Amazon arbitrage involves an Amazon seller sourcing a product from a retailer and then selling it on the platform for a profit. The key to generating profits with Amazon’s arbitrage business is to look for price differences on items with high demand potential so the arbitrageur can profit from the transitory price difference.
Understanding Amazon arbitrage
With the explosion in popularity of eCommerce, Amazon arbitrage has become an effective and sometimes lucrative way to make money online.
Under this businessmodel, a third-party Amazon seller sources discounted products and then sells them for a profit in the Amazon marketplace.
Most sellers who utilize the Amazon arbitrage model buy products from retail giants such as Walmart and Target that are either on sale or in the clearance aisle, while others visit discount chains or mom-and-pop stores.
Irrespective of where the products are purchased, the key to this business model lies in finding products with a worthwhile price differential.
Profit margins tend to be higher when compared to traditional retailers because Amazon arbitrage sellers avoid third-party supplier and manufacturer costs.
That is, they buy direct from a retail outlet or market.
How to identify the best products for Amazon arbitrage
Amazon arbitrage may seem too good to be true, and to some extent, it is. Sellers who walk into this business model without conducting prior research may experience limited success.
With that said, here is how to make this business model work on Amazon.
Stick to successful categories
Products in the following categories tend to be most suited to Amazon arbitrage:
Sporting goods.
Books.
Home goods.
Kitchen items.
Tools.
Pet and party supplies.
Puzzles.
Clothing (including baby clothes).
Office supplies, and
Arts and crafts.
Note that the best products for Amazon arbitrage will vary according to the store, location, season, or trend.
It’s also worth noting that since product prices constantly change, so too will the profit margins.
Get ungated on Amazon
Amazon restricts some sellers from certain categories, subcategories, and brands. As a result, the seller needs to get “ungated” to expand their opportunities and sell in categories with fewer competitors.
This process is as easy as signing up for an Amazon Professional Seller account and making a formal application to have the restriction lifted.
Though, on occasion, Amazon does not accept requests for certain categories.
Visit stores and scan products
Once the Amazon seller account is approved, sellers can visit some of the stores we mentioned earlier and follow these steps:
Open the Amazon seller app and scan a product to see how much it is selling for and how popular it is. The app will also inform the seller of any products that are restricted for sale in the Amazon marketplace.
Use the information provided to determine which products to purchase. To do this, the seller can enter the buy price and the app will calculate profit after the purchase and fees are subtracted.
To find the most suitable products, the seller must look for the sweet spot of products with a desirable profitmargin and a sales rank of 100,000 or under. Ideally, they should be able to make a minimum of $3-$5 per item or a 50% ROI.
Lastly, the seller uploads purchased products for sale on Amazon based on the target ROI or profitmargin and the current price of other products on the platform. Under the Fulfilment by Amazon (FBA) service, the sellers send the goods to Amazon, which then handles storage and fulfills orders as they arrive.
What apps to use?
There are many tools and apps that you can use to track prices on Amazon; thus, make sure you can be notified or up to date on when those arbitrage opportunities come about.
Below are three of the top extensions and tools you can use to be on top of it.
Keepa – Amazon Price Tracker
This browser extension helps you track all the price changes of items on Amazon. So you can create a list of items with wider price variations, and understand where most arbitrage opportunities are.
Jungle Scout
Jungle Scout is another chrome extension that taps into a great research tool to understand the products with the most potential and, from there, understand where arbitrage opportunities can be prioritized as you might tap into wider demand, margins, or both.
Amazon Product Finder – AMZScout PRO
Another great tool is the Amazon Product Finder. This tool helps you find profitable products on Amazon, thus helping you prioritize your items list for arbitrage opportunities on Amazon.
Key takeaways:
Amazon arbitrage involves an Amazon seller sourcing a product from a retailer and then selling it on the platform for a profit.
Profit margins tend to be higher when compared to traditional retailers because Amazon arbitrage sellers avoid third-party supplier and manufacturer costs.
Amazon arbitrage can be simple, lucrative, and low-cost business model when new sellers take the time to conduct prior research. It is important to stick to tried and tested categories – at least at first – and become “ungated” to sell products from restricted categories in the Amazon marketplace.
Amazon has a diversified business model. In 2022 Amazon posted over $514 billion in revenues, while it posted a net loss of over $2.7 billion. Online stores contributed almost 43% of Amazon revenues. The remaining was generated by Third-party Seller Services, and Physical Stores. While Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!
Amazon has a business model with many moving parts. The e-commerce platform generated $220 billion in 2022, followed by third-party stores services which generated over $117 billion; Amazon AWS, which generated over $80 billion; Amazon advertising which generated almost $38 billion and Amazon Prime, which generated over $35 billion, and physical stores which generated almost $19 billion.
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
