Last updated on January 18th, 2023 at 01:50 pm
If you’ve ever looked into starting a business on Amazon, the chances are that you’ve come across the term “Retail Arbitrage.” Retail Arbitrage is a pretty easy concept. A retail store sells its products to you at a specific rate. You earn a profit when you buy the products and sell the same at a higher rate. This is called retail arbitrage. More specifically, you purchase a product for a lower or slightly discounted price and then sell the same product at a slightly higher price, therefore flipping it for a profit.
Getting Started with Amazon Arbitrage for Beginners
If you have decided to start your journey as an Amazon Arbitrageur, you have to set up your Amazon Seller Account.
You need an account to access a free app that provides the information you need to begin researching items on Amazon.
I recommend signing up for an individual seller account because it doesn’t have any monthly fees.
The next thing you should do is download the Amazon Seller App. It’s free and directly available through Amazon. You get details on the selling price, fees, and other details of any product available on their website.
It uses the camera on your cell phone to scan the barcode of any product and then show you the pricing and fee information for any item you are considering selling on Amazon.
Then, after these steps are done, find products to sell on Amazon. I have discussed in detail how you can find the best products to sell on amazon.
Find the products, open your Amazon Seller App, and use your phone’s camera to scan the products’ barcodes. Check two things on the screen:
- The first is to make sure you can sell the product on Amazon under the selling eligibility section.
- The second thing to look at in the left-hand corner is the sales rank.
The sales rank is a piece of information that Amazon provides that gives us an idea of how fast an item is currently selling on Amazon.
For your first few months, I’d recommend looking for sales ranks that are lower than 250,000. As you gain more experience, you can tweak this, but ranks under this range are a good starting point.
If the app shows that you are eligible to sell the item and the rank is less than your threshold, you want to check and see if it will provide a desirable return on investment.
Check Your Retail Arbitrage Products Profitability
At this stage, there are 2 quick checks that you want to go through.
- The first is to see if the net profit number at the bottom is higher than your minimum profit threshold.
- If the item meets your minimum profit threshold, you will want to calculate a return on investment percentage.
I recommend setting your minimum profit to at around $3 per product. This means that you won’t buy any items to make less than $3 in profit on.
Calculate a return on investment percentage if the item meets your minimum profit threshold. Do this by dividing the net profit by the cost of the item. When you start, look for items with a return on investments higher than 50%. When you find an item that meets your mentioned guidelines, buy at least 6 units of it at a time. Then start selling at Amazon.
Understand the Retail Arbitrage Ecosystem within Amazon
If you watch the Ecosystem of Retail Arbitrage within Amazon closely, it is fairly like any other ecosystem. Everyone is interdependent. Most importantly, everyone is profiting. A retailer buys a product at a lower price and sells it at a higher price at Amazon. The retailer earns a profit. Amazon here charges you a small charge for using their platform. Amazon charges this small fee from all its retailers, and that’s how they earn their profits.
You have to understand when you are in an ecosystem, you have to think about all the co-exciting people in the ecosystem. To maintain the balance, you have to work both ways. If you want to gain something, you should be ready to give out some. You can not take everything and not give anything. This will ruin the balance of the ecosystem.
Can you Make Money with Amazon Arbitrage?
Yes, you can make money with Amazon Arbitrage with this strategy.
When pricing your items, I don’t recommend pricing below the offers you are competing with. Pricing below your competition can often start a chain reaction of lowering prices and can quickly erode margins.
On the more aggressive side, I recommend matching the lowest price of the same fulfillment method. I’d price between $0.01 and 1% higher than the lowest price of the same fulfillment method on the more conservative side.
This is because there are a few different “gaps” in the prices these items are selling for. Whenever I’m pricing an item, I will look for significant gaps in price between the offers. If there’s a decent gap, then many times, I will price at the higher end of the spectrum to see if I can make some additional margin on the product I am selling.
You will get a better feel for pricing as you gain more experience selling on Amazon, but these general guidelines should be a good starting point. If you go through these basic guidelines, you will make money in Amazon Arbitrage.
How to Choose the Best Items for Amazon Arbitrage?
1. Find what is already selling on Amazon-
One of the fastest ways to find a product to sell on Amazon is to look through the Amazon Best Sellers List in different categories to find out what is already selling.
By looking through the Amazon Best Sellers List, you’re able to get an idea of the top 100 products currently selling on Amazon, to give you ideas on what products to sell.
2. Identify What Products Are Selling On Amazon And Verify It’s A Profitable Market
Once you’ve found a few products selling on Amazon in different categories, you’ll want to ensure that it’s a profitable enough market for you to sell in.
This is where using a tool like Jungle Scout is super helpful. It helps you look at the Amazon Best Seller Ranking, the sales data of the products to see how many sales the competitors are getting every day, and helps you analyze the competition.
3. Use Amazon Seller App to scan the profit
For any item you are considering selling on Amazon, you should be scanning it with the Amazon Seller App or using a similar tool before making a purchase. This will tell you the exact fees to make an informed decision about that item. With these types of calculators available, you should know your expected profit on any item you sell in advance.
4. Check for the Product’s Sale’s Rank
The sales rank indicates how quickly an item is selling on Amazon to other items in the category. When it comes to sales rank, the lower the number, the more recently it has sold. In simple words, the lower the number, the better.
For your first few retail arbitrage trips, I recommend looking for sales ranks below 250,000 in their respective category. Over time I highly recommend adjusting this, but staying under 250,000 is a good range when you are just getting started.
5. Use Amazon Reviews to find Your Product
One of the best ways to zero in on the products that will sell is by analyzing online customer reviews. What are people raving about? What are people upset and disappointed by?
When it comes to developing your own products, the customer gripes about your competitor’s products should serve you as inspiration for how your products should work and function – allowing you to outperform the competition.
How to Choose the Best Store for Amazon Arbitrage?
When it comes to deciding which store to get started with retail arbitrage, there are many options. My recommendation is to start with whichever store is closest to you and have the easiest access to. Make it easy on yourself for your first trip, and over time you can try out a variety of stores. The list goes as such:
- Home Depot
- Big Lots
- Rite Aid
- Toys R Us
- Bed Bath & Beyond
- Office Depot
There are certain local markets too, which have great stuff. You buy from them in stock at a lower price and then price them according to your profit and sell them on amazon.
Recommended Tools for Amazon Arbitrage
Since we are talking about beginners, the tools I would recommend for Amazon Arbitrage are:
- Amazon Seller App– It’s a free app that you receive access to with an Amazon Seller account. It provides the information you need when deciding which products to buy to sell on Amazon, and it’s the only retail arbitrage app you need to get started.
- Fulfillment by Amazon Revenue Calculator- This tool helps you to evaluate products.
How to Calculate ROI for Amazon Arbitrage?
Return of Investment(ROI) is usually calculated in percentage. Suppose I am buying a product for $10 and selling it for $20; that gives me $10. That means my profit is 100% of my buy cost. So, my return on investment is 100% now. If I sold it for $15, my return on investment would be 50% because my profit is $5, which is 50% of my buy cost.
To calculate how much amount would return to your pocket, we would use the Amazon calculator tool (this should already be done in the Amazon Seller App automatically when you look at the product) to look how much money is coming back into our pocket after selling the product, i.e., after all the Amazon fees, which includes Inbound Shipping.
For Example, a toy Elsa is $29.99 on Amazon. If we sell it at that price and let’s say we pay Inbound Shipping of $1.50, we are getting $21.39. So, we want to take this number and use it in an ROI calculator. You can download any app for calculating the Return on Investment.
Now, let’s say we paid $10 for that product, put $10 in the space of Initial Price, then put $21.39 in the space of Return Amount(Earnings). Then click Calculate. It will show the result as 113.9%, which means it is more than 100% and it is a profitable deal.
Hence, this is how you calculate your ROI and use an ROI tool to determine if a product is within your range of Return on Investment.
I hope all the information is not overwhelming. But once you follow along with all the instructions, everything will clear up and be easy to understand. You need to remember; that everything seems hard till the point, you try it.
If you decide to give retail arbitrage a go, it is important to know that the market and rules constantly change as the online marketplace sorts itself out. There are risks involved with building a business based on retail arbitrage, and it isn’t as easy as it used to be to get up and running or quickly grow your business. But, with careful planning and a diversified approach, a third-party seller can still have success with Amazon using retail arbitrage.
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