Online arbitrage can be extremely profitable for online businesses, especially if you take into account that 43% of consumers in the U.S. prefer shopping online. And given the ease that suppliers have with sourcing products and materials, it can be easier than you’d think to launch and sustain an online arbitrage business, even on a site like Amazon.
However, this doesn’t mean that you don’t need to do a lot of work. Amazon alone counts over 2.5 million products on its platform, which means competition is fierce. To make a profit, entrepreneurs will have to consider everything about their potential online arbitrage: from the products that they choose to how they’ll market themselves as a seller.
Here’s a guide on how to push your online arbitrage to profitable success.
Online arbitrage is a business model that works by buying products (usually wholesale) from one market and selling them for a higher price in another market. The difference in price in these two markets is what makes businesses their sales.
Marketplaces such as Amazon can help even the smallest sellers get profits by selling products on their platform. Considering that Amazon sees billions in visits and millions in purchases, business models like online arbitrage can help sellers reach these audiences.
Amazon is by far the most popular platform for online arbitrage, but it’s not the only place where you can sell products. Any other online eCommerce platform is a viable place for online arbitrage, as long the platform allows it and you follow their rules and regulations. The flexibility of this business model—and the potential demand—can make it a very successful career for any aspiring online entrepreneur.
While the concept of “flipping” has admittedly carried some negative connotations (mostly in the housing market), online arbitrage is perfectly legal. It’s encouraged by marketplaces for the following reasons:
While there are specific regulations regarding online arbitrage—such as some brands not allowing their products to be resold—eCommerce platforms and regulations allow online arbitrage. Combined with the overall demand for products globally, there’s a considerable possibility of turning a profit.
Online arbitrage isn’t the only way that sellers can generate profit: dropshipping and white-label businesses also do well on marketplaces, especially on Amazon. Most marketplaces have little to no restrictions about the type of business sellers can run, if their regulations are followed.
However, online arbitrage does have a few benefits that make it ideal for anyone looking for profit:
Anyone can make an Amazon Seller account, but what makes online arbitrage easier for beginners is that they’re not locked into a specific scale of operations or stock to get started with online arbitrage. You can start with as little or as much product as your bottom line will allow, with the flexibility to transition to different products as you want.
Keeping in mind fees and other upkeep costs (which will be discussed later), online arbitrage doesn’t ask for much upfront costs compared to other business models. A small team can operate an online arbitrage business, with the possibility of getting significant returns on investment.
You can reasonably run an online arbitrage business from the comfort of your home, with the ease that comes with sourcing and buying products. Because you need to spend little to no time on product development, all you need to do is to find the best deals and profit margins for the products that you want to sell, which can all be done online.
Retail and wholesale also allow for this approach: many sellers will often source their products through online channels. More involved businesses may choose to physically inspect the site and goods being manufactured, but many online arbitrage sellers can operate almost entirely online.
Because you’re reselling products from one market to another, you only need to make sure that the product that you’re trying to sell can generate profit. This is generally easier to do with branded products (since consumers will often make their demand visible online or via researching trends) than launching a product by yourself or relabeling a white-label brand.
With predictable demand, you can scale your online arbitrage up or down as your market responds to your sales. This lowers overall risk and can help support your bottom line even if some of your product lines don’t perform that well.
Given all the above, it’s surprisingly easy to start an online arbitrage business, especially on platforms like Amazon, which has streamlined the startup process. Usual regulations like quality assurance, trademark registration, or product development—all of which can slow down the launch of your product or brand—aren’t a concern for online arbitrage.
Additionally, there are tools and software that you can use to drastically shorten or even automate the steps that you need to go through to launch your online arbitrage business. While these tools are not required to actually start and operate an online arbitrage business, using them can lead to significant savings in time and resources long term.
So far, we’ve shown how (and why) online arbitrage can be a profitable venture. But as we’ve also mentioned earlier, it’s a competitive market—and if you want to make a profit, you’ll need to take steps short and long-term to ensure that you’re getting a significant return on investment.
Here are some of the approaches you can use to make your online arbitrage profitable.
Your products are at the core of what makes your business successful: so much of your time should be devoted to product research. While it can be easy to ascertain demand based on strategies like research and social listening, it’s also important to dive into the driving forces that make people want to buy a product.
While the specific guidelines can differ based on what products you want to focus on, there are general guidelines you can follow to judge whether a product will get you the profit you’re looking for:
By investing time into product research, you’ll be able to start your product launch without any worry about the product itself. This ensures that you can focus on marketing, fulfillment, and finding more products to sell.
One thing that most sellers tend to forget is how much fees can add up, especially if a business settles in for long-term operations. While online arbitrage can have low entry costs, these calculations may not always account for the fees needed for upkeep long-term.
Some ways to manage this issue include:
Remember: sales and profit are two completely different things for any seller. Fees should always be accounted for directly after sales for a more accurate profit forecast. Calculating fees can help with the growth of your business while also helping you stay compliant with the regulations of your chosen eCommerce platform.
Fulfillment and sourcing are other crucial issues that most online arbitrage sellers have trouble with. While it doesn’t directly affect profit, the issues that come with not having these two areas optimized can slow down sales and indirectly cause a loss of profit.
To avoid this, online arbitrage sellers can:
Optimizing product sourcing and fulfillment can admittedly add to your costs when launching a new product or setting up your storefront, but the avoided penalties and other potential costs down the line can more than make up for it. A consistent product inflow means you’ll be better stocked to meet consumer demands, which ultimately leads to steadier profits.
Online arbitrage sellers face a somewhat unique challenge: how to make themselves the preferred option for customers. Consumers today have access to plenty of marketplaces and even more price points, so you need to work toward not just making your products affordable but also pushing yourself as a trusted and preferential seller.
The most reliable way to do this (aside from pricing) is to work on your customer service. Some approaches include:
While there isn’t a lot of wiggle room for brands to personalize the products that they sell as an online arbitrage business, committing to a high standard can help set them apart from their competitors. Personalizing service can often have a comparable effect on pricing if done right. And in many cases, it may be the deciding factor that makes your products profitable.
Online arbitrage is a complex operation that requires comprehensive oversight of various aspects of your business. These tools not only give you the visualization necessary to make sense of all your data, but they also give you actionable approaches to improving your business.
For businesses that want to keep their tools strictly within the Amazon platform, Amazon has its FBA Revenue Calculator to help give sellers an idea of how much their potential costs and profit would be on the platform. This tool is already integrated with Amazon Seller Central.
However, Amazon’s FBA calculator is limited in the insights and data it can give you, particularly for online arbitrage sellers. While it works well for most Amazon merchants, online arbitrage sellers may find it lacking crucial features that help their business model function, like automating searches for profitable products.
Threecolts is a comprehensive marketplace management platform with a variety of features that can help an online arbitrage business run efficiently. With Threecolts, Amazon sellers can enjoy actionable insights, long-term growth, and increased engagement with customers. Two particularly useful tools that can help with online arbitrage are TacticalArbitrage and SellerRunning.
TacticalArbitrage allows Amazon sellers to search for products without manual input, source the best-selling products, and analyze the performance of their competitors who carry the same product. This tool allows you to get started with your online arbitrage quickly, which is crucial when launching new and in-demand products.
On the other hand, SellerRunning helps you update your listings without having to go through every single entry. With its Google Chrome extension, it drastically simplifies product research by adding the most profitable products in a single click. It also allows sellers to keep track of the fulfillment status of all their orders for better customer service—a key metric to getting ahead as an online arbitrage business.
AMZScout’s Amazon Product Database uses premade product categories to help sellers find the most profitable products on the market, but it can also be filtered for more extensive searches. This helps sellers find products that are not only profitable but can also compete with the product lines of their closest competitors.
Alternatively, sellers that already have specific products in mind can use AMZScout Amazon Dropshipping, Arbitrage, and Wholesale Extension for an in-depth look at specific products, their price points, how popular they are, and the potential profits that can be made from them.
As an online arbitrage seller, you can take advantage of new markets, bringing new products to new customers and increasing their likelihood of profit. Get access to quality tools and software that can make managing your business much easier, and you have an entrepreneur’s essential foundation for making a profitable business. Try the Threecolts platform to get started with your online arbitrage today.