Many people aren't sure about making money on Amazon FBA. Amazon is a vast marketplace and it can appear daunting when thinking about slicing out your small slice of the multi-billion dollar pie. One of the hottest ways folks start selling on Amazon is through Online arbitrage, or "OA."
In this post, we'll take a look at online arbitrage and what you should know and share a few tips all the successful online arbitrage sellers know to help you get started yourself.
What is Online Arbitrage?
Online Arbitrage is the practice of sourcing products online through various retail sites and reselling them on the Amazon Marketplace. Online arbitrage sellers target many products, from books to beauty products, pet toys to pantry staples. This contrasts with selling private label products where the products are unique to you, with your own brand.
A common question when talking about online arbitrage is if there's any money to be made and, if so, how. Shouldn't the prices at all the various retail stores be the same? The answer to that is: sometimes. The vast majority of products sold on various online marketplaces and retailers all generally land within the same price range.
Online Arbitrage finds its niche and success in exploiting deals and coupon codes. Some retail or online stores may be running a promotion or trying to move all of their existing inventory–there's potential for real money to be made.
On the flip side, most retailers may sell a product for a certain amount, but the selling price for that exact product on the Amazon marketplace is much higher, allowing for potential Online Arbitrage finds its niche and success in exploiting deals and coupon codes. Online Arbitrage finds its niche and successfully exploits deals and coupon codes for substantial profit margins.
That price difference is where all the profit margin lives. Most folks shopping online and on Amazon aren't usually checking all the sites for the best deal. Amazon has created an ecosystem of one-click, no-thought purchasing. It doesn't matter that Amazon isn't the lowest price–it's the most convenient online shopping option, end of the story.
Is Online Arbitrage Legal?
Buying and selling goods is a legal business if they are purchased legally and not counterfeit. Even though online or retail arbitrage is legal, sales of these goods can cause headaches, such as censorship of products and IP violations.
The Grey Area of Trademark and Intellectual Property
This is where we enter into the legal arguments of breaking the traditional manufacturer-distributor-retailer model by turning a retailer into another distribution layer. It's worth pointing out that laws vary by country and jurisdiction, so check with yours ahead of time.
The first sale doctrine...provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display or otherwise dispose of that particular copy, notwithstanding the interests of the copyright owner.
In plain English, if you bought a book, briefcase, or barbeque, you have the right to sell that thing to someone else for whatever you want. The original manufacturer of the item received their compensation when they sold it to the next person (be it a distributor or retailer) and cannot expect further compensation.
For example, I paid for the travel books on my bookshelf. The publisher received their money for those copies, so I am free to sell those specific copies to whomever, for whatever price. The publisher has no say in that exchange.
Here's where things get a little murky. While the law (in the United States, anyway) protects you from the original creator in the event of resale, it does not afford any sort of protection or guarantee when selling on Amazon or another online marketplace. These marketplaces can and do have rules and policies in place regarding the sale of goods and using trademarks to do so.
Some brands can and do, claim counterfeit if a seller of their products on Amazon is not "authorized" or permitted to sell their goods on that marketplace. Amazon sellers all run into this at some point unless they sell unique private-label products they've created. The argument from these brands is often that it cannot be proven the product is one of theirs because the seller is not a part of their recorded distribution chain.
However, because it is commonly known that major retailers like Target, Wal-Mart, and the like, don't sell counterfeit goods, providing documentation that the products were purchased from a reputable location often helps counter those claims.
Claims of Trademark infringement a harder to argue, though not impossible. Trademark enforcement was meant to prevent confusion about the source of goods bearing specific trademarks, but brands can and will often wield this power to eliminate sellers of their products on the Amazon marketplace and the like.
Fair use laws are supposed to protect against this, but it's not as clear-cut as we'd all appreciate, and there's open room for trademark holders to argue what fair use of their brand names means.
With all things about legal topics, I don't have a clear answer to all this–I am not a lawyer. Tackling potential counterfeit and trademark claims when selling products sourced via online arbitrage is something you may run into in the future.
If there's one thing to take away from this, it should be that doing your homework, making sure the brands are "safe," and is ready to potentially liquidate when that dreaded cease & desist letter or notification email from Amazon of a counterfeit strike arrives are all a part of the game.
Is Online Arbitrage Profitable?
A well-run online arbitrage business is profitable. It's not a business model for the faint of heart–it requires constant movement and sourcing. The proper use of online arbitrage tools we'll cover below extensively ensures you're landing profitable products. Defining boundaries and setting rules during product research can play an almost as significant if not more prominent role.
How to Find Profitable Products
There are three things I like to always keep in mind when I'm researching products:
If the product isn't moving on Amazon, there could be a good reason. Knowing how quickly a product sells plays into how much of it you buy and the margin you're going after. A fast-moving product can withstand a smaller margin because it's made up of volume, whereas a slower-moving product with a higher price can potentially afford to sit around for longer.
Margin Compared to Cost
I'll cover this more in the next section because there's a lot to find the right price and ensure money is being made. We're looking to operate a profitable business model using profitable products. We're not selling on Amazon everything we can find, and hope for the best, here.
Extra Costs Specific to Product Categories
This one is vaguer, and its level of importance is entirely up to you. In this case, I'm thinking about everything else that I might be spending money on related to the products I'm sourcing:
- Do I need to do additional prep work like bubble wrap, poly bagging, etc. (or pay someone)?
- For online arbitrage, what's the risk of the product arriving to me damaged? How easy is it to return units that are bad?
- Does the product have an expiration date? If I can't sell them all before they expire, what do I do with what's left?
- Will the product's size affect how much I pay for shipping costs?
- How many other online sellers are selling this same product? Will I have to mark down my price more than I originally planned to compensate for the extra competition?
What is a Good Profit for Online Arbitrage?
As a general rule of thumb, the minimum I'm looking for in profit on the base item cost is 20-30% for fast-moving items and 100% for slower items. Defining these thresholds is entirely up to you, and there's no hard-fast limit. A thought exercise that'll help you decide what "fast" means is the question of how quickly do I want this money back to re-invest?
It might seem counter-intuitive to want to make less money on a product, but this idea shines and makes the most sense when we look at compounding.
Here's an example: I acquire 100 books with a purchase price of $5 each, for $500 in total. I can sell all 100 books within 30 days at $7 each for a $200 profit or 60 days at $8 for a $300 profit.
I make the same purchase when I run out in both circumstances. After 6 months, in the first scenario, I purchased 600 books and made a total profit of $1,200. In the second scenario, I purchased 300 books and made a profit of $900.
There's always a threshold where the higher profit margin is better–in this case; if I sold the books for $9 each, the profit would be the same.
Outside of this, I also have to factor in various fees. As an Amazon business, specifically Amazon FBA, I'm looking hard at storage fees and how they impact the extra costs of keeping inventory around.
Types of Online Arbitrage Tools
Flexing the entire array of tools for finding profitable products is the key to being a successful online arbitrage seller.
Finding profitable deals requires knowing which online retailers are running the good sales–they don't always make their discounts known to the public. Coupon portals aggregate discount codes from across the Internet in hopes that they can land you a secretly excellent deal on a particular purchase.
Cash Back Sites
Earning cash back isn't limited to your credit cards. Cash Back Sites often exercise affiliate programs or referral agreements with retailers to split the commission they earn when you make a purchase through their portal.
If you know where to look, rarely things people shop for are sold at regular prices. These portals are chock full of products from all categories and niches and often highlight deals for products that don't often go on sale or, if they do, are discounted much more than usual. A lot of these sites are community-sourced, too.
Full Software Suites
Sometimes it's best to pay the pros to do the hard work for you. They've built powerful tools that pull in all the sales rank data, crunched the monthly sales numbers, comb the retail outlet(s) and online store(s) of your choice, and spit out only products that can make up your profitable inventory.
These tools are all Internet-based, so having an Internet connection is only required when feeding them data or checking out the results. They're doing the hard part on their end without any intervention from you.
Regarding Internet connections, browser extensions play a unique role in online arbitrage. They sit within your browser, observing the pages you visit, and pointing out helpful things like Amazon sales rank, whether discounts exist, the price history and sales trends, and more.
Having accurate profit calculations is critical. The last thing you need is to have a room full of chew toys that you bought for $8 each but turns out they only move when sold for $7 on Amazon.
Likewise, the other room full of chair cushions will move, but how much effort did you have to put into them for a mere $.30 profit on each? Be able to quickly see whether the purchase you're about to make comes with a big enough price difference to make it worth your time.
Once your product is up for sale on the Amazon marketplace, it's essential to ensure you're staying competitive with your prices. Chances are, you're not the only seller of your product. Repricing tools help you land the buy box more often by tweaking your pricing. The buy box price is the price the vast majority of folks see, so landing that space is critical.
The Best Online Arbitrage Software Tools
Now that we've covered online arbitrage, its nuances, and the helpful tools, let's look at some specific tools we recommend for online arbitrage. All the recommendations below are free and paid tools we like and recommend.
Top Pick: SourceMogul
First on our list is SourceMogul. SourceMogul is one of the best in the business, with a powerful suite of tools for finding the most profitable products. Their platform is one of the fastest around and passively scans all of your preferred retail sources like Walmart, Target, etc., and alerts you when products with actual profit margins are found.
SourceMogul lets you filter those results to only see products that meet your specific criteria. If you have coupon codes or need to factor in additional taxes, SourceMogul will add those to the calculations so you can see your actual profit margin.
Assemble your list of products and purchase them immediately with direct links to retailers. Send your chosen products into Amazon FBA, and you're done. Rinse and repeat.
If you're unsure if SourceMogul suits you, they offer a fully-functional 10-day free trial. Cancel any time before the trial ends, and you won't pay a dime.
Alternative: Tactical Arbitrage
Tactical Arbitrage is a pillar in the reselling community that meets sellers where they are. There's a lot of room to create an entire Tactical Arbitrage review with how versatile the suite is. Tactical Arbitrage is a suite of tools that cater not just to online arbitrage–though they're good at it–but also to wholesale sellers and book flippers.
Wholesale sellers can look forward to uploading their price sheets and having Tactical Arbitrage return only the most profitable items on the list.
Online Arbitrage sellers have access to constant scanning of the top retail sites–and many lesser-known ones, too. Scan their product catalogs regularly and see which products rank the best on Amazon, how often they sell, the fees involved, and more.
If you flip books, Tactical Arbitrage gives you access to the data and tools you need to successfully get those bound pages of money up to Amazon and converted into cash.
With almost 900 retail sites in their scanning database across the world (almost nearly 380 of them in the United States alone), Tactical Arbitrage should be on everyone's list to consider when it comes to selling on Amazon.
Tactical Arbitrage for Online Arbitrage starts at $89/month. If you're into multiple selling methodologies on Amazon, they offer deep discounts for combining features.
Going Beyond Arbitrage: SmartScout
Most of us started our online Amazon business as arbitrage sellers. As we grew, we looked to branch out into wholesale and private-label. SmartScout nails that transition to the next phase of Amazon selling.
SmartScout is a powerful tool suite for Amazon sellers running various businesses, including arbitrage, wholesale, and private label. They don't stop there, though. If you're an already established brand, SmartScout helps connect you with powerful and successful Amazon sellers to help you grow your business without having to set foot within Seller Central.
SmartScout's seller map displays in great detail all the sellers they track throughout the country and their sales. Get an idea of the sellers in your area and see which may be worth doing business with.
SmartScout starts at $97/month, but significant discounts (up to 20%) can be had when opting for a yearly plan. SmartScout offers a free 7-day trial and a risk-free money-back guarantee within the first 30 days if you're not entirely happy.
Best Chrome Extension: RevSeller
When it comes to online retail arbitrage software, one of the neatest tricks in online arbitrage is the ability to get helpful data and pricing live on Amazon product pages. RevSeller is one such extension for the Google Chrome browser and, hands down, one of the best online arbitrage tools.
RevSeller allows you to take the pricing and listing data already available on an Amazon product page and turn it into a decision. Set your buy cost, and it'll return your net profit, plus all the various fees and other expenses you may incur when selling the product yourself. See the number of third-party sellers, the sales ranking, and the estimated 90-day average sales in dollars.
Whether using it on one computer or multiple, RevSeller is free for the first 30 days. After that, it's just $99/year, an absolute steal for the value it can provide in terms of saved time and boosted profit margins.
Best Repricer: Aura Repricer
A couple of years ago, I sat down (virtually) with Dillon Carter of Vendrive, the company behind Aura. We chatted at great length about his vision of repricing, and taught me some helpful tips that I still carry with me to this day.
We even ran a podcast together called Welcome to Growth. The show is no longer in production, but it taught me that his mind is fantastic. You can see it in how Aura works, too. Intelligent decisions about how to reprice when, workflows for repricing only under certain conditions, and more.
This all sounds complicated, but Aura makes them dead simple. Aura is also the fastest to adjust prices based on other market activities.
With a 14-day no-strings-attached free trial, Aura is one of my favorite Amazon tools. After the trial, plans start at $97/month or $77/month when paid yearly.
Best Full-Suite: Jungle Scout
I've mentioned Jungle Scout before–like the Jungle Scout Mega Review–and we've all heard of them. Jungle Scout is the pièce de résistance for a single tool that does everything.
Jungle Scout tracks your inventory, helps you source new products, manages your advertising, and more. If you're truly serious about what comes next after your Amazon business gets off the ground, Jungle Scout's Freedom Builder course covers everything you need to know to turn your side hustle into an empire.
For Seller Journal readers, Jungle Scout starts at just $149 for 3 months (a $58 savings) or $449 for the year (a $140 discount). With that comes free extras worth over $200 to upwards of $1,100.
Free Online Arbitrage Tools
Tools that cost money are great, but some of the best online arbitrage tools are also free. Let's break down some of them and how they can help you grow your online arbitrage business.
Seller Journal Greenlight
Greenlight is our in-house intellectual property claim database. When it first started, we clobbered together all of the brands we could find that were reported to have filed trademark and IP claims against Amazon sellers.
As the database grew, folks started sending in their own stories. Over the last couple of years, new additions have been entirely sourced through the community sharing their own experiences.
At the time of this writing, Greenlight has just over 1,000 brands available to search.
Amazon FBA Calculator
Go right to the source when it comes to calculating Amazon FBA fees. The updated version of Amazon's tool allows you to provide measurement and pricing details, and in return, it generates a profit calculation and percentage based on current FBA and referral fee costs.
Track the price of discounted products not just online but (as a paid feature) all of the local retailers in your area. Brickseek tracks retailer sites for you, so you can see what the pricing is at your local chain store without having to go there yourself.
Considered one of the biggest deal sites, Slickdeals is a massive community-sourced discount site. The site is free and can also double as a cash-back portal.
Coupon Finders (Honey, Rakuten, Camelizer, InvisibleHand)
There are dozens of coupon-finding tools, but Honey is my favorite. It sits quietly in your browser as an extension and can alert you when it seems you're on a product that may have a discount code applicable to it. This pairs nicely with purchasing products found using online arbitrage tools because not only do you have yourself a profitable product, but you're also saving a bit extra on the purchase, too! Extra profit!
Cash Back Sites (Swagbucks, MyPoints, Wikibuy)
Taking the combination of tools even further, sites like Swagbucks, MyPoints, and Capital One Shopping (formerly Wikibuy) are great for collecting a few % cash back on the sites you're purchasing products from. When executed correctly, a combination of online arbitrage software, coupons, and cashback earnings can be lethal for acquiring products to sell on Amazon, keeping more money in your pocket, and having higher profit margins than your competition.
We covered a lot in this guide, but with this information, you'll be better prepared to start tackling online arbitrage's massively lucrative and profitable world. With the right tools at your disposal, it's easy to find profitable deals and build a robust inventory. Online arbitrage tools can be overwhelming for new Amazon sellers, but their flexibility, prowess, and specialization in the space make them critical to success.