For most of us, Amazon is the place to buy products online.
I actually think I personally buy something on amazon about 2-3 times a month.
And I’m not one who really enjoys shopping online.
In fact, I’m actually the one who sells products to people through Amazon and make a sustainable passive income every month.
If you also want to do so, this guide is for you.
There are exactly three serious ways to sell on Amazon.
- Private Labeling
- Retail Arbitrage
- Amazon Wholesale
Yeah, there’s only those three.
If you want to reduce your financial risk and maximize your potential profits, this article about retail arbitrage is exactly what you need.
This is a complete guide to retail arbitrage on Amazon in 2020.
Here’s what you will learn:
- What’s retail arbitrage?
- Does retail arbitrage actually work in 2020?
- How to do retail arbitrage (on Amazon)
- How to find retail arbitrage products
- How to buy products for retail arbitrage
We’re also going to cover the following questions:
- How much money can you make via retail arbitrage?
- Is retail arbitrage legal?
- Is retail arbitrage profitable?
So, if you want to start a retail arbitrage business on Amazon, read on to discover important strategies to succeed.
Let’s dive right in.
What’s Retail Arbitrage?
Actually, retail arbitrage is quite simple.
You buy a product for a low price in a retail store like Walmart, Target, etc. and sell it at a higher price.
The clue is that you buy highly REDUCED products so there is a chance that you will make a profit when you resell it.
Therefore, sellouts are generally good places to find some great products for retail arbitrage.
Here’s one simple example:
If you walk through a store and see that certain products are reduced due to seasonal discounts, such as $50 to $25, invest a little cash and buy about 10 units of these products. Then, list them on eBay or Amazon for one or two dollars less than the normal selling price.
What will happen is that people will buy your product and you will make a small profit.
According to Wikipedia, retail arbitrage means “taking advantage of a price difference between two or more markets”.
Simple, isn’t it?
Furthermore, it doesn’t matter where you sell your products. Amazon is only the best place for retail arbitrage, but you could also sell your stuff on eBay, Jet, Walmart.com, Etsy, Craigslist, Facebook Marketplace, OfferUp, Let Go, and many others.
You can read through my article selling on Amazon vs. eBay to create your own impression.
However, I highly recommend selling on Amazon.
There’s also one business model that’s quite similar to retail arbitrage: Online Arbitrage.
Online Arbitrage works like Retail Arbitrage but you buy your products online, rather than in local retail stores like Walmart, Target, etc.
You can check out my article on how to make money on Amazon to learn more about online arbitrage.
How To Make Money With Retail Arbitrage?
Okay, if you are still wondering how to make money with retail arbitrage, here is a simple example:
Amazon Fees: $3
Selling Price: $15
It’s quite simple. Your selling price after deducting fees and initial costs is your profit.
You also don’t have to pay the full amount of Amazon
fees because you don’t have to use the FBA service. In this case, your fees will be much lower.
You can read more about Amazon fees here.
Does Retail Arbitrage Actually Work In 2020?
There are so many people out there who wonder if Amazon, retail arbitrage, blogging or any other money-making-method actually works.
Seriously. I don’t understand these people anymore.
I mean, those people just want to try something that works, and if it doesn’t work, they quit and say it’s because the business model is dead.
Honestly, the only reason why they’re not successful it’s because they’re not working hard enough.
It sounds tough, but those people are going to fail anyway.
Trust me. If you work though, retail arbitrage can make you a lot of money.
Aren’t There Too Many People Already Doing Retail Arbitrage?
For sure not.
Although Amazon continues to grow (There’re more than 1.8 million sellers), it’s still not too late to join.
And honestly, it will never be too late.
Amazon is only a marketplace. And just like any other marketplace, circumstances change over time.
Those who say Amazon is dead have no idea. Amazon is far from dead.
In fact, where else would you sell your products, if you don’t sell them on Amazon?
Maybe you will start texting random people on Facebook?
My Thoughts About Retail Arbitrage
My thoughts about retail arbitrage are that’s a GREAT way to START a successful business on Amazon.
Just imagine how much money do you need to start a Private Label Business on Amazon?
It will be more than $1000, maybe it will be $2000 or $5000 if you go all-in.
While private labeling and FBA are great ways to scale your business to thousands in revenue, you should do retail arbitrage to start.
Anyway, you have to start, and with retail arbitrage, you go risk-free.
How To Do Retail Arbitrage On Amazon
By now, I will guide you through 4 steps you need to follow to start a retail arbitrage business on Amazon.
Here’s the step-by-step process:
1. Create an Amazon Seller Account
2. Download the Amazon Seller App
3. Visit a retail store and buy the right products
4. List them on Amazon and close your first sale
Phases 3 and 4 show you how to start a successful retail arbitrage business. If you want to be successful, read through these chapters.
If you already know the basics, you don’t need to read phases 1 and 2. However, it’s your choice.
Let’s dive right in.
1. Create An Amazon Seller Account
If you want to make money on Amazon, you have to set up an Amazon seller account.
This point is quite disinteresting, but there are a few things to consider.
First of all, go to this Amazon page. Here’s what you will see:
Next, you have to decide whether you want to set up a professional seller account or you want to set up a basic account.
Here’s the difference:
- Sell less than 40 items per month
- No monthly subscription fee
- Sales fees: $1 per item + normal sales fees
Professional seller account:
- Sell more than 40 items per month
- Monthly subscription fee: 39 € (excl. VAT)
- No $1 fee per item
- Normal sales fees
As you can see, you don’t have to pay $1 per product sold with a professional seller account, yet you have to pay $39 per month.
Basic account it is the other way around.
Actually, this choice is very easy. If you can afford it, then get a professional account.
If you can’t afford it, get a basic account, but upgrade as soon as you can afford it.
For sure, the basic account makes no sense if you’re serious.
In fact, that’s all you have to do. Additionally, you should have the following documents at your disposal:
- The legal form of your company
- Trading license (valid trade license)
- Proof of identity (identity card/passport)
- Bank account
- Credit card
- Valid phone number
Easy. That’s it. Set up your account and head over to step 2.
2. Download Amazon Seller App
Once you created your Amazon account, you need to download the Amazon Seller App.
With this app and your mobile phone, you can go to retail stores and scan the barcode of products.
It shows you what’s the price on Amazon and how many fees you have to pay.
If you have enough money in your pocket and want to gain further insights, take a look at Helium 10, it’s definitely worth it.
3. Visit A Retail Store And Buy The Right Products
In the meantime, you set up the foundations for your retail arbitrage business on Amazon.
Job done. You are one step closer to your first sale.
But setting up the foundations is not what moves the needle.
In fact, when you don’t find great products to sell, it will be ten times harder for you to close your first sale.
Great Products turn an “okay” retail arbitrage business into an “industry-dominating” business.
All the most successful retail arbitrage businesses are specialized in selling GREAT products.
Once you’ve set up the foundations, it’s time to search for products that you can sell.
How To Find Retail Arbitrage Products
The first thing you need to do when searching for products is to look for nice places to buy them.
I have done extensive research in the past on where to get the best products.
Here’s the complete list:
- Home Depot
- Rite Aid
- Office Depot
Here’s also a list with the Top 100 Retailers.
Okay, when you’re inside such a retail store, it’s time to open the Amazon Seller App and scan as many products as you can.
If you find a GREAT product, buy it.
But which ones are truly GREAT?
In that case, I could tell you endless stories, but let’s focus on the main aspects.
There are three things to consider, when choosing a product to sell via retail arbitrage:
- Can you sell the product?
- What’s the product’s BSR?
- What’s the estimated profit?
We’re going to cover all these aspects in detail now.
Can you sell the product?
This point is especially easy. You only have to check, if you’re allowed to sell a product.
Make sure to check this for every product. If you’re not allowed to sell it, head over to the next one.
To do so, you have to look at Selling Eligibility below the product picture in the Amazon Seller App.
If you read something like You can sell this product on Amazon, you’re good to go.
What’s the product’s BSR?
BSR tells you how fast a product sells on Amazon. It’s calculated based on the product category.
Trust me. BSR is REALLY important.
If the product sells once a year, it may take you 1000 years to close your first sale.
So make sure that the BSR is below 200.000. If it’s lower than 200.000, you’re good to go.
Okay, those were the basics, if your product meets all criteria, you can move on to the next step, if not, look further.
What’s the estimated Profit?
The next step is to check whether the product can make you enough money.
All that you need to do so is the Amazon Seller App.
The App enables you to calculate your costs, fees, and profits of every product out there (on Amazon).
You only have to type in these two pieces of information:
- Purchase Cost Per Unit
- Delivery costs to Amazon per piece (you simply enter these costs per pound)
The Amazon fees are automatically calculated by the app.
By now, the app shows you what’s your profit margin after deducting all costs and fees.
If you take a look at this profit, make sure to check these two things:
You should put all products with less than $3 profit aside and not sell them on Amazon.
You can sell all products that make more profit than $3 on Amazon.
That’s because if you have a profit less than $3, you can lose money quickly if your cost calculation goes wrong.
I recommend playing it safe and only sell products with a higher profit than $3.
Anything over $3 is of course much better.
So, if you’re sure your product has a profit of $3 or more, you can move on to the next step and calculate the ROI.
ROI is a business metric that tells you how much you will get back for your investment.
For example, you buy a product for $5, and your profit after deducting all costs is $3.
In this case, you simply split $5/$3 and your ROI is exactly = 0.6.
When it comes down to retail arbitrage on Amazon, you should make sure that your products have a minimum ROI of 50%.
My Thoughts About Choosing The Right Product For Retail Arbitrage
If you found a product that meets all these criteria, mentioned above, buy it. But if you don’t find a product that meets all criteria, keep looking for another one.
When it comes down to outperform your competitors, it’s all about selling better products.
So you’ve to take some time and search for a product until you find one suitable.
This leads us to the next point.
How many products should you buy when you have found a good product?
How Many Products Should I Buy?
Perhaps you have heard of investors who spread their risk when buying shares.
They don’t risk their entire budget on a single stock.
They hold many different stocks in their portfolio.
That’s exactly what you have to do when you do retail arbitrage on Amazon.
You can’t put all your money on one product.
You have to buy several.
Therefore I recommend investing a maximum of 10% of your capital in one product.
If you invest only 10% in a product, you go risk-free.
4. List Them On Amazon And Close Your First Sale
Okay, when you’re ready, all you have to do is list your product on Amazon and sell it.
You can use the FBA service to sell on Amazon, or you can ship your product yourself.
However, I recommend using the FBA service because it saves you a lot of time. When it comes to retail arbitrage, spend your time looking for products, not packing them.
So use FBA if you want to save more time and make more money faster.
How Much Money Can You Make Via Retail Arbitrage?
When it comes to retail arbitrage, it all depends on how much time you invest. The more time it is, the more money you will be able to make.
Of course, it also depends on how much money you can afford to spend.
You should start with a small budget of about $500.
If you lack the money, start selling products that you already own.
If you have $500 and go all-in, you will be able to make about $2000 profit in the first three months.
With more money, you can also make more. For example, if you have $1000, you can probably make $5000 in the first three months.
Keep in mind that these values are based on experience. There’s no obvious answer to this question.
You can also make $0.
In fact, you can make a lot of money or nothing at all.
Is Retail Arbitrage Legal?
Last but not least, we’re going to cover the question of whether retail arbitrage is legal or not.
There’s one simple answer to this: retail arbitrage is perfectly legal.
This is due to a decision of the US Supreme Court.
Accordingly, a retailer cannot prevent someone from reselling his products if the purchase was legal.
To play it safe, always keep the receipt of purchased goods.
Yet, if you decide to sell branded items, some brands may try to stop you reselling their products.
And they’re allowed to do so.
However, this usually only happens to people who buy hundreds of products from one brand and resell them regularly.
If such people are not authorized sellers, it can lead to problems.