose products with a consistent and high demand on Amazon. Look for products with a high sales rank in their category.
A best seller rank indicates that the product sells well and has high customer interest.
Calculate the potential profit margin by considering the difference between the product’s sourcing cost (including all associated fees) and its selling price on Amazon. Aim for products with healthy profit margins that make the effort worthwhile.
We’ll cover this in more detail later in the guide.
Evaluate the level of competition for the product. If the market is saturated with retail arbitrage sellers offering the same item, it can be challenging to stand out. Instead, look for products with moderate competition or find a unique angle to differentiate yourself, such as bundling or private label products.
Seasonality and trends
Consider the seasonality of the product. Some items sell well during specific times of the year. For example, BBQ kits sell well during the summer, but sales usually dry up in the cold winter months.
Analyze the product’s price history to ensure a stable and consistent selling price on Amazon.
You want to avoid products with highly fluctuating prices. These can provide a short-term cash windfall, but you can also lose money if the price suddenly drops.
Size and weight
The size and weight of the product will impact shipping costs, Amazon’s FBA fees, and storage requirements. Generally, bulky or heavy items will have higher fees, which can reduce your profit margin.
Be aware of any category restrictions or product hazards that may limit your ability to sell or ship certain items. Some products require specific approvals or certifications or may be restricted due to safety concerns.
Some brands have strict policies regarding authorized sellers. Make sure you are allowed to sell the product before investing any cash.
You don’t want to buy a bunch of Nike baseball caps and find out you’re not allowed to sell them on Amazon.
On Amazon, these are the most popular and profitable product categories:
|Category||Percent of Retail Arbitrage Sellers|
|Home and Kitchen||47%|
|Toys and Games||41%|
|Cosmetics and Personal Care||33%|
|Grocery Items and Food||27%|
Customer reviews and ratings
Analyze customer reviews and ratings for the product to gauge customer satisfaction. Negative feedback or quality concerns can impact your reputation, so it’s best to avoid products with low ratings.
Need some inspiration? Check out these resources:
- 30 of the Best Low Cost, High-Profit Products
- 50 Best Dropshipping Products That Will Make Money in 2023
- The Easiest Items to Sell on Amazon or eBay For a Profit
2. Set up a seller account
The next step is to create a seller account on Amazon.
You can choose between two selling plans: Individual (per-item fee) or Professional (monthly subscription fee).
The Professional plan is recommended for arbitrage as it provides additional benefits.
For example, you’ll be able to access a bunch of reports to help you keep track of inventory and sales.
And if you use a professional account, you can qualify for the all-important Amazon’ Buy Box.’ A whopping 82-90% of all sales go through the Buy Box.
For a more detailed look at how to set up your account, check out our comprehensive guide on how to sell on Amazon.
3. Find suppliers
Now it’s time to find suppliers.
This could include retail stores, online clearance sales, wholesalers, liquidation auctions, or other online marketplaces.
Let’s take a closer look at your options:
Visit physical retail stores, including big-box retailers, discount stores, clearance centers, or outlets. Look for sales, promotions, or clearance sections where you can find products at lower prices.
You can also take advantage of seasonal sales and holiday discounts.
If you’re visiting retail stores, download the Amazon Seller App to your smartphone. It lets you scan the barcode of products to quickly see their sales rank and pricing on Amazon.
It’s a must-have when for Amazon sellers looking for profitable items.
Explore online retailers and marketplaces like Walmart, Target, Best Buy, or Home Depot. Check for online clearance sales, deals, or special promotions offering discounted products.
Connect with wholesalers who sell products in bulk at lower prices. Trade shows, industry events, and online directories like SaleHoo can help you find wholesalers.
Every supplier in the SaleHoo Directory is vetted, so you don’t have to worry about low-quality products from unreliable suppliers derailing your growth plans.
Some retailers, manufacturers, and wholesalers sell excess inventory, customer returns, or discontinued items at liquidation auctions.
Some retailers have dedicated clearance centers or outlets selling discounted or overstocked items. For example, TJ Maxx, Ross, and Marshalls often sell products at reduced prices that you can resell on Amazon.
When sourcing products, always prioritize reliable suppliers. You’ll also need to check the condition of the items and verify the authenticity of the products you want to sell.
4. Calculate profitability
This is a vital step.
You’re looking to make money with each sale, so calculating the potential profitability of each product is essential.
It’s easy to overlook costs and make a loss if you don’t account for everything before you buy stock.
You’ll need to consider the purchase price, Amazon fees (e.g., referral fees, FBA fees), shipping costs, and other expenses.
Luckily, Amazon offers a free revenue calculator tool that you can use to help you check the profitability of a product.
Make sure that your estimated profit margin is worth the effort and time invested.
You should pay attention to any minimum order quantities, shipping costs, or specific terms and conditions of the deal.
Once you’ve found profitable products, purchase them from your chosen supplier.
5. List products on Amazon
Now it’s time to list your product on Amazon.
Creating an optimized product listing is crucial for improving visibility on Amazon.
It’s how you attract customers and increase sales. A great product listing is like having a smooth-talking salesperson working their magic 24/7.
Here’s what you need to do to create an optimized listing:
Start by conducting keyword research to identify relevant and high-volume keywords that customers use when searching for products like yours.
You can utilize keyword research tools like Ahrefs, Helium 10, or MerchantWords to generate a list of relevant keywords for your products.
Craft a concise and compelling product title that includes relevant keywords. Incorporate the main features, brand name, and any unique selling points.
Follow Amazon’s guidelines, keeping the title within the character limit and avoiding excessive capitalization or special characters.
Use high-quality images that showcase your product from multiple angles and highlight its key features.
Follow Amazon’s image guidelines, which include using a white background, maintaining proper dimensions, and ensuring the product fills at least 85% of the frame.
Create informative and concise bullet points that outline your product’s key features and benefits.
Focus on the product’s unique selling points, highlighting what sets it apart from competitors.
Also, try to incorporate relevant keywords naturally within the bullet points for improved search visibility.
Write a detailed and engaging product description that provides additional information about the product, its uses, and benefits.
Use clear and concise language to emphasize the value proposition and address potential customer concerns or questions.
Utilize Amazon’s product feature template to highlight your product’s specific attributes or technical details.
Include key product specifications, such as size, material, color, weight, or unique features that differentiate your product.
Set a competitive price based on market research and competitor analysis. You can consider running promotions or offering discounts to attract customers and improve sales velocity.
Setting up your product page isn’t a one-and-done task.
You’ll need to regularly monitor your listing’s performance, track keywords and search rankings, and make adjustments as needed.
Continuously optimize your listing to maximize visibility and conversion rates.
6. Choose fulfillment method
Fulfillment by Amazon (FBA) and Merchant Fulfilled Network (MFN) are two different fulfillment methods that retail arbitrage sellers can choose from.
FBA allows you to store your products in Amazon’s fulfillment centers. Amazon will handle the picking, packing, shipping, and customer service for those products.
FBA products are also eligible for Amazon Prime, which gives them a significant advantage over non-Prime products.
However, FBA sellers must pay Amazon fees for storage, picking, packing, shipping, and customer service. These fees can mount up and eat into your profit margin.
Some products are also more suitable for FBA than others. For example, bulky or fragile products may be better suited for MFN.
You’ll need to decide which option is the most suitable for your products.
Check out our guide to Amazon FBA to discover which fulfillment method is best for you.
7. Monitor and manage inventory
Once you start making sales, you need to keep a close eye on your inventory levels.
If you’re an FBA seller, you can use Amazon’s built-in inventory reports to track sales velocity and stock levels.
It can help you ensure you have enough inventory to meet demand. You’ll lose sales to competitors if you don’t have enough stock.
The tool can also help prevent overstocking.
Amazon will charge you a fee for the items you store at their warehouses. The longer you have stock sitting there unsold, the lower your profit margin per sale.
8. Optimize pricing
To maximize profits, you must continuously analyze and fine-tune your pricing strategy.
It’s not unusual for a product to increase or decrease in price. This is because new competitors can enter the market, supplier costs can increase, and a bunch of other factors can change.
Stay ahead of the curve by closely monitoring the market and seizing every opportunity to adjust your prices for maximum impact.
But keeping track of pricing can be a challenge. This is a task you may want to automate.
Repricing tools automatically adapt your prices based on ever-changing market conditions and competitors’ pricing. You can also set parameters to make sure you don’t make a loss by selling below your break-even point.
With your finger on the pulse of the market and the power of repricing tools at your disposal, you can maximize sales and profits.
9. Provide excellent customer service
Remember, on Amazon, the customer is at the forefront.
Amazon values excellent customer service and rewards sellers with higher seller metrics. Positive feedback, low return rates, and prompt order fulfillment contribute to improved metrics. These metrics can increase visibility and give you more opportunities to win the Buy Box.
Prioritizing customer service and going above and beyond to meet customer needs contribute to your overall success as an Amazon seller.
When customers have a smooth and satisfying experience, they are likelier to leave positive reviews, recommend your products to others, and become repeat customers.
Of course, mistakes can happen. Sometimes customers may encounter issues with their orders.
But prompt and effective customer service allows you to address problems proactively. By swiftly resolving issues, you can turn dissatisfied customers into happy ones, minimizing the impact of negative feedback.
10. Scale your business
Once you start to make a few sales, it will be time to expand your Amazon retail arbitrage business.
You can gradually increase your product range and diversify to minimize risks. You’ll also have more budget to experiment with as you generate more profits.
Like the Seller Family, you’ll soon be on your way to $1 million in Amazon sales revenue.
Amazon isn’t the only place you can sell online. Discover the other marketplaces you can use in our list of 26 best sites like eBay.
How profitable is Amazon arbitrage?
The profitability of your retail arbitrage business hinges on your ability to find products with a significant price difference between the source and the selling price on Amazon.
The larger the margin, the more potential profit.
The Selling Family started their business in 2008 with just $500 and have since grown it to an over 6-figure annual profit business.
Their business model is simple.
They buy products from retail stores that are on sale and then resell them on Amazon for a profit.
The Selling Family’s success is due to a number of factors, including their hard work, dedication, and willingness to learn.
And they are very good at finding deals. They spend a lot of time researching products and looking for sales.
The Selling Family’s story is an inspiration to anyone who wants to start their own business. They show that it is possible to achieve success with Amazon arbitrage.
Amazon retail arbitrage success stories
The “bra flipping couple”
Former public schoolteachers Nate and Alysha Jackson gave up their secure jobs and started their Amazon FBA business with a $100 investment. Initially, the couple spent three days a week scouring big retail stores for cheap items to resell—mostly in Walmart and Kohl’s.
With the right approach, strategies, and knowledge of their target market’s preferences, the couple has earned over 1 million dollars worth of revenue from selling clothes and bras. In fact, in retail arbitrage circles, they are known as the ‘bra flipping couple.’
Supporting a family of six: Rose Pile
Rose Pile supports a family of six with plain and straightforward retail arbitrage—she buys all her products from Walmart, which as become her supplier in a sense. Rose has grown so adept at scouring Walmart that she can immediately decipher pricing strategies in any Walmart store in the country.
Her go-to is usually older Walmart stores in smaller towns, where she’s found the most success with fantastic deals and bargain buys. She visits several Walmart stores in a three-day stretch and has earned over $595,000 in sales so far—definitely a seller to emulate!
Her success with Amazon FBA has even allowed her to buy her own house. The year–on–year growth helped to acquire approval from the bank for a mortgage.
What is the key to success?
You can make a killing with retail arbitrage if you get it right.
Let’s take a closer look at the key factors that will make or break your ecommerce business.
1. Thorough product research
Conduct comprehensive research to identify profitable products with high demand, good profit margins, and low competition. Utilize product research tools and analyze sales rank, pricing trends, customer reviews, and market demand to make informed decisions about the products you sell.
2. Effective sourcing strategy
Establish relationships with reliable suppliers and wholesalers offering products at competitive prices. Continuously seek new sourcing opportunities and explore different channels to diversify your product selection and maximize profitability.
3. Competitive pricing
Set competitive prices for your products based on market research. You’ll need to consider sourcing costs, fees, and shipping expenses. You may need to adjust your pricing strategy regularly to remain competitive while ensuring a reasonable profit margin.
4. Exceptional customer service
Provide excellent customer service to build trust, encourage positive reviews, and foster customer loyalty. Respond promptly to customer inquiries, address concerns or issues, and strive for quick resolutions.
Remember that positive customer experiences lead to repeat purchases and increased sales.
5. Continuous learning
Stay updated with changes in Amazon’s policies and guidelines.
The most successful entrepreneurs continuously educate themselves about industry trends, best practices, and new opportunities.
6.Effective listing optimization
Create optimized product listings with compelling titles, high-quality images, informative bullet points, and detailed descriptions. You’ll also need to incorporate relevant keywords to improve search visibility and conversion rates.
7. Risk management
Be aware of potential risks and challenges associated with Amazon arbitrage. For example, if you’re caught selling counterfeit products, even if you think they were legit, your account will be banned.
You can mitigate risks by sourcing from reputable suppliers that ensure product authenticity.
Building a successful retail arbitrage business takes time and effort. It’s not a get-rich-quick scheme.
You have to stay motivated, learn from your setbacks, and keep refining your strategies. Stay focused on long-term goals and maintain a resilient mindset to overcome challenges along the way.
Pros and cons of Amazon arbitrage
You can make a bunch of cash with Amazon arbitrage.
But like any business model, it does have its pros and cons.
Here are some key advantages and disadvantages of retail arbitrage on Amazon:
✅ Pro - Low barrier to entry
Amazon arbitrage allows you to start a business with a relatively low upfront investment. You can begin with a small inventory and scale your business gradually.
✅ Pro - Wide customer reach
By selling on Amazon, you gain access to a vast customer base and the potential for high sales volume. Amazon is a huge marketplace that allows you to reach customers worldwide.
✅ Pro - Existing infrastructure
Amazon provides a robust platform, handling the logistics of order fulfillment, customer service, and payment processing. This enables you to focus on sourcing products and growing your business rather than dealing with logistics or building an online store.
✅ Pro - Product demand and sales data
With Amazon’s vast marketplace, it’s easier to identify products with high demand and analyze sales data. This information can help you make informed sourcing decisions and target profitable niches.
✅ Pro - Cash flow
With the FBA program, you can leverage Amazon’s warehousing and fulfillment services, allowing for faster order processing and reduced inventory management. This can improve cash flow by minimizing upfront inventory costs.
❌ Con - Intense competition
Amazon’s marketplace is highly competitive, with numerous sellers vying for customer attention. As a result, finding profitable products with low competition can be challenging, and price wars may reduce profit margins.
❌ Con - Amazon’s fees
Amazon charges various fees, including referral, FBA, storage, etc. These costs can impact your profit margins, especially if you sell products with lower price points or profit margins.
❌ Con - Account suspension risks
Amazon has strict policies and guidelines. Sellers must adhere to the guidelines and address any performance issues to avoid account suspensions or closures.
❌ Con - Limited control
You have limited control over certain aspects of your business, such as customer communication and the overall shopping experience. Amazon also has the authority to make policy changes that can impact your business overnight.
❌ Con - Brand restrictions
Some brands have strict policies on authorized sellers, making it challenging to sell certain products through arbitrage. Limited access to certain brands may restrict your product selection and potential profitability.
Making money with Amazon arbitrage in 2023
Amazon arbitrage can be a great business model for aspiring entrepreneurs looking to start an online business with relatively low upfront costs.
It provides access to a massive customer base, existing infrastructure, and the potential for scalability.
You can get started by trying out the SaleHoo Directory to find potential suppliers.
You’ll find over 8,000 trusted wholesalers and manufacturers across various product categories. It can help you source products at competitive prices and establish reliable relationships with suppliers.
Visit the SaleHoo Directory and take your first step towards building a successful retail arbitrage business.
If you have any questions about Amazon arbitrage or anything else ecommerce related, our 24/7 support team is here to help.