Online arbitrage is the act of reselling a product for profit on a different platform than where the item was initially purchased. Most commonly practiced on Amazon, sellers source in-demand products from various online retailers to resell to customers at a higher price point.
Online arbitrage can be a great way to flex your entrepreneurial muscles, as it provides a lot of freedom that other small businesses don't. For example, you can set your own start-up costs by choosing how much inventory to buy at a given time — meaning you'll have better control of your own finances. In addition, Amazon has plenty of services catered to online arbitrage sellers that will help you manage your new business with ease.
“I started arbitrage when I was trying to re-enter the workforce after immigrating to Canada,” said Shubhangi Mittal, founder of Blackboard-Digital. “I was not getting a formal full-time role and was discouraged. I learned about it from YouTube and signed up because it had minimal investment and would keep me busy.”
But staying busy isn’t the only reason entrepreneurs go into arbitrage — if you've done your research, it can be a great way to bring in extra income.
“I began my online arbitrage business to make extra money so that I could eliminate my debt,” explained Jason Butler, founder of MyMoneyChronicles.
What Is the Difference Between Retail Arbitrage and Online Arbitrage?
The main difference between retail and online arbitrage is where you source the products you plan to resell for a profit.
Online arbitrage happens exclusively online, meaning you buy discounted products on various websites and then resell them online. With retail arbitrage, you can still sell products online on marketplaces like Amazon, but you are sourcing them from brick-and-mortar stores in your area.
While both options allow for growing profits, online arbitrage is significantly more convenient for resellers.
How Do You Start an Arbitrage?
Starting an arbitrage business is similar to opening an Amazon business — not just because most arbitrage happens on Amazon.
First, you’ll need to source your inventory, and this step requires a lot of research to ensure you are buying at the right price to make a profit. There are plenty of online tools, such as revenue calculators and AI shoppers, that will help you find the best deals, determine profits and check on competitor pricing to help your business thrive.
From there, you have a few options for selling your inventory and getting it sent out to buyers. You could deal with the posting, packaging and shipping process yourself — but it can be a lot of work on your plate. Instead, a full-service platform like Fulfillment by Amazon (more on that later) can streamline your business with only a few clicks of your mouse.
Arbitrage Pros and Cons
To help you determine if starting an arbitrage business is right for you, read through the pros and cons of this type of entrepreneurship before you buy any inventory.
- Arbitrage Pros
- It can be an easier way to make money than starting your own storefront.
- You have the ability to purchase from a large variety of vendors.
- There are plenty of niche products to choose from with large buyer pools.
- You have the flexibility to ship products yourself or work with a shipping center.
- You can set your own hours.
- You can control your startup costs.
- Arbitrage Cons
- There is a high level of competition.
- The profit amount can range depending on the product and services used.
- The amount of inventory you have to manage can fluctuate.
- It can take time to source worthwhile deals.
- There is no guarantee of sales, meaning you might have extra inventory.
The Process of Making Money on Amazon
Making money on Amazon is all about being adaptable. Products that do well one year may not do well the next, and the selling process can take some time to learn.
“Start with a low investment product to test the concept and learn the ropes, including how to package and send, courier costs, [make] improvisations, get the tools and read the data,” advises Mittal.
Plus, there’s always a risk of getting beat out by Amazon or other sellers, which some arbitrage sellers have already experienced firsthand.
“Once Amazon discovered that our products sell and turn a profit, they listed themselves as the 'Amazon Prime seller,' basically becoming our biggest competitor,” explained Yungi Chu, arbitrage seller and small business owner of HeadSetPlus.
Bottom line: As long as you stay flexible and keep your finances in good health, you'll be setting up your business for success. After all, more people visit Amazon per month than any other online retailer worldwide.
Online Arbitrage Tools to Check Out
Whether you want help finding the best deals or want to take the packaging and shipping process off your plate, these online tools are perfect for streamlining your business.
- Fulfillment by Amazon: Perhaps the best tool on this list, Fulfillment by Amazon will outsource the entire arbitrage process for you (including storage, packing, shipping and returning).
- Amazon FBA Revenue Calculator: Use Amazon’s own revenue calculator to see how much profit you can make after taking into account the price you paid, shipping costs and their own fees.
- Tactical Arbitrage: Learn what products have the best ROI, conduct as many product searches as you need and simplify the process of arbitrage with Tactical Arbitrage.
- Invisible Hand: Take the guesswork out of finding the lowest price for any item you search for online by downloading the Invisible Hand extension for your browser.
- Source Mogul: If you plan to only sell on Amazon, Source Mogul is the tool for you. Easily compare the prices of products to Amazon’s averages before you buy to ensure you always turn a profit.
- BrickSeek: Use BrickSeek to quickly find the best deals on everything from electronics to toys.
- PriceBlink: PriceBlink acts as a helping hand, similar to services like Invisible Hand and Honey, by searching for the best product deals as you browse.
How to Start a Reselling Business
First, make sure you aren’t making any of these Amazon seller mistakes. If you are, focus on fixing those, as asking for reviews and updating your product photos can significantly impact your bottom line.
In addition, don't be afraid to think outside the box in terms of what you're reselling.
While you may have a few tried and true products you know will sell, experiment by selling smaller batches of unique products to see what hits the mark. You may end up finding an even more lucrative product that you can add to your online storefront. Keep an eye on your competitors and trending products on Amazon to spark ideas for new products to sell.
Still unsure if this is the right type of business for you? Take it straight from the mouth of Ankit Vekariya, an online arbitrage seller and founder of Linckup, an ecommerce selling platform:
“This opportunity is going to be huge,” says Vekariya. “One just needs experience in understanding the market and product-market fit."
Get started on your retail dreams today by starting an Amazon business with Incfile.