In lieu of the current pandemic and the lockdowns that have accompanied it, many brick and mortar shops aren’t permitted by local bureaucrats to sell items they deem “non-essential” (in all their great wisdom, I’m sure).
The end result; consumers are turning to Amazon while small businesses burn, and Besos buys himself another national news outlet or adds a shiny new Boeing to his fleet.
There will come a time where I firmly believe we must take this up with our local governments with zeal –but for now, the clock is running down on the American Dream –it’s time to act. And if we can’t beat them, join them, live to fight another day.
In this article we’ll look at how to start and make money with online arbitrage on Amazon.
Live to Fight Another Day
Even before antagonist pandemic response, selling on Amazon provided a financially rewarding business opportunity because of its global infrastructure, cheap delivery costs, and brand recognition have made it accessible and convenient for anyone to get started.
Many sellers have found great success in building businesses from behind their computer, never having to physically bother with inventory, storage and shipping.
To ensure a greater potential for success, one thing that sellers need to do right now is figure out what to sell on Amazon in 2021.
Private label selling is not the only way that a small online retailer can make a healthy profit on Amazon. There’s also something called “online arbitrage” which is a different model entirely.
Not to be confused with retail arbitrage, which is a business model that consists of picking out items on clearance or discount in physical stores and then reselling them on Amazon at the manufacturer’s suggested retail price.
Online arbitrage follows the same idea, however, you order items online from one online store at a discount, and then sell them at the typical going rate on your own online store.
Basically, online arbitrage is a more hands off approach to retail arbitrage.
In a nutshell, this is how online arbitrage works:
Look for items that are on discount, either directly on a shopping website, or with a tool like AMZScout.
After you find a heavily discounted item, search again for it on Amazon to see what it’s selling for there.
If the difference in the two prices is high enough, buy it and resell it on Amazon for a profit. Of course, in reality it’s a bit more complicated than that, but this is basically how it works.
For example, let’s say you buy 100 items, all of them costing you around $10, and those same items are selling on Amazon for $30 each. Now the gross difference between the 2 items is $20.
However, you still need to calculate in the FBA fees which are usually a third of the selling price of an item. So, in this simple example, you would be making 100 x $13 which is $1300.
What To Do, What Not To Do
In an ideal world, you could simply buy an item online and directly ship it to an Amazon customer without you having to handle the inventory yourself.
However, this is strictly prohibited by Amazon’s guidelines.
You will have to have your items shipped to your home and then you can ship them yourself to your Amazon customers –or send them to an Amazon FBA warehouse. The latter being a more convenient choice.
Getting started with this business model is relatively easy. Let’s go through the necessary steps you need to take in order to go from zero, to reselling your first item on Amazon.
1. Get an Amazon Seller Account
You cannot be an Amazon seller of any kind without an Amazon seller central account, so the very first thing you need to do is register as an ‘individual’ or a ‘professional’.
The individual designation will only permit you to sell upwards of 40 units per month and there is a $0.99 additional fee per every sale.
The professional designation will cost you $39.99 and allow you to sell as many items as you can, along with other benefits. Most of these benefits are not really necessary for an arbitrage seller.
The one benefit that might be useful is the option to use “fulfilled by Amazon”, also known as “Amazon FBA” to store and ship your items.
You can also choose to start with an individual designation and upgrade it to pro later, which is probably the wisest way to get started.
2. Find an Online Store Selling Discounted Items
This part of the online arbitrage business model will require you to be resourceful, responsive, and keep an eye on things –sort of like day trading stocks.
You can subscribe to some communities that notify you of discounted items, or you can simply browse the discount pages on different platforms.
The more you do this, the better you will become at it.
3. Search for All Discounted Finds on Amazon Before You Buy
You can find out in real time what the selling price of any of the items you have in your cart on Amazon, assuming they are already listed elsewhere on Amazon.
You need the item to be listed so you can piggyback off others. Contrary to other strategies, you don’t necessarily want to be the only seller of a particular item, you simply want to create another offer on an already existing item.
As you know, Amazon puts products on the virtual ‘shelf’ side-by-side, so consumers can always feel like they’re getting the best price. When you piggyback off other listings in this way, be that best price and you’re sure to outsell your competitors.
That’s one of the benefits of this business model. Although, choose your products with precision. Getting into bidding wars can eat your profit margin, and waiting out a bidding war will mean paying Amazon extra to house your product while you wait for prices to settle down.
Leveraging the automatically generated side-by-side visual display of products on Amazon is a crucial step of the process.
Keep in mind that this strategy is tried and true, meaning that others may be wise to it as well.
That’s why we always refer to our active AMZScout account, as it’s a great retail intelligence tool for Amazon sellers –but more on that after I finish giving you the goods on our strategy.
4. Evaluate the Product
Once you see the selling price of the product you need to evaluate several factors:
The Selling Price:
The difference in the price you can buy an item for and the price it’s selling for on Amazon are obviously key factors. Take a look at it in terms of percentages of the actual dollar amount.
The bigger the differential between the selling price and the profit margin, the better.
The price differential is not all going into your pocket as profit.
The price you see the item selling for in the store is effectively your “manufacturing price”. You still need to pay referral fees to Amazon.
You may also have to pay fulfillment fees if you wish to warehouse and ship the item via Amazon FBA. You can calculate the fees on your phone, keeping in mind the $0.99 fee if you have an ‘individual’ account.
If you have concluded that the profit you can make from the item is worth your time, with the fees, you’ll want to make sure that the item is going to sell quickly.
There is no guarantee that the item is going to sell fast, although with experience you’ll get better as assessing the sellability of any given product.
The Bestseller Rank (BSR) is typically the best indicator of selling potential, since it’s based on one single factor; sales volume.
Ideally, you want to find an item with a low BSR number and a high review count. These two factors are the most obvious success indicators.
You can always take it a step further and use advanced Amazon seller software like AMZScout Pro Extension to go deep with any product. With a tool like this you could look into how many units of a particular product are sold every month as well as its historical BSR metrics.
Selling a Product
List the Item:
You could list your item quite quickly, even before it gets shipped to you, if you know an identifier code for the item.
If you don’t, you can wait for the item to arrive and use the “add product” option on the Amazon seller app on your phone. You can actually scan the item with your phone camera and simply add your offer to an existing listing and wait for it to sell.
Ship the Item:
Once your item sells, you can go to your seller central orders panel, find the order, print out the shipping label, paste it on the box and drop it off at your local Post Office.
As previously mentioned, some online arbitrage sellers send their items to an Amazon FBA warehouse and let Amazon fulfill orders as they happen. This might become useful once you start buying large quantities of items, that way you don’t have to deal with individual orders yourself –it would be worthwhile to pay some extra fees to have that step taken off your hands.
Online arbitrage is a very dynamic and opportunistic Amazon seller business model.
Essentially, what you are doing is finding items that are being sold on one corner of the internet at a discount to the people that only visit that website, which is almost certainly less visited than Amazon. Niche sites are great for prospecting new products, as opposed to going to “everything shops” like Walmart.com, et al.
Proceed to offer the same item you found on a niche site to hundreds of millions of Amazon shoppers.
Simply put, you are bridging the gap between supply and demand in the most effective way possible, and being rewarded for it.
Casually selling on Amazon could start out as a hobby and make your own everyday online shopping more interesting by occasionally searching for items and selling them to make a few extra dollars.
Often, we’ll sell products we want ourselves, sort of like a pot dealer that just wants to get high for free. The same methodology applies to anyone –the Arduino maker that wants cheap or free parts for their own projects, or the fashionista who wants raw bulk buying power to keep up with the latest fashion.
There are sellers that have built very impressive businesses this way, and the level of your commitment will be proportionate to your earnings.
The most attractive thing about this business model is that you can start with the money that you have in your pocket right now. If this is something that piques your interest, there is nothing stopping you from trying it.
Arm yourself with the right drop-shipping tools and be smart about it from the get-go. And never forget who or what put you in this pickle to begin with. Precedents are being set, and the ink is drying.