Amazon Arbitrage Guide for Beginners- Tips and Tricks
If you’ve ever looked into starting a business on Amazon, chances are that you’ve come across the term “Retail Arbitrage.” Retail Arbitrage is fairly an easy concept. A retail store sell its products to you at a certain rate. When you buy the products and sell the same with a higher rate, you earn a profit out of it. This is called a 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 made up your mind to starting your journey as a Amazon Arbitrageur, the First thing you have to do is Setting Up your Amazon Seller Account.
You need an account to access a free app that provides you with the information you need to begin researching items on Amazon.
I recommend signing up for an individual seller account to start because it doesn’t have any monthly fees.
Th next thing you should do is to download the Amazon Seller App. It’s free and directly available through Amazon. You get details on the selling price, fees, among a few other details, of any product that is available on their website.
It uses the camera on your cell phone to scan the barcode of any product, and will then show you the pricing and fee information for any item that you are considering selling on Amazon.
Then, after these steps are done, find products to sell on Amazon. I have discussed below in details as to 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 barcode of the products. Check two things on the screen:
- The first is to make sure you are eligible to 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 definitely 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, then you want to check and see if the item 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 shown at the bottom is higher than your minimum profit threshold.
- If the item meets your minimum profit threshold, then you will want to calculate a return on investment percentage.
I recommend to setting your minimum profit to at around $3 per product. This means that you won’t buy any items that you will make less than $3 in profit on.
If the item meets your minimum profit threshold, calculate a return on investment percentage. Do this by dividing the net profit by the cost of the item. When you start, look for items with a return on investments percentage which is higher than 50%. When you find item which meet your mentioned guidelines, buy at least 6 units of it 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. Every one is inter dependent. Most importantly, every one is profiting. A retailer buys a product in a cheaper price and sells it at a higher price at Amazon. The retailer earns a profit. Amazon here, charges you with a small charge for using their platform. Amazon charges this small fee from all its retailers and that’s how they earn their profits.
The thing which you have to understand is when you are in a 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 definitely 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. On the more conservative side, I’d price between $0.01 and 1% higher than the lowest price of the same fulfillment method.
The reason for this is 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, and 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.
Pricing is something that you will definitely get a better feel for 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 definitely be able to 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 that are 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 that are selling on Amazon in different categories, you’ll want to make sure that it’s a profitable enough market for you to potentially 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 so you can see how many sales the competitors are getting everyday, and helps you analyze the competition.
3. Use Amazon Seller App for scanning the profit
For any item that you are considering selling on Amazon, you should be scanning it with the Amazon Seller App, or using a similar tool before you make a purchase. This will tell you the exact fees on it, so you can make an informed decision about that item. With these type of calculators available, you should know in advance what your expected profit is on any item you are going to sell.
4. Check for the Product’s Sale’s Rank
The sales rank is an indication of how quickly an item is selling on Amazon in relation to other items in the category. When it comes to sales rank, the lower the number, the more recently that item has sold. In simple words, the lower the number, the better.
For your first few retail arbitrage trips, I recommend looking for sales ranks that are 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 the time to develop 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 at with retail arbitrage there are a huge number of options. My recommendation is to start with whichever store is closest to you and that you 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 has a 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. If I am buying a product for $10 and sell it for $20, that gives me profit of $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, then 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 of Elsa is $29.99 in Amazon. If we sell it at that price and let’s say we pay Inbound Shipping of $1.50, then we are getting $21.39. So, what we want to do is take this number and use it in a ROI calculator. You can download any app for calculating Return of 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 that 100% and it is a profitable deal.
Hence, this is how you calculate your ROI and use a ROI tool to determine if a product is within your range of Return of Investment.
I hope all the information is not overwhelming. But once you follow along all the instructions, everything will clear up and will be easy to understand. You just need to remember, 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 are constantly changing 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.