November 22, 2022

Sellers Guide to Amazon Retail Arbitrage

Amazon retail arbitrage is a cheap and easy business model you can start with. However, keep in mind that to succeed you need to plan and put in the work. Don’t forget to optimize your listing and prices to stay competitive, attract the right customers and increase Amazon sales. 
Sellers Guide to Amazon Retail Arbitrage
Sellers Guide to Amazon Retail Arbitrage

Sellers Guide to Amazon Retail Arbitrage

The Amazon marketplace is a lucrative ecommerce platform for any business owner. If you’re considering selling on Amazon, you may have heard of the phrase ‘retail arbitrage”. 

Well, Amazon retail arbitrage is one easy and quick way to become a third-party Amazon seller. 

But what is Amazon retail arbitrage and how does retail arbitrage work on Amazon? Is Amazon retail arbitrage worth it? 

Read on as we dive into what Amazon retail arbitrage is all about and highlight great tips to get you started. 

What is Retail Arbitrage on Amazon? 

While ‘Retail Arbitrage'' may sound complex, the concept is quite simple. Retail arbitrage on Amazon simply involves a seller buying a product from a retailer to sell at a higher price on Amazon. 

For example, if your local store is selling stationery set at a discounted price of $10. You could buy the stationary set from them and sell it on Amazon for $15. With retail arbitrage, you can easily start selling your products without having to do any design, shipping, or manufacturing. In addition, you can get a healthy profit margin and increase company sales

Is Retail Arbitrage legal? 

In countries like the US and UK, retail arbitrage is legal. The US supreme court allows someone to resell products as long as the product is acquired legally. However, if you’re planning to sell using the retail arbitrage model, it is best to stay clear of counterfeit products or branded products which require authorization. 

Is retail arbitrage legal on Amazon? Well, the answer is yes. No aspect of retail arbitrage violates any of Amazon’s retail arbitrage policies.       

How to get started with retail arbitrage on Amazon

You can get started with retail arbitrage on Amazon in three simple steps:

Step 1: Create an Amazon Seller account

The first step to getting started with Amazon retail arbitrage is to create an Amazon Seller account. Amazon offers two options: the Individual seller account and the Professional seller account

The Individual seller account is free. However, you need to pay a commission of $0.99 on every sale made along with a 15% consolidated fee. With this account, you can only sell 40 units of products and below. If you won't be selling more than 40 units per month, this may be a great option for you. 

The Professional seller account requires that you pay a fixed monthly fee of $39.99 which gives you access to more sophisticated features. With a professional account, you can list and sell more than 40 products. Once you create your account, you can also sign up for Fulfillment by Amazon (FBA). With Amazon FBA, Amazon takes care of the storage, packaging, shipping, and customer service. You also have access to sell to millions of Amazon Prime members. 

Step 2: Source products to sell 

This is where all the action happens. The type of product you sell can greatly impact your Amazon business. When sourcing products to sell, you want to get products that you can sell at a good profit margin. Also, don't compromise on the quality of the product. We will look at some tips to help you source the right products for retail arbitrage on Amazon shortly. 

Step 3: List and sell your products 

The final step is to list your products on the Amazon marketplace and start selling! Optimizing your listing can go a long way in boosting sales. Don't forget to optimize your prices to ensure they stay competitive. 

Pros and Cons of Retail Arbitrage on Amazon 

Selling with retail arbitrage through Amazon comes with its advantages and disadvantages. 

Pros of retail arbitrage on Amazon 

  • Low startup cost: One of the best things about Amazon retail arbitrage is its low startup cost. Unlike other business models like private labeling and wholesale, you can start a retail arbitrage business with a few hundred dollars and your Amazon seller account. Also, since you won't be sourcing products in large quantities directly from the manufacturer, you won't need to invest so much.
  • Easy to start: Retail arbitrage is very easy to start, making it great for beginners. You can start on a small scale with a few products and easily build your brand. As you dedicate time to your retail arbitrage business, you can get returns much faster. 
  • Low risks and higher profit: Every business comes with a level of risk. However, if you properly source your products, the risks are reduced to zero. With retail arbitrage, you can find products that could bring you as high as 50% returns which allows you to make higher profits very quickly. 

Cons of retail arbitrage on Amazon 

  • While it is easy to start an Amazon retail arbitrage business, it is not sustainable in the long run. So while it can get you earnings faster, it won't get you higher profit margins.
  • With retail arbitrage, you have no control over your product supply or pricing. 
  • Amazon places restrictions on certain products and brands. If you sell a restricted product, Amazon can flag your listing, or worse still, your account could be taken down. 

Tips to get the right products on Retail Arbitrage on Amazon 

Finding the right product is more than just finding a cheaper product. Some products may be sold at a discounted price because they are slow-moving products. 

Some products may also come with brand restrictions making it impossible to sell them on Amazon. 

So how do you identify the right products to sell and increase Amazon sales? Here are tips to help you find the right product for retail arbitrage on Amazon: 

  1. Know Where To Shop For Products 
  2. Consider The Competition 
  3. Pay Attention To Customer Reviews
  4. Check Ratings 
  5. Check Stock Levels 
  6. Scan Products Using Scanning Apps
  7. Check Profit Potential 
  8. Sales Rank 
  9. You May Find Restricted Products 
  10. Expect Shipping And Storage Expenses 

Know where to shop for products 

Knowing where to find the best products is the toughest part of selling with retail arbitrage. You want to ensure you find the best possible deals to increase your profit. 

Well, we have a few suggestions for you. You can go to local thrift stores that sell new or fairly used items. Secondly, you can check out department stores or places like Walmart or Target for items that are marked down. You can also check out liquidation stores and outlet malls. Some popular retail arbitrage stores include Walmart, Target, Home Depot, Lowes, etc. 

Consider the competition 

One way to succeed in the Amazon marketplace is to keep an eye on the competition. When finding the right product, check out the competition on Amazon. Chances are other Amazon sellers are offering your product. You want to analyze factors like price, customer reviews, shipping, and so on. 

It is important to analyze these factors carefully and consider if you can match up or beat other sellers on these factors. In other words, look for ways to stand out from the competition. 

Pay attention to customer reviews 

Customer reviews can provide great insights when carrying out product research. Pay attention to your competitor's customer reviews to evaluate the quality of the product, the level of demand, complaints, and how well the product might perform in the future. 

Check ratings 

Asides from customer reviews, you also want to look out for the ratings of the product. This will let you know the quality of the product. Even if a product has good profit potential, a poor rating may indicate that the product is of low quality. This will also help you avoid many product returns. We recommend choosing products with at least a three-star rating and above.  

Check stock levels 

Next, you also want to pay attention to the stock levels of your competitors. What do we mean? If the product demand is good and your competitors are low or out of stock, you may be able to fill that gap and gain some pocket share. 

Scan products using scanning apps

You can scan products using scanning apps you can link to your Amazon seller account. Amazon has its own scanning app. However, you can also invest in other scanning apps like Scoutify. These apps show you your competitor’s pricing, search history, and gross and net profit among other information. To scan products, open your Amazon seller account. Next, click on the camera at the right top corner and a scanner should appear. Lastly, place the scanner on the barcode to see the product and its details. 

Check profit potential 

After scanning the product, you can click on the product details to look at the profit potential. The profit potential shows you how much you can expect to make after sales. 

Ideally, we recommend that your profit potential falls between a minimum of $3-$5. 

Check sales rank 

On the product details page on your Amazon Seller account, you will find the sales rank of your product at the top left corner. This metric is important when analyzing products. 

Sales rank is measured as the Best Sellers Rank (BSR) and reflects the demand for a particular product compared to other products within the product category. The lower the sales rank, the better. 

You may find restricted products 

It is important to check if you are permitted to sell the product on Amazon. Some products are outrightly banned by Amazon and cannot be resold by the manufacturer. Some of these items include illicit drugs, weapons, alcohol, and so on. Also, you may find products that fall under Amazon’s restricted category. These products require prior approval before they can be sold on the Amazon marketplace. Some restricted categories on Amazon include the automotive category, cosmetics, skincare, animal-related products, etc. 

Expect shipping and storage expenses 

While retail arbitrage is one quick way to get profits rolling in, you want to keep shipping and storage expenses in mind as you calculate your ROI. 

Whether you are taking advantage of the Amazon FBA service or fulfilling your orders on your own, you need to keep in mind that you have to deal with storage and shipping costs. 

Keep your shipping speed in mind when selling through Amazon retail arbitrage. You want to get products to your customers in the fastest possible delivery time. 

Alternatives to Amazon retail arbitrage

We’ve identified that retail arbitrage is a quick way to make money online. It is easy to start and comes with a low startup cost. However, retail arbitrage is not scalable in the long term. 

Let’s look at other business models you can choose for your business

  • Dropshipping: With the Dropshipping business model, you take orders from your online store while your supplier handles the storage and shipping of products to the customer. In other words, you act as the middleman. What’s great about Dropshipping is that you don’t have to carry or store inventory. It is also quite scalable in the long run. 
  • Private labeling: Private labeling is a popular business model that has helped many sellers increase sales on Amazon. With private labeling, you can control the manufacturing, design, pricing, and packaging of your product. In other words, you own the brand and can control your supply chain and sales. 
  • Wholesaling: With the wholesale business model, you don’t have to shop for many new products consistently. You only need to find a good wholesale supplier, buy the products in bulk and sell them consistently. 

Should you try Amazon retail arbitrage?  

Amazon retail arbitrage is a business model worth trying especially as a beginner. You can learn the ins and outs of selling on Amazon before launching a private label or wholesale business. 

Not only is it easy to start up, but you can also start making profits in a short amount of time. What’s more, you don’t need to have thousands of dollars to start. 

You can also eliminate the process of importing products from China or inventing a new product. 

Final thoughts on Amazon retail arbitrage  

Amazon retail arbitrage is a cheap and easy business model you can start with. However, keep in mind that to succeed you need to plan and put in the work. Don’t forget to optimize your listing and prices to stay competitive, attract the right customers and increase Amazon sales. 

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