What is Amazon Arbitrage?

For One, It’s Not for Everyone

Do you want to know more about Amazon arbitrage? You’ve come to the right place. This low-barrier-entry, high-profit potential, RISKY business is easy to get started, but, is it worth the time and effort, and, how do you start? What are the best practices? Let’s discuss all of this in a rational manner, because, arbitrage is one of the models that I don’t even consider a real business.  More on that later, maybe.  Let’s start with a quick definition of what Arbitrage is.  Arbitrage is basically taking advantage of pricing inefficient in a marketplace, like Amazon.

An example of a pricing inefficiency would be something like a two-liter bottle of Coke selling for $3 at Walmart and $10 on Amazon.com.  If you purchase in one marketplace and sell in another and net a profit, you’ve undercovered a marketplace inefficiency that allowed you to generate a profit.

The profits are normally not very big, so VOLUME for the arbitrage player is key.

I am going to show my hand here a bit and tell you that I am not a fan of arbitrage.  I do not consider it a viable or legitimate business model.  You cannot build up an arbitrage value and have a business with any true intrinsic or marketable value.  This is why I say it’s not a real business.

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Making money with Amazon arbitrage

So, now you know I am not a fan of the arbitrage model, especially on Amazon.  Having said that, there are folks out there that swear up and down they’ve made considerable money with the arbitrage model.

I don’t believe them.

Unless you consider “considerable money” to be a few hundred or a couple thousand dollars.  I’ve never met anyone who has made consistent millions using arbitrage, but I have met many, many Amazon sellers who have made consistent millions with legitimate Amazon models like wholesale, private label, custom/Print on Demand (POD), Kindle Direct Publishing (KDP), Amazon Associates and Audible.  Those are all legitimate business models.

For now, set aside the fact that I don’t like arbitrage, and let’s take a few minutes to understand how it works so that eventually we can all agree that it’s a lousy business model and you can get it out of your system and won’t ever waste any time in a thrift or discount store looking for last years socks so that you can buy up the last 12 pairs in stock to make $.25 per pair, after going through all the work it’ll take to get them onto the marketplace.  Sorry about that, I let a bit of sarcasm slide through.arbitrage shopping

You will need to find products that are very popular on Amazon in order to make money from Amazon arbitrage. Keepa is a service that tracks the price trends over time.  When you were in the store looking at this glamours bin of socks you were thinking of making an arbitrage play on, you needed to do some price research to find out if there is any profit in them thar socks.

Most folks use a “scanner” app on their smartphone.  You can the barcode (UPC Code) of the product and the app will go look at that product on Amazon, grab relevant data, and provide you with a profit/no profit result.  You should aim for a reasonable profit margin for each item. Experts recommend a profit margin of 40%-50% for each item. This allows you to lower the price and compete against other sellers.  Unfortunately, price is normally the only thing arbitragers think about.

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One of the reasons so many to flock to online arbitrage is because the arbitrage gurus have positioned it as the cheapest way to sell on Amazon, especially for beginners. They preach that this method requires a lower initial investment than even dropshipping and for sure less than developing private label products. You’ll hear that this method is great for beginners because you can start with any kind of product.  If it’s something you purchased online (Online Arbitrage) then you get the additional free benefit of free packaging if you buy online.  If you’re really careful about how you open that box, you can even re-use the packaging materials.

The Dark Side

I really should have made that plural, because there are so many dark sides and deep, dangerous potholes to step into that can kill a business.  When I get my new podcast up and running I’ll be able to conversationally discuss these kinds of things.  For now, and I know you may not know me super well yet, take my word for it, arbitrage will drag you out of the light and into the darkness where you should be afraid.  Afraid of – – – INTELLECTUAL PROPERTY COMPLAINTS (IP Complaints).

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The clown is an arbitrage guru telling you that your receipt from Walmart will be more than enough to satisfy Amazon should a rights holder question the authenticity of the product you are selling.

When you get a chance click here for the video I made about Amazon Intellectual Property Violations.

It’s pretty serious stuff (whether it’s a valid complaint, or not) and it’s what takes the dropshippers and arbitragers right out of the game.

Amazon arbitrage requires a lot of effort and time, and if you are very, very lucky, it can be slightly profitable, but there’s no way it’ll be profitable enough for anyone serious about making money online to get involved with.  Once you have driven all over town or have spent hours and hours scouring online marketplaces to source discounted items, you will try to list them on Amazon at a higher price and make decent profits, or, at least, that is the goal.  Many times you will find out that the brand has implemented restrictions that will not allow you to list, or if you can list, you will be unable to prove the authenticity of the item because a real invoice is required and all you will have is a retail receipt.  It will be your inability to prove authenticity that will ultimately ruin your Amazon account.

As you can see, Amazon arbitrage is a dangerous way to make money from your online. If you’ve got a passion for selling different products, you should be in the wholesale model, not the arbitrage model.

Low barrier of entry

Amazon Arbitrage has low barriers to entry. This is ultimately a curse.  It sucks in the people that have dreams of creating profits online and then hammers them with reality as arbitragers finally learn what it is they do not know, and it causes major setbacks in their dream of making money online, on Amazon.

If you seriously want to pick up some discounted products at Big Lot, or wherever, selling those products on eBay can be a great way to make small money and avoid the Amazon ban hammer. It’s easy to start a retail arbitrage company on eBay.  No one there really cares because, well, it’s eBay. Still, this type of retail arbitrage can be risky if you don’t have any experience. Retail arbitrage has the biggest drawback. You have to buy large quantities of products to make a profit. Imagine going all-in on that cute clearance sale stuffed animal only to find out that every other arbitrager around the country just did the same thing.  It’ll be carnage, absolute blood in the water, carnage.  No one will make a penny.  Good thing you didn’t spend hour after hour running around town buying these things up, oh, wait, never mind!

The low barrier to entry for Amazon Arbitrage is a disadvantage for arbitrage sellers. For those who are passionate about selling products, you’ll eventually end up in the wholesale model, and it can be a lucrative business. The entry barrier is also low for wholesale as you only need to purchase light bulk quantities of products. A seller can start with just a small inventory of items and a seller account. This money can be used to expand their business or increase their profits.

High-profit margins

Product sourcing is a key ingredient in building a successful Amazon business. If you’re familiar with Amazon’s business model, you will know that product sourcing includes adding your offer to existing product listings. All arbitrageurs have difficulty scaling large orders and managing them. Arbitrage involves selling other items and it can be difficult to control the product you sell. This is why many arbitrageurs choose to focus on only one aspect of product sourcing.  With the wholesale model, you don’t run into those limitations.  profits

Retail arbitrage is difficult to do, but it can be a way to start (on eBay) getting familiar with selling products online. The best way to source products is to check out the clearance and sale sections of brick and mortar stores. These items will often be at lower prices than their online counterparts, giving you some profit margin. This model is ideal for beginners as it requires very little capital to start up on eBay. In order to increase profits on Amazon, you must understand the wholesale or private label models.

Stay tuned for more insights about studying e-commerce and the Amazon wholesale model.