In the world of selling on Amazon, there are a few different ways to find products to sell. They include retail arbitrage, online arbitrage, wholesale, and private label. While each of these techniques can be profitable, there is one that easy to get started and can be done from anywhere. If you want a comprehensive course over online arbitrage, please check out our course here.
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Online Arbitrage
Online arbitrage is the method of finding items on one website (ex. Walmart.com), purchasing them, and reselling the item on Amazon.
Yeah. Sounded a little sketchy to me too.
But let me tell you my story and give you some concrete reasons that online arbitrage does actually work and how you can get started.
My Story of Online Arbitrage
I started my Amazon selling career by sourcing items at local Walgreens stores. I would buy carts full of toys on my lunch breaks and I would spend my evening prepping the items for the Amazon warehouse. I wanted to expand my sourcing, but I was limited by time and geography. I had to find a way to source while I was at work and I really wasn’t comfortable having others source for me. So I did some digging and found a few articles about online arbitrage.
Being the skeptic I am, I thought that the idea sounded good in theory, but it also sounded too good to be true. Why in the world would people pay more for something on Amazon when they could buy it at a lower price on another website. Surely people couldn’t be this dumb.
So I decided to start small. I found a few items that were on sale on Kohls.com and had them sent to my house. A few days later, the products were on my door step. I prepped the items for Amazon, sent them in FBA, and they sold within a few days (for a profit of $21 total).
I was dumbfounded. This online arbitrage thing actually worked.
I could literally buy a bunch of products at work and have them delivered to my house without ever stepping foot into a store. And I could do it all while I worked.
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Why does this work?
You might be asking yourself: Why does this work?
If you take a moment and look at it from an economic perspective, you learn that there are a bunch of factors working together to make online arbitrage possible.
Speculation, Supply, and Demand
Doesn’t a supply and demand curve bring back bad memories of your high school economics class? In reality, these two curves can actually explain why online arbitrage works.
Arbitrage opportunities occur when two or more markets intersect and have different price points (also known as equilibrium points). In a perfect world, consumers would know that these prices difference are happening and would naturally go towards the lower price as long as everything else is equal.
That requires a perfect world. And most of you know that’s not the case.
Since the world isn’t perfect, there is an arbitrage opportunity. It is the job of the arbitrager to buy the lower price products and bring them to the higher priced market. This obviously makes the arbitrager money, but it also helps those who are looking to buy a product. It even helps the lower priced market seller as they wouldn’t sell if they weren’t making money. Overall, everyone is better off.
Lack of Information
Oh lord. Another confusing chart!
Just as I mentioned above, in a perfect world, people would buy the lower priced item as long as all other things were equal.
In an economy, information is one of the most important assets a person can have. That holds true for those who sell using online arbitrage as well. The curves above show an example of why there is ups and downs in a given economy. The hills and valleys present the time it takes for the entire market to get the correct information needed to make a logical decision. The longer that takes, the bigger the swing up or down (note: You can’t see the curves, but if you connect E0 to E1 to E2 with a curvy line, you can see what I’m talking about).
Online arbitrage works because not everyone has as much information as those who are hunting for deals.
Imagine your grandparents trying to search the web for coupon codes, cash back, and on a no name retail website. Funny isn’t it. My guess is they have enough trouble pulling up a web browser.
With this skills mentioned below and in this course, you can learn how to use information to your advantage and how to find deals that others didn’t even know existed.
What you need to get started with Online Arbitrage:
First and foremost, you are going to need an Amazon Seller account. That can be obtained at sellercentral.amazon.com. When you get to the site, you should see a page like this (or something similar).
An Amazon seller account will get you access to be able to list on the Amazon marketplace. Think of it like this: It would be the same as going into your local Walmart and asking for shelve space for your product.
As you register for a selling account, you will be asked to select either an Individual or Professional selling account. An Individual selling account has no upfront cost, but it does have higher fees than a Professional account. A Professional account has a monthly fee of $39.99, but you have lower fees with each product you sell.
Which plan should you choose?
For Online Arbitrage, I would recommend that you start with the professional plan. The reason I say this is due to the fact that the professional plan gives you access to Fulfillment by Amazon (FBA). Since we are wanting to be as hands off as possible with the selling process, using FBA will allow us to use Amazon’s fulfillment network to ship orders through all hours of the day or night. Plus, we have the ability to offer Prime shipping (which is a huge selling point on Amazon).
Setting up your account
Amazon is going to ask you a bunch of questions as you set up your account. You will need to have the following ready to go before you register for an account: Business name and address (can be your individual name as well), telephone number, credit card and bank account information, and tax information (social security number or EIN for a business).
First off, you will need to put in your legal name (or legal business name).
Once you fill out that information, you will need to put in your business address, choose a seller name, and verify your phone number.
Once you have your phone verified, you will need to provide your credit card and bank information.
From there, you will get to the tax interview screen (since I didn’t put my bank or credit card information into the system, I can’t get a screenshot of that area). It will ask you a few questions including your social security number and the type of business you will be operating under. Answer those as you see fit and continue past that page.
And there you go. You now have an Amazon Seller Account.
The next step is figuring out what you are going to sell!
Next Steps
Now that we have the store to sell on, we need to stock it full of products to sell. Like I mentioned before, some people do this through retail arbitrage, private label, print on demand, or wholesale. Although those methods do work, we are going to focus on my favorite of online arbitrage.
What you need to start
First off, you are going to need to have access to a desktop or laptop and a credit card.
Once you get those two items, you will need to install Google Chrome (the preferred browser for online arbitrage).
Using Chrome allows us to install some nifty and useful extensions that will help us determine if a deal is a buy or if you should pass. Here are the few you will need right away:
Keepa – This one is going to show us the price history of an item on Amazon. I go into more detail about this extensions later in this post, but it is a must have.
FBA Calculator – There are many different versions of this on the Google Chrome store, but you will need to find your favorite and learn to love it. This extension will help you see if a deal is profitable or not when you account for Amazon’s referral fees and the cost of the Fulfillment by Amazon service.
Honestly – These are the only things you need to get started. There are hundreds of other softwares, tools, or extensions that can aid in the hunt for deals, but we are just trying to get you started. As you grow and learn, you will find a few more tools that make you life a bit easier. Once you get a little more advanced, you might want to consider a course like this to help you hire and train virtual assistants for you to do the shopping while you sleep.
Building a set of buying criteria
A lot of sellers will start by showing you how for find deals, but I think it is more important to set some expectations and rules for online arbitrage first. I have always been taught that you can’t manage what you can’t measure and that a business that runs on data will perform better over the long run than one that is driven by emotion.
That being said, we need to determine our criteria for buying before we ever go look for a deal.
From my experience, there are a few factors that we need to focus on:
- Profit margin – Obviously, we want to make a profit from selling on Amazon. Most people dream about making an 100% return on an item, but the reality is that we are going to find a lot more deals in the 25-50% ROI range. You can choose whatever profit margin you would like to use, but I would recommend starting with 25% or 30% and adjusting it as you get more skilled in online arbitrage.
- Sales rank – This might be a new term for some of you, but “best seller rank” or sales rank is essentially our way of knowing how often a product sells on Amazon. It can be found on the Amazon listing towards the bottom of the listing. Each category on Amazon has its own sales rank, so make sure you are comparing apples to apples. We will spend some more time on sales rank in a few minutes, but the overall takeaway should be: The lower the number, the more often it sells on Amazon. The higher the number, the less often it sells.
- Category – Amazon is the marketplace of a million items, but they are all organized into different categories. Some categories are “gated” or closed for some sellers, while others can be used by any seller. You will want to chose a category (or two) that you want to sell in and own it. Searching across all categories is ok, but having a lot of information about one or two is even better.
- Price point – It’s great to make 100% on an item, but what if that item only sells for $2? We need to set a minimum selling price (I would recommend $15) in order to make sure our time investment is worth the return.
So what does this actually look like for a seasoned online arbitrage expert? Here is what I use:
Profit margin = 25% or higher
Sales rank = 200,000 or lower
Category = Toys and Home Goods
Price point = $15 or higher
Having this as a guide when looking at potential flips helps me to take emotion out of the equation. If a deal does not meet these for checkpoints, then I pass on it. No questions asked.
Price History and Sales Rank
So know that we know our criteria for buying an item, it’s time for us to understand a little more about the data we can use from Amazon and Keepa.
There are two major data points that help us to understand the supply and the demand of product on Amazon. Those are price history and sales rank. Both of these pieces of information can help us answer the following questions:
- How fast will an item sell?
- Will an item sell at all?
- Is the price listed a fluke or a steady price?
- Does the price change often?
As you can assume, all of these are important questions to answer before buying an item and trying to resell it.
So let’s look at the first two questions: Will an item sell and how fast will it sell?
This information can be found using the sales rank located on an Amazon listing. If you scroll down on a listing, you should see an area titled Product Description and it should look something like this:
The number we want to look at is the “Amazon Best Sellers Rank” and we can see the example has a rank of 8,627,439 in Clothing, Shoes, & Jewelry.
What in the world does that mean?
Well, we need to understand a few things. First, this number represents how this product compares with other products in the same category at this point in time (when comparing the last date of sale). So since this product has been purchased, 8,627,438 other products (not units) have been purchased in the Clothing, Shoes, & Jewelry category (I say products not units as a single listing might sell multiple units a day, but the sales rank only compares listings to listings).
Without any context, this number is completely useless. With context (and another nifty tool), we can actually get some answers.
If there is a sales rank, that means that the product has sold in the past. If it hasn’t sold, there wouldn’t be a sales rank. So that answers one of our two questions.
Now if we head over to this nifty tool, we can get an estimate on how many units of this product are sold per month (note – this tool uses estimations, but they can be used as guidelines).
And boom. On average, this product sells 0 units per month.
Sucks doesn’t it. Odds are that this product sold once and it has never sold again. But what if we had a sales rank of say 100,000 in Toys? Let’s see what that would look like.
30 units a month. That sounds a little bit better! It actually sounds like the product sells on a regular basis.
See how that works? The lower the sales rank, the more often a product sells. That’s why we like to look for products with lower sales ranks and keep to our buying criteria when we are making online arbitrage purchasing decisions.
Now that we have answered our first two questions, we need to take a look at our other two questions: Is this price a fluke and does it stay steady over time?
That’s where our Keepa Google Chrome extension becomes handy. It will give us the price history of a given product as we look at the Amazon listing.
If you already have it installed, you should notice a new box appears on an Amazon listing. It should look something like this:
Looks like a mess of colors and lines, but it actually tells a really important story when it comes to price history and an Amazon listing.
You need to understand the colors in order to get the whole story.
Orange = When Amazon is in stock (the height of the orange shows the price point at which the product was listed)
Blue = When a third party seller has the product in stock (the height of the blue shows the price point at which the product was listed)
White = When Amazon is out of stock
Blue line and white underneath = When Amazon is out of stock a third party seller is in stock.
Although there are other colors and symbols, these are the four you need to know to analyze price history.
The chart above shows a history of 1,533 days (bottom right) and we can see that this product usually has an average price of $20-$25 (we can actually see the average if you hover over the “statistic” section of Keepa and it would be shown as this:
What does this tell us?
It tells us that the price has held steady over time and isn’t a fluke. We can be confident that we could list this product at $24 and it would have a chance of selling (and not tanking to a lower price).
If we saw something like this, we would be a little concerned and we would have to know that a price point of $65 isn’t going to hold. It was only high for a short bit of time.
Now that we understand price history and sales rank, we can start looking for deals and making purchases (and profit)!
Searching for flipping opportunities
This is the moment you have been waiting for – The point in time when you can start finding deals and making money. You have all the knowledge to analyze a deal, so let’s find one.
I’m going to start with one of my favorite sourcing sites. Kohls.
So let’s head over to Kohl’s website and start by looking at toys (I know what you are thinking – Toys at Kohls!!?!)
I’m going to go down on the lefthand side and select clearance and it will pull up a page similar to this.
I am now going to do the hunt and peck method. What that means is that I’m going to click on a product, highlight the title of the product, and search for it on Amazon. I started with that toy on the top right (Fisher-Price Imaginext Serpent Strike Pyramid) and this is what I found on Amazon.
Looks like the price on Amazon is around $33. On Kohl’s it is listed at $14.99. Looks like I just struck gold…Or did I?
Remember – We will be using Fulfillment by Amazon and that comes with fees. And Amazon charges referral fees on every item sold. That being said, this is the point where you need to use a FBA calculator (or Amazon fee calculator) to figure out it this is a profitable item. Here is what I found (I’m using this calculator for this example):
Looks like I would actually lose money if I bought and sold this item ($0.23 to be exact). Since it is in the red, I am going to move along to another item and see what I can find (note – There are some of you who are going…But wait! I can use promo codes, cash back, etc and I can actually make money on it – Hold your horses. You are getting ahead of me just a bit).
As I continue to look through the toys, I notice that there is not a great deal to be had today. That’s an important idea to note. Sometimes the deals aren’t there. Sometimes they are. At points, you need to stop and switch stores to see if you find anything that is worth buying on that given day.
I’m going to head over to Target.com and do a few searches. I have always been a fan of FUNKO Pop figurines, so I decided to start there (key tip – Always look at store exclusive products – They limit the places you can buy an item).
During my search, I found this guy.
Ok – A few points I love about this already. #1. I’m a Target Red Card holder. That means I’m going to get 5% off the price. #2. It’s a Target Exclusive #3. These already come in a nice box and have little prep work needed to get to the warehouse. #4. They are having a buy two get one free sale.
Next step is to take a look on Amazon to see a price point.
I’m liking what I am seeing right away. No Prime seller in the Buy Box (portion of the listing that tells the price without clicking New or Used). And it’s a price point of $69.97. Boom baby.
Now we have to go through our checklist.
Let’s look at the profit margin.
Looks like a 27% return on my investment – That hits my box.
Two boxes: ROI and Category have been checked. And the third one is easy to look at as well. The price point is about $15, so I’m three for three.
Time to look at the sales rank.
Another win. Let’s just quickly double check that Keepa agrees.
Yep – We haven’t been below this price point yet. And Amazon isn’t on the listing (which should be a given since it was a Target Exclusive).
Wait a second, didn’t this deal have a sale attached to it? Buy two get one free?
I tried adding 3 into the cart, but there is a quantity limit. So I go in and throw one of these into the cart at $0.
And this is the Amazon sales page.
And we stand to make:
An extra $14 for the sale.
If everything stays at the same price and these all sell, we would profit $52 on a $64 Target purchase.
Talk about easy money. This is what online arbitrage is all about. A full course taught by myself can be found here that goes into more detail about the different techniques you can use to find deals all over the internet. And if you want a software that automates a lot of the searching, check out Tactical Arbitrage (grab a Tactical Arbitrage discount code here as well).
Saving even more when you buy
Wait a minute. Didn’t I mention that there are promo codes, cash back, and discounted gift cards that can be used to lower the price even further (I did when I was talking about Kohl’s). Let’s take a look at each of these options and how you can use them to make money on the front end of a purchase.
Cash back – The idea of cash back is pretty straightforward. Websites pay affiliates to promote their products. Cash back sites encourage people to go through their links by giving a portion of the commission to the buyer. My favorite site to use is CashBackholic because it lets me compare a bunch of cash back sites at one time.
All you have to do is type in a store, choose a site, click through that site’s link to the store of your choice, and make your purchase. Cash back can take anywhere from 30-90 days to be deposited into your account. Let’s take a look at one opportunity with a quick search of Best Buy. Looks like I can get 7% cash back on purchases if I use BeFrugal or Top Cashback.
Promo codes – This one doesn’t need a ton of explaining, but make sure to always remember to look for promo codes before you complete your purchase. My favorite site is RetailMeNot. One note: Make sure to do this BEFORE you do the cash back to ensure you don’t undo an offer by clicking through another affiliate link. If I was making that purchase through Kohl’s I can see that I can get free shipping, 30% off, and $10 off of $50+
Discounted gift cards – This one is not used by most, but it is a great way to save some money. There are times where people get gift cards to stores that they never shop. Instead of buying items that they will never use, some convert that gift card into cash through a gift card marketplace. My personal favorite is Gift Card Granny. With just a quick search, I can see that I can save on a bunch of different stores!
What you do after the purchase
We have spent a good bit of time talking about finding deals and the last part we need to cover is how to actually sell the products you have purchased. Remember that Amazon account we opened up at the start of this post? It’s time that we use it.
When we look at selling on Amazon, there are two ways you can get your items to the customer. Fulfillment by Merchant (FBM) or Fulfillment by Amazon (FBA). Since we are doing online arbitrage, we are going to focus on the FBA model of selling and fulfillment. This allows us to package our items up and send them to an Amazon warehouse instead of sending each item to a customer.
In order to use the FBA services, you will need to follow the following steps to get your products listed and shipped into Amazon. (Note: There are tools out there that make this process easier such as Inventory Labs, but we are going to show you the long way for your reference).
Step 1 – Add the product to your inventory
You will need to go to Seller Central and go to the Inventory tab at the top. Hover over it and click the option that says ADD INVENTORY and you should get to a screen like this.
Then you will need to grab the UPC or ASIN number from the Amazon page (or you can search by product name). I’m going to go with the FUNKO Pop we found, so we are going to use B07Q9J5R59. Once you search, you will find the listing and have to select the condition of the item. Once that is done, click Sell This Product.
Once you do that, you will have to put in some more information including your price and quantity. You will also have to choose if you are going to sell FBM or FBA.
Step 2 – Prep the items for shipment
Amazon has a bunch of different rules regarding how items need to be sent to their warehouses, so you will need to visit the Seller University to find out all the specifics.
For this product, it looks like I need to generate an Amazon barcode.
As a general rule of thumb, you will need to polybag loose items, box breakable items, print out barcodes for each item, bubble wrap and tape items that can break or be opened. This FUNKO toy should be bubble wrapped and that should do it.
Step 3 – Create the shipment
In order to get the items to the warehouse, you will need to tell Amazon how many you are shipping. That is done by creating a shipment.
You will need to create a new shipping plan and then tell Amazon how many of each item you are shipping in. I’m using 5 for this example. Then you need to hit continue.
It’s then going to take another moment to remind you about prepping your items. Please follow the directions they provide.
You will then need to print out the barcodes (or pay Amazon to do it).
Once you do all of that, you will need to approve the shipment. Note: If you have a lot of items you are sending in, there is a strong possibility that your shipping plan will be spilt into multiple locations. This is Amazon’s way of making sure the products go to the best warehouse in terms of logistics. Mine was small and is all being sent to North Carolina.
Once you approve the shipments, you then have to put all of the items that are in each shipment into a box. I prefer to use Home Depot or Lowes large boxes, but that is up to you!
You will have to select FedEx or UPS and measure and weigh your box. Once you have that information, you can see how much shipping will cost.
If you are good with the shipping costs (side note – you get really good rates when you ship through Amazon’s partner program), you agree to the terms and accept the charges. Then you will be able to print off a label and tape it to the box.
All that is left is taking the box to an UPS store or scheduling a pick-up.
Step 4 – Wait for the sale
Now that your shipment is out, you just have to sit back, adjust prices if needed, and wait for the item to sell. Expect to wait 3-7 days for Amazon to get the shipment and process it into the system. After that, you can access the pricing under your Inventory tab in Seller Central.
Summary
Online arbitrage is a perfect way to find deals and make money by selling on Amazon. This guide walks you through all of the steps you need to get started. We have gone through all of the steps from understanding why online arbitrage works to finding your first product to shipping it into an Amazon warehouse. If you still need more training or want to speed up the process, consider check out our Online Arbitrage Mastery program.
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