Is Online Arbitrage Still Profitable? A Comprehensive Analysis for 2023

Online Arbitrage has been great for myself for a number of years. Being able to purchase new stock from the comfort of my own home, without any hassle has been a dream. It’s a relatively low maintenance strategy, although it does require some discipline.

The question that we’ve been asked a lot this year? Is Online Arbitrage still worth it?

What is Online Arbitrage?

Online arbitrage involves purchasing products at a lower price from one platform and selling them at a higher price on another, like Amazon. Earnings vary, but profitability is still possible. Assessing whether it’s worth pursuing depends on individual goals and strategies.

Online arbitrage involves purchasing products from online retailers and reselling them at a higher price on different marketplaces like Amazon. By employing this business model, you don’t need to travel to physical stores to buy products. Instead, you can effortlessly identify reselling opportunities on various websites.

How to Earn Money Through Online Arbitrage

Step 1: Begin with Amazon Categories Ideal for Beginners

It’s a common idea to start with popular categories for beginners, such as grocery or beauty, since you’re likely already ungated in these categories. However, feel free to test other markets or products based on your interests and confidence levels.

Step 2: Employ Tools for Deal-Finding

Product sourcing can be time-consuming, so using tools to find deals speeds up the process of locating items online to resell on Amazon. Start with basic online arbitrage tools like DS Amazon Quickview, Right-click Amazon search, and Keepa to save time and automate some steps. Also, consider using free online arbitrage deal websites like SlickDeals, BrickSeek, and LatestDeals for regularly updated lists of the best deals from various online retailers.

Step 3: Determine Profitability with the FBA Calculator

Once you identify potentially profitable products, compare their prices on Amazon and calculate profitability. Amazon Seller Central provides a free Amazon FBA Revenue calculator for this purpose. Input the ASIN number (found on the listing‘s product information page), the product price, and the product cost to calculate your net profit and net margin.

Step 4: Estimate Demand using Best Seller Rank and Sales Estimator

Ensure there’s a healthy demand for the product by checking its Best Seller Rank (BSR) on Amazon’s product listing page. Then, input the rank, marketplace, and product category into Jungle Scout‘s free Sales Estimator to estimate the number of sales per month. This information will guide you in deciding how many units to buy for your inventory.

Step 5: Sell at a Higher Price

After analyzing the deal, profitability, and sales of the product, add it to an existing listing on Amazon with the aim of selling it at a higher price.

Gains Made by Other Amazon Sellers

As you delve into the world of Amazon sales, you’ll likely come across other sellers. It’s essential to understand the kind of returns they are making. In the United States, sellers usually enjoy a net profit of approximately 15% to 20%. However, in the United Kingdom, sellers tend to have a slightly lower net profit, ranging between 10% and 15%. This is often due to lower sales volume compared to their US counterparts.

Keep in mind that many sellers adopt a proactive approach, meaning they actively engage with their business operations rather than simply being investors. This involvement can lead to increased profit margins, often resulting in higher net earnings.

In summary, when you embark on your Amazon sales journey, you can generally expect a net profit of 15% to 20% from your sales. Maintaining this level of return is considered a positive and achievable outcome.

Is Online Arbitrage Still Profitable?

Facing Competition

In the Amazon marketplace, multiple sellers can list the same product, leading to increased competition on price. This often results in “price tanking” – a situation where sellers repeatedly drop their prices to offer the cheapest deal. Price tanking can significantly decrease your profit margin and potentially lead to losses.

Accounting for Software Costs

Though the cost of software might impact your profit margin, certain tools prove beneficial in the long run. Repricer software, for example, can help manage and protect your prices, enabling you to create a competitive pricing strategy and maximize profits.

Factoring in the Cost of Goods

Your product’s landing cost, calculated as the total cost of the item, its packaging, and shipment to an Amazon fulfillment center, significantly impacts your profit margin. Lower-cost items may yield less profit than more expensive items that potentially offer higher profit.

Dealing with Taxes

Tax changes can directly affect your profit on Amazon. For instance, an increase in income tax reduces consumer disposable income, leading to lower demand and sales revenues for your business. As a result, businesses may need to cut back on hiring and salaries, negatively impacting productivity levels.

Augmenting Profits with Cashback

Cashback websites, like Quidco and TopCashback, work directly with suppliers or manufacturers, returning a percentage of your total spending as cashback. This can help cover shipping costs and reduce your overall expenses, ultimately increasing your profit margin.

Utilizing Credit Cards

Using various credit cards, like Amex Platinum, Amex Gold, and Capital on Tap, can help extend your buying power by enabling purchases on credit. Repaying the credit later allows you to increase your stock purchases using other people’s money. In addition to this advantage, credit cards can also offer cashback and points redeemable for first-class flights and hotel bookings.

Taking Advantage of Voucher Codes

Discounts obtained through voucher codes can boost your Return on Investment (ROI) by lowering the price of your online purchases. Services like Honey provide voucher codes to customers, creating purchasing incentives that reduce costs, leading to increased profit margins.

My Thoughts – Is Online Arbitrage a Viable Option?

Yes, online arbitrage can be profitable. While there are people who haven’t succeeded, others have managed to make money through buying low and reselling high on Amazon. Essentially, you’re participating in an age-old practice called trade, dating back 4,000 years. The concept is simple: purchase products at a low cost and sell them at a higher price in another marketplace.

In the case of online arbitrage, you’re leveraging Amazon’s marketplace to take advantage of price differences. As long as these disparities exist, there will always be opportunities to profit. Just remember to approach this venture with a confident, knowledgeable, neutral, and clear mindset.

Author
Tom P
Hi, I'm Tom Paddock! An Amazon & eBay seller, who has helped over 10,000 people start their own online business. I provide cutting-edge techniques to help sellers with Online Arbitrage, Retail Arbitrage & Wholesale on Amazon.
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