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What is Amazon Arbitrage?

arbitrage on amazon

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.

amazon arbitrage

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.

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).

amazon intellectual property complaint

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.

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14 thoughts on “What is Amazon Arbitrage?”

  1. I have heard a lot about arbitrage and was always wondering if it was worth using or not. So it was very helpful to come across this post and learn what arbitrage is about. On Amazon it appears that arbitrage is not worth doing, but would it be worth while on other platforms? Maybe on eBay?

    Those that have made money with arbitrage on Amazon, would they be marketers with a lot of experience, or were they just lucky to have got in at the start? Thank you.

    1. Unfortunately, those that have made money with arbitrage on Amazon get that sense of invulnerability.  Amazon can sometimes be slow to act.  Imagine putting some serious money into some products, sending them down to Amazon for the FBA program, and finding out your account has been suspended.  Yikes!

      Thanks so much for your comment!

  2. This seems like a terrible business model, I can’t believe that people would do this. I am not a person that likes to leave my house, but I am not about to spend more money on something I can get at a store near me. This seems like a waste of time and not much profit. 

    I have looked at a lot of ways to make money online and have to say this is by far the worst of them, next to the scams. Dropshipping seems so much easier and it doesn’t cost that much on the start up. So you buy an item, then post it, and then ship it? Seems like a lot of work for not a lot of money. I agree this is no way to make a good income online, there are better and easier ways. 

    Thank you!

    1. Reggie, thanks so much for your thoughts!  Dropshipping has to be done correctly, especially if you’re doing it on Amazon.  Most folks think they can sign up with a drop shipper that offers thousands of products and just push the onto their Amazon account; yet, sadly, they are wrong.  That is against the terms of service.

      I have done some legitimate drop shipping in my time.  You want to find a product that you can enter into a contractual relationship with the manufacturer, and have them agree to ship directly to your customer.  For example, one product was a heavy and expensive solar-heated horse water trough.  I maintained the listings and the orders went right to the manufacturer who would then hit my credit card for the cost and shipped the product.  That’s dropshipping the right way.  It can be lucrative, but it’s much more work than wholesale.

  3. Before now I hadn’t heard of arbitrage. You would of thought I would of come across it with being an amazon associate but I haven’t. This review was very educating to me on the insight you have been able to give me about Arbitrage.

    I will definitely still with my amazon associates 

    1. Back in 2010-15 I earned six figures monthly with Amazon Associates.  It’s a great program, even with the commission cutting.  Keep the course and you’ll do great!  And, yes, stay far, far away from arbitrage!

  4. This is the first time I hear of this practice. I didn’t know that there was such a thing. But as you said I don’t see this as an easy way to make money online. There are far easier ways to start an online business with very low starting risk than this. But I guess for more experienced users this may be viable, who knows.

  5. Dropshipping or Amazon FBA or Amazon Arbitrage are all populars ways to make money online. I think Amazon Arbitrage carries some risks of paying for inventory. You actually pay for it so if it doesn’t sell, the burden and loss falls on you. I think this business model is not for everyone. But since Amazon seriously cut affiliate commission a few times for the past 3 years, many people now turn to business models mentioned above. Do you personally have any experience with any of business models mentioned above and if yes, what are your recommendations or warnings?  

  6. Hi Todd

    During my time online I have tried almost every possible income stream. I have tried Amazon Arbitrage as well. All the “gurus” extoll its financial benefits and claim it is an easy source of income. That couldn’t be further from the truth. I agree with you that you can make a small amount of money, but you need to put in a lot of work and time.

    I am actually looking at entering the KDP arena. I like to write and I think that it could afford a better income option than arbitrage. 

    Regards

    Les

    1. I totally agree with what you say about KDP.  I wrote a book called The Amazon Code and published it on Amazon through the KDP program.  The book is a best seller and Amazon rewards me with nice royalty checks every month from marketplaces all over the world.  

      I would also suggest going the extra mile and putting your KDP books on Audible.  The royalties Audible pays me dwarfs the significant KDP royalties.

  7. From past days I was searching Amazon Arbitrage on internet, but this article gives me detail information and I think one of the good idea of selling product from one platform to another.Many Amazon sellers who have made consistent huge amounts of dollars with legitimate Amazon models like Direct Publishing, Private Label, and many more. 

    These are all legitimate business models.However, there are also a lot of sellers who have made tens or hundreds of thousands or even millions with Amazon dropshipping. They go to Walmart, Home Depot and Target and get less expensive products and resell them on Amazon. In theory, this is a good business model because it should require no upfront investment.Thank you for the article!

  8. This is the first time that I have heard of this program but from what you have said it is very interesting, I think that we should all be aware especially those of us who are in this line of work of the many shinning objects that are out there and promises so much but is a scam and a deception. Thanks so much for shading light on this program.

  9. After reading your review about using Amazon for arbitrage purposes, I have decided to pass on this business model. However, it was fascinating to read how you defined arbitrage in a manner that is easily understood. 

    I have known entrepreneurs to use arbitrage in other categories to make lots of money. But it is not easy and one needs to take action to protect one when things go south. 

    Thanks for sharing this option.

    Edwin

  10. For me, I would stick with other Amazon businesses than go into arbitrage. I have heard of it in the past but didn’t know this is how it actually works. It sounds like a very time-consuming business and the profit may not be worth it at the end of the day plus the fact that you can even get into trouble due to violation. 

    Thanks for sharing this informative article. At least I have learned what Amazon arbitrage is and how it works.

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