10 things you need to know about online arbitrage

Amazon is now so dominant as an online marketplace that most consumers looking to buy a product go straight to Amazon rather than looking at other online stores. Most of the time they will get the product they want at the best price. But occasionally, that product could have been bought more cheaply directly from an online store. This is one of the reasons why online arbitraging is possible – and of growing interest to online resellers.
 
Here are ten things you need to know if you’re thinking of becoming an online arbitrager.
 
Information provided in a recent WebRetailer article^[1] was extremely useful as a starting point.

1. What is online arbitrage?

Arbitrage in online selling means sourcing products online with the specific aim of exploiting a price mismatch between two marketplaces, so you can resell them at a profit. If you are an Amazon reseller, this means trying to identify products that are being sold in an online store or marketplace at a lower price than their current price on Amazon.

2. What isn’t it?

It’s different from retail arbitrage where products are sourced from bricks and mortar retail outlets – although the aim is the same in that you are still looking to exploit a price mismatch to make a profit.
 
And it’s not the same as just reselling. When you are an online arbitrager you are buying from an online store as an ordinary consumer, rather than buying as a business from wholesalers or manufacturers.

3. What is Amazon-to-eBay arbitrage?

This differs from online arbitrage in that you don’t actually purchase the stock up front. You locate appropriate products and list them at a higher price on eBay. When you get an eBay order, you then buy the product and have it delivered directly to the customer. The upside is that there is no financial outlay up front; the downside – margins tend to be considerably smaller than ‘normal’ online arbitrage.
 

4. How easy is it to source products for online arbitrage?

Online arbitrage relies on you being able to source products at a lower price than they are currently being sold on Amazon – and given that prices on Amazon are consistently competitive, this is no easy task. But opportunities do crop up – you just need a strategy to help you find them.
 

5. What kind of products should you buy?

 
As a basis for a sourcing strategy, the following rule of thumb was provided in a recent Arbing blog[2]:

• You need to buy products at less than half the price that they are listed for on Amazon.  Fees have to be added, so you need to buy at a very good price to ensure a decent margin.
• Select products that have a few reviews and a decent seller ranking on Amazon – products that are selling consistently well, in other words. You want to sell quickly, not be holding inventory.
• Avoid bulky items to keep storage and postage costs as low as possible.

 
In terms of what kinds of products, toys seem to be a frequent choice for arbitraging – there is always a demand for Christmas, birthdays and so on – plus there is a seasonal change element.
 
Sourcing products in sectors that you know has advantages in that you know what will appeal to your target market – although to restrict your search to a single sector could mean you miss out on potentially lucrative opportunities in other areas. It way be worth spreading your net wider to look for deals across all products.
 
In terms of which online stores to use for sourcing, some arbitragers suggest that stores that are well-known for their clearances (such as Walmart in the US or the big supermarket chains such as Tesco, Sainsbury and Asda in the UK) are a good place to start; others prefer to avoid these on the basis that every other arbitrager will be headed there too and suggest it is perhaps better to head for niche stores.
 
And there are tools that can help you to find arbitraging opportunities. More about this later.
 

6. How much investment is needed?

 
One of the attractions of online arbitrage is the low entry cost. Some financial investment is needed to buy the stock, but this is likely to be in the low hundreds of pounds (possibly even less than one hundred pounds if you are just dipping a first toe in the water) rather than thousands.

7. Can you use Amazon FBA to fulfil online arbitrage sales?

Yes, and FBA can be a huge time-saver – particularly if you are a part-time arbitrager, although you have to factor in FBA fees to your overall product cost. Once you receive and quality-check your online-sourced products, you then label, package and ship them to Amazon’s warehouse and Amazon picks up responsibility for order fulfilment and customer service.

You can use that saved time to find your next products!

The Arbing blog referenced earlier provides an excellent summary of exactly what you need to do if you are FBA’ing arbitraged products.[3]
 

8. Can you automate the process – are there tools that can help?

There are millions of products available online and it is not humanly possible to monitor all of these. There are tools available that can help in the sourcing task, however, by automating the process of finding arbitrage opportunities and providing daily lists of products. One such tool available in the UK is ProfitSourcery. Other arbitrage deal finders are included in this WebRetailer directory:

http://www.webretailer.com/categories/product-sourcing.asp?category=195#profiles

Amazon price tracking software is also available and provides price history and volatility for the millions of products sold on Amazon. To be a good arbitrage opportunity, the higher price of the product on Amazon needs to be a ‘regular’ price rather than a temporary pricing blip. The price trackers should reveal this information.
And revenue calculators are available from Amazon to calculate marketplace and FBA fees –both of which must be taken into account and added to your product cost so you know before you buy if you will make a good margin.
 

9. Is online arbitrage legal?

Yes, although there are some grey areas particularly in retail arbitraging and Amazon-to-eBay arbitrage. Also, you should steer away from sourcing brands that only allow their products to be sold through authorised resellers – and avoid sourcing any counterfeit products. Amazon is tough on such infringements.
 

10. Can you make a profit – consistently?

A quick ‘Google’ reveals accounts of online and retail arbitragers who claim to have made extremely profitable ongoing businesses from arbitraging – and an equal number of books that will tell you how you can do the same.

Can you make a profit – yes. Can you make a profit consistently – yes, many people do. Will you get rich purely by online arbitraging – highly unlikely for most people!

At the end of the day, however, you have nothing to lose by giving it a try. You may be among the few to make a fortune!