Retail arbitrage is a popular way to make money online. It's so popular that there's a good chance you've heard of it before. But what exactly is retail arbitrage? And more importantly, how can you start doing it yourself? Keep reading to find out!
What Is Retail Arbitrage?
Retail arbitrage is buying products from a retail store and then reselling them for a higher price. This can be done online or in person, and it can be a great way to make money.
There are a few things to keep in mind when doing retail arbitrage, though:
- You need to find products in high demand and have a low supply.
- You need to be able to sell the product for more than you paid for it.
- It would help if you were careful not to get caught up in a bidding war with other sellers.
If you can find products that meet these criteria, then retail arbitrage can be a great way to make money.
How Does Retail Arbitrage Do As Compared To Other Business Models On Amazon?
Arbitrage is often compared to other business models on Amazon, such as drop shipping or private label selling. While all three can be profitable ways to sell on Amazon, they have some key differences.
Less Upfront Investment
For one, retail arbitrage requires less upfront investment than either drop shipping or private label selling. With drop shipping, you need to invest in inventory before you can start selling, and with personal label selling, you need to invest in product development and branding.
You can start selling immediately with little to no upfront investment with arbitrage. All you need is a source of products and a way to get them to Amazon.
Simpler Business Model
Another key difference is that arbitrage is a simpler business model than drop shipping or private label selling. With drop shipping, you need to deal with inventory, product development, and marketing. Private label selling adds an extra layer of complexity with product development and branding.
Arbitrage is a much simpler business model. All you need to do is find products and get them to Amazon. There is no inventory to manage, no product development or branding to worry about.
Hands-off Business Model
The final key difference is that arbitrage is a more hands-off business model than drop shipping or private label selling. With drop shipping, you need to be involved in the day-to-day operations of your business, such as packing and shipping orders. With personal label selling, you need to be involved in product development and branding.
With arbitrage, you can be as hands-off as you want. Once you have a source of products and a way to get them to Amazon, you can set it and forget it.
Why Would You Choose Retail Arbitrage Over Other Models Of Selling On Amazon?
Lower Startup Costs
According to a study of more than 1,000 Amazon sellers conducted by Jungle Scout, 33% of arbitrageurs could launch their enterprises for less than $500, and 49% for less than $1,000. Seventy-five percent of private label sellers, on the other hand, paid $1,000 or more to get started.
Related: Amazon FBA Fees-a Complete Guide
Faster to Get Started
Two-fifths of retail arbitrage sellers (41%) claimed they could have their Amazon companies up and running in less than six weeks. Only a quarter of private label sellers (25 percent) agreed.
Simpler Business Model
The retail arbitrage seller buys goods from a brick-and-mortar retailer and sells them on Amazon at a higher price, while the private label seller designs and sources products to sell under their brand.
Because they are not tied to any product or source, retail arbitrage sellers can quickly adapt to changes in consumer demand or supply chain disruptions. They can also test new products with minimal risk.
Arbitrage is an excellent, low-risk technique for selling on Amazon if you don't already have a product to sell or don't have the money to buy things in bulk.
If you start selling arbitrage, on the other hand, you might broaden your approach to include various sales methods:
- 38% of retail arbitrage dealers also run a wholesale company.
- 30% sell private label
- 11% have a dropshipping business
- 6% sell handmade products
How To Get Started With Retail Arbitrage
You'll need to identify things to offer and set up an Amazon seller account before you can start selling retail arbitrage on Amazon. Finally, you'll have to pick whether you want to pack, ship, and handle customer service yourself (FBM program) or have Amazon do it (FBA). You can do both, as a hint! More about FBA vs. FBM can be found here.
While there are various tools and software available to assist you in finding things to resell, the Amazon seller app is all you truly need.
You'll use this app to scan products when you're in a store. By reviewing products with the help of the Amazon seller app, you'll see different listings, the sales rank, and whether or not you're allowed to sell that particular product and enter your buy cost to determine profitability. You may even sell your stuff right from the app.
If you don't already have this app on your phone, search for "Amazon seller" in the app store. Then, sign in to your Amazon seller account when you've downloaded the app, and you're ready to begin!
Take some time to explore the many capabilities of the Amazon seller app if you are unfamiliar with it.
You can use Amazon seller app to:
- Monitor your sales
- Answer customer messages
- Manage orders and returns
- Scan product barcodes
- Check a product's profitability
- List products on Amazon
Keep an eye on your sales and respond to communications from customers orders and returns are managed by scanning barcodes on products, checking the profitability of a product, creating an Amazon product list, and more.
Sellers can choose the data points they want to see about the product and filter between three, six, twelve, and twenty-four months.
Sellers may better understand an ASIN's success with these readily available data points, allowing them to make more educated decisions.
Related: How to Get Free Samples on Amazon?
Step 1: Analyze The Data
On this screen, you should be looking at the following:
Features and Specifications: To find out precisely what this listing is for — one box, two boxes, etc. – click on this first. We know this sale is for one box of 48 pieces of chalk after looking at the specifications.
Sales Rank: This is displayed both under the title and in the Features & Details section. The Amazon Best Sellers Rank varies per category, but a general rule is to look for products with a sale rank of less than 100,000. It sells more if the number is lower. For example, a sales rank of 1,573 for Office Products is excellent. Keep in mind that the number can be deceiving because it may reflect a one-time surge in sales on that particular day. Using a tool like the Jungle Scout Extension to check if that rank is consistent is critical. You may also use the Jungle Scout Sales Estimator for free to estimate the number of monthly sales depending on your sales rank.
On the listing are the following sellers: You can see if the listing is on Amazon, the total number of vendors, and the number of FBA sellers, including FBM, in the second row under "New." I try to avoid all Amazon listings because it doesn't always share the Buy Box with third-party sellers, leaving you with goods you can't sell.
This listing has a lot of FBA sellers, yet with such a low sales rank, this product would still be an excellent investment if it was profitable.
Gross Profits and Price: The most crucial aspect of the challenge is if you can now sell the goods at a profit. If you go to the pricing section, you can enter your purchase price, and Amazon will break out all of the fees so you can determine whether or not to buy this item.
Input your purchase price into the program, automatically calculating your possible profit.
I can acquire this product for $5.74. My profit would be $7.45 based on the current selling price minus FBA fees and buy cost. That's a return on investment of over 100%, so I'd buy this stuff!
Step 2: Decide How Many Units You Have To Buy
You will decide how many units of a product to purchase (if many are available). Based on the sales rank, 22 FBA sellers with an estimated 5,000 monthly sales in the sample above. Divide the number of monthly sales by the number of FBA sellers to determine how many units you might sell in a month 5,000/22 = 227.
This implies that you may sell over 200 units of this product per month. But, of course, this can change depending on whether or not additional sellers join the listing, whether or not the sales rank reduces, and whether or not the Buy Box price declines.
If you're new to retail arbitrage or Amazon selling, I recommend starting with a small batch to validate the goods. Consider starting with 5 or 10 units for the sidewalk chalk example above and seeing how it sells.
Step 3: Determine Your Target Roi/Profit Margin
What is ROI?
The amount of money you will make back that (hopefully) surpasses the amount you put into your business venture is your return on investment, or ROI.
For example, if you paid $10 for a product and received $12 in gross revenues after a sale, your ROI equals the difference (profit: $2) divided by your investment or 20%.
You want to aim for the maximum possible ROI to make more money per transaction and give yourself some leeway in case of the Buy Box price drops.
To determine your potential ROI, divide your potential profit by the amount you paid for the product. This will give you a percentage that you can use to compare products.
Depending on your tastes, you may accept a lower minimum ROI. For example, some merchants are content with a little return on investment (say 20%) as long as they sell the product.
On the other hand, others want to go for the gusto and only sell items that give them a 50% return. There's no correct answer - it all depends on what you're comfortable with.
So there you have it! You now know everything you need to start your own retail arbitrage business. It's a great way to make some extra money, and with a little hard work, you can turn it into a full-time gig. Need help getting started? Simpl Fulfillment is here to help. We offer fulfillment services for businesses of all sizes, so contact us today to get started! Thanks for reading!