In this article, let’s answer the question if online arbitrage is still profitable.
If you’re wondering if is online arbitrage still profitable, then this article is for you. We are going to go through questions with the things I’ve learned about selling on Amazon for 5 years- from how you can make money using online arbitrage to other important things to know that make online arbitrage profitable.
What is online arbitrage?
Basically, online arbitrage is the process of buying products from online retailers and selling them for more money in a different marketplace like Amazon.
Now, by using this business model, you are free from traveling to go in-store and buy your products. You can simply find products from any websites where you see reselling opportunities.
How can you make money using online arbitrage?
Step 1: Choose Amazon product categories for beginners
One of the most common ideas when starting out selling online is to start with the most popular categories for beginners (IE Grocery, beauty, etc.). And that is because you are likely to be ungated from these categories.
However, don’t be afraid to experiment and test other markets or products if you feel confident in your skills and are interested in finding something new.
Step 2: Use tools to find deals
One of the processes which can consume most of your time is product sourcing. With that being said, utilizing tools to find deals can help speed up the process of finding products online to resell on Amazon.
Now what I will say is that many Amazon sellers start with basic online arbitrage tools like DS Amazon Quickview, Right-click Amazon search, and Keepa. These are the common free tools to help you save time and automate some of the manual processes you have to go through when sourcing.
There are also Amazon sellers that start with free online arbitrage deal websites to find deals, such as SlickDeals, BrickSeek, and LatestDeals.
These free websites will provide you with a list of the best deals from different online retail stores. Then you can choose a deal and compare their prices on Amazon if the deal is profitable or not.
Step 3: Calculate profitability using the FBA Calculator
The first thing you need to know is whether your product is profitable enough for you to sell it on Amazon. Once you have found profitable products online and you have also compared the Amazon listing prices, you will need to calculate the profitability. Amazon Seller Central has a free Amazon FBA Revenue calculator to help you determine the profitability of the product.
To use it, enter the ASIN number (that you can find on Amazon listing’s product information page) into the calculator and then enter the product price and the product cost to calculate your net profit and net margin.
Step 4: Assess demand using the Best Seller Rank and Sales Estimator
One of the things that you should also look into is the demand for the product. For this, you will determine the Best Sellers Rank (BSR) from Amazon’s product listing page.
Once you find the seller rank, you can go to Jungle Scout’s FREE Sales estimator, enter the seller rank, marketplace, and product category, then you will arrive at an estimated number of sales per month. By having this information, you will have a basis on how many units to buy for your inventory.
Step 5: Sell High
Once you finish analyzing the deal IE checking the sales and profitability of the product, you can start adding the product to an existing listing with the goal of selling high on Amazon.
Get the Top 100 Supplier List
- Top 100 stores for deals
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How much do I make selling on Amazon?
USA marketplace
See the $1.2 million in sales and that’s in the last 12 months within the business. We generally operate with about a 10% net margin. You can probably see $1.2 million in sales, and in a typical month, we probably do about $100,000 to $150,000 in sales.
Now, you might think that’s not very much, but remember that I’m not really working on that business. I have a big team of virtual assistants who run the whole business for me. I’m only running the business for about 2 to 4 hours per week.
UK marketplace
We generally operate around £3 million in sales. This one is a little lower around 5% take home, after everything. Why? With this business, there are a lot of other people’s money and a lot of credit. We actually start this one higher versus the USA, so I have more staff; means a lot more costs and also operating costs.
Generally, the UK market has lower margins than what we see in the US. Again, I’m going to be walking out with about £100,000 to £150,000 on that.
You might think that I’m making 5 million and I’m not taking very much of it. Understand that I’m only working 2 hours a week on both businesses and I’m happy to take less money to do a lot less work.
What do other people make?
Now you might be asking, how about other Amazon sellers? How much are they making? People say they are making money when they’re selling on Amazon. Well, I talk to a lot of other sellers and what they share are…
Generally in the US, they’re probably going to be operating about 15% to 20% net. While in the UK, they’ll operate between 10% and 15% and are on lower volumes of sales. They are probably not as much in sales as I’m doing, but they will be more proactive in the business.
So for me, I’m very much an owner of the business I invest in, and that’s it. I don’t really do any work but a lot of other sellers will be working quite proactively and the net result is that they will be earning more money.
If you sell, you can expect to make about 15% to 20% of your sales and that would be good.
Is online arbitrage still profitable?
I will be highlighting two things. One is the challenges to making a profit on Amazon and, second, how to make an extra profit on Amazon.
I’ll start with the challenges of making a profit on Amazon.
Competition
Due to the very nature of the way the Amazon marketplace works, let’s say, for example, if you are selling a product, you can have multiple sellers in one listing. With that, sellers compete on prices considering that one of the factors to win the buy box is pricing. Now, with people competing for the price, sellers now fall for this term called price tanking.
Basically, price tanking takes place when competitors, such as two Amazon third-party sellers, repeatedly reduce their prices so they can offer the least-expensive deal to the customer. When price tanking happens, your profit margin decreases, and worse lose your money.
Software costs
One of the factors that affect profit margins is the cost of the software. But let me tell you that this kind of cost will benefit you in the long run.
Why? Software like repricer software will help you protect and manage your price, so despite software costing you money, it will help you create a competitive pricing strategy to maximize profit.
Cost of goods
The cost of goods or your landing cost is the most important part of your product cost.
We calculate the landing cost by taking the total cost of the item itself, packaging it for shipment, and then shipping it to an Amazon fulfillment center.
You might be asking, how does this affect your profit? Let’s say you bought an item that has a small value, and expect that there’s less profit to be made in that product, unlike buying an expensive item that can give you a higher profit.
Taxes
When it comes to taxes, businesses are often concerned about how much they are going to pay and how their tax burden will affect their bottom line.
Any changes in taxes will have a significant impact on business. Let’s say, for example, an increase in income tax will reduce the consumer’s disposable income (income after income tax). This means people will have less money to spend on goods and services, resulting in lower demand and sales revenues for the business.
As a result, businesses may have to cut back on hiring people and salaries, which could affect lower productivity levels.
After understanding the factors that affect profitability on Amazon, I will now share how to make an extra profit on Amazon.
Cashback
Simply put, cashback is when you buy something, you’ll get a percentage of your spend back as cashback, normally a couple of months later.
One is using cashback websites. Basically, cashback websites like Quidco and TopCashback work directly with suppliers or manufacturers. So when you go to a supplier and make a purchase using a special link of that supplier, that cashback provider tracks and gives% a percentage back of your spend. With all that said, cashback can help you maximize your profit. IE cashback can cover shipping costs. With that, it can reduce your costs which I like about it.
If you want to learn more about using cashback, you can read our previous article on How to get Cashback Amazon for your Online Arbitrage Business.
Credit cards
Now in my Amazon business, we have multiple types of credit cards, like Amex platinum card, Amex gold card, and even Capital on Tap.
Now, since credit cards allow you to buy items using credit, what I also like about it is that it can help you increase your stock purchases. WHY? Because you are using other people’s money IE credit for a certain period to buy them and then you repay that later. In addition to using credit cards, you can also earn cashback and points, which I get to convert into first-class flights and hotel bookings.
Voucher codes
Finding products that are profitable is a good thing, but getting them at a much lower price is much, much better. Why? Getting discounts on your online purchases makes good ROI. Hence, make more money. And we are here to make money!
So might as well consider using voucher codes like honey, which offers codes to customers as a purchasing incentive that reduces the price or creates special offers for the product you are buying.
Personal thoughts - Is online arbitrage worth it?
Now after sharing with you information about profitability on Amazon, you might be asking me if online arbitrage is still profitable.
I am going to say the short answer, yes. There are going to be lots of people out there who’ve tried and sold. Remember that in anything in life, whether it be business or a job, there are going to be people who have failed, and that’s a fact. But also, there are going to be people who are making money, buying low and reselling high on Amazon.
If you think about it at a simple level, you’re buying low and reselling high; it’s called trade. It’s been around for about 4,000 years. And the idea is you’re buying products cheap and retail high somewhere. All we do is sit and sell high on the Amazon marketplace, and this is going to continue to be around for thousands of years to come. There’s always going to be an opportunity to take advantage of those price differences.
The next question you need to be asking yourself is, do you want to be a part of it?
After understanding, is online arbitrage still profitable? You also want to read about How to make money on Amazon with online arbitrage. Also, read our article about the Top 100 USA and Top 100 UK websites to give you information on where to source your products. And again, check our YouTube playlist for Amazon beginners.