The Basics of Online Arbitrage
One of the main challenges e-commerce sellers face when selling on Amazon is acquiring the products themselves. There are many ways to procure products, and online arbitrage is a good example. Online arbitrage allows you to source products from the comfort of your own home and then post them on online marketplaces. As long as you have a computer and access to the internet, you can start with online arbitrage anytime, anywhere.
You may have heard of retail arbitrage before, but how does it differ from online arbitrage? And what are the advantages that online arbitrage brings to the table? This article will answer those questions to help you determine whether you should start this business method in 2022.
What is online arbitrage?
Simply put, online arbitrage is the process of buying discounted items online and selling them for a profit. For example, say you find discounted mugs on eBay for $3 each. You buy 30 of these and sell them on Amazon for $5 per mug. When you sell all the items, your total profit will be around $200! It’s a simple concept that allows you to earn money and jumpstart your e-commerce business.
Some websites will drop the prices of their products to attract more buyers. Knowing this, you can take advantage of the price difference by buying low and selling high. You don’t need to have a specific budget in mind when doing online arbitrage, as you can purchase products in as many quantities as you like.
It’s pretty much like retail arbitrage, where you go into retail stores, look for products to sell, and post them on online marketplaces. The main difference is that you don’t need to hunt discounted items in brick-and-mortar stores with online arbitrage. You need to look at several websites, source the products online, and resell them on Amazon (or any marketplace you like).
What are the advantages of online arbitrage?
Online arbitrage brings forth plenty of advantages that e-commerce sellers will appreciate. Here are a couple of benefits of online arbitrage that you need to know:
1. Save time and resources
If you’ve done retail arbitrage before, you know difficult it is to go to multiple retail stores and find products to resell. It takes time and effort on your end, not to mention the transportation costs that go along with it. With online arbitrage, you can sit back, relax, and do bargain hunting without leaving the front door. All this adds up to cost savings, which you can then use to purchase more products to sell.
2. Cashback and discounts
The beauty of shopping online is that websites offer plenty of discounts and cashback to loyal shoppers. Online arbitrage allows you to take advantage of these discounts and use that to increase your profit margins! The cashback also lets you save money when buying on your favorite e-commerce website.
Browser extensions like Honey are a godsend for people looking to do online arbitrage. What Honey does is search for coupons and vouchers at checkout, allowing you to save money with a single click. The extension works on the backend and only pops up when you’re ready to purchase. Honey is a great tool that lets you shop confidently, knowing that you’ll get the best deals every time you buy online.
3. More places to look for
With online arbitrage, you can look for products to sell on just about any website you can find. You can filter search results on Google, making product sourcing simpler than retail arbitrage. If you can’t find a good deal on one website for some reason, you can move on to another website and look for better deals there.
The thought of going from retail store to retail store is what hinders retail arbitrage. You only have a limited number of options to choose from, and it gets even more challenging when you need to travel farther to find products.
4. Buy products in higher quantities
When you walk inside a retail outlet, you’ll find that most of the discounted products have limited stock. There’s a greater chance that when you look online, you’ll be able to buy products in higher quantities. The reason for this is because of warehouse and space constraints. There’s no denying that online stores carry more products in stock than physical locations, which is another benefit of online arbitrage.
The best part of online arbitrage is you get access to online-exclusive products that you sometimes won’t find in retail outlets. When you purchase limited-edition items, you can sell them at a much higher price!
5. Better scalability
Successful arbitragers know that retail arbitrage has a ceiling. Once you’ve hit that ceiling, earning more money than you’re making can be challenging. There are several reasons for this, and one is you don’t have control over your supply. The inconsistency with product availability, especially in retail stores, is a considerable hurdle when scaling retail arbitrage.
Compared to online arbitrage, you can source products quickly and plan for the long-term growth of your business. You can also choose to automate some aspects of online arbitrage and outsource to virtual assistants to help grow your business.
How to get started with online arbitrage
Getting started with online arbitrage is relatively simple as you’ll only need a couple of tools at your disposal. These are:
- A computer
- An internet connection
- An Amazon seller account
- A sourcing tool for finding products to sell
Like most business models on Amazon, you’ll need to have an Amazon seller account. First-time users will have two options: the Individual account and the Professional account.
You don’t have to pay a monthly fee with an individual account, although Amazon charges you a per-item fee of $0.99 for each product you sell. You also have a limit of 40 products to sell under this account. The Professional account charges you $39.99, but you gain access to Amazon’s sponsored listings, restricted categories, and more.
You can always start with an individual account and upgrade to Pro anytime you like. In our experience, a professional account is more suited towards online arbitrage as you can sell products in all categories and be free of the $0.99 charge, allowing you to make healthier profit margins. You can learn more about the two accounts on Amazon’s pricing page.
The whole product sourcing process is similar to retail arbitrage, but you get to do it online this time with the help of product sourcing tools like Jungle Scout, Helium10, and Tactical Arbitrage. All these tools will help you find the right product to sell and back it up with detailed analytics to ensure your profit margins are on point.
To get you started with online arbitrage, here are some of the most common websites that sellers visit to purchase discounted products in bulk:
- Walmart
- Target
- Home Depot
- Bed, Bath & Beyond
- Big Lots
- Craigslist
- Facebook Marketplace
Once you’ve found the products to sell, you can start listing them on Amazon. It’s that easy! Of course, there are a couple of intricacies involved with online arbitrage if you’re looking to make it a full-time gig. As always, it’s best to do your research and learn as much as you can about online arbitrage to transform it into a sustainable business model.
Which one is better? Online arbitrage or retail arbitrage?
Many first-time sellers are torn between online arbitrage and retail arbitrage. After all, both business models have their strengths and weaknesses. There isn’t a clear recommendation between these two options since it all comes down to what you want as a seller.
Retail arbitrage is excellent for beginners as it allows them to learn the ins and outs of arbitraging. You also get to inspect each product you purchase which is better for quality control. The good news is that you can always transition to online arbitrage if you’re looking to scale your business and find more products to sell.
The main reason many prefer online arbitrage over retail arbitrage is that there’s less physical work involved. It’s more convenient to source products online, and you get better deals that you otherwise wouldn’t get on physical retail stores.
There are instances where you’ll find better prices on retail outlets, but that requires tedious amounts of work. Overall, if your goal is to start a business model that can scale it for the long term, then online arbitrage is the most logical choice.
Conclusion
Online arbitrage opens up the doors for you to make huge profits online and start your own e-commerce business. However, there’s a bit of a learning curve involved when you do online arbitrage. Keep in mind that we’ve only covered the basics of online arbitrage as there’s plenty more to discover on how to sell successfully on Amazon.
Do your research and learn more about online arbitrage as much as you can. That way, you can determine whether this business model is suitable for you.
Maintaining the financial health of your online business is crucial to your success. To ensure maximum profitability, you need to have your bookkeeping in check. Feel free to fill out the form below for professional bookkeeping services, and we’ll get back to you shortly.
