Online arbitrage is a powerful ecommerce business model that allows entrepreneurs to source products from various online retailers and resell them for a profit. With the right knowledge and skills, online arbitrage can become a lucrative full-time business or side hustle. This comprehensive guide will teach you everything you need to know to start finding products, setting up your online stores, and building a successful online arbitrage business.
What is Online Arbitrage?
Online arbitrage refers to the practice of purchasing products from one online retailer at a low price and then reselling those same products on a separate online marketplace, like Amazon or eBay, for a higher price to turn a profit.
The price difference that allows for a profit margin stems from discrepancies in supply, demand, and pricing between different online retailers and marketplaces. Online arbitrage experts leverage these marketplace inefficiencies to their advantage.
For example, a seller may source an electronics product for $100 from an online liquidation marketplace. They could then relist that product on Amazon for $150. After Amazon fees, the seller nets a $35 profit from the $50 spread.
With the scaling capabilities of ecommerce, this process can be repeated thousands of times to build a highly lucrative business model. Online arbitrage enables entrepreneurs to act as online retailers without having to house or ship any inventory.
Benefits of an Online Arbitrage Business
There are many advantages to building an online arbitrage ecommerce business:
- Low Startup Costs – Inventory is only purchased once a sale is made, keeping initial costs very low. No need for warehousing or purchasing inventory before having customers.
- Minimal Risk – Products are resold immediately after purchase, so there is very little risk of getting stuck with unsold inventory.
- Passive Income Potential – After setting up product listings, the business can generate mostly passive income with some ongoing maintenance.
- Location Independent – Only an internet connection is required, allowing complete location flexibility.
- Scalable – The business can scale almost infinitely by adding more product listings.
Overall, online arbitrage offers one of the most capital efficient and scalable ecommerce models available. The barrier to entry is extremely low compared to other business models.
Step 1 – Finding Profitable Products to Source
The first step to building a successful online arbitrage business is identifying profitable products to resell across marketplaces. The key is finding sizable price differentials that allow for a strong profit margin after fees and shipping costs.
Follow this process to consistently find viable products:
Check Liquidation Sites
Liquidation platforms like Bulq and Liquidation.com sell large retailer overstock and customer return pallets at heavily discounted rates. Search these sites for popular products priced well below retail.
Sort by categories like electronics, beauty, toys, apparel, etc. Look for name brand products in new condition from well-recognized retailers.
Legally, you can resell customer returns as long as you list them as used – like new. Just make sure the items are in resellable condition.
Search eBay Completed Listings
On eBay, search for completed listings of products currently selling for well above the typical retail price. This signals high demand.
You can then source the same products from liquidators or big box retailers and resell for a profit due to eBay’s price premium.
Download Product Tracking Apps
Apps like Keepa and CamelCamelCamel can track historical price data and alert you on big price drops for products on Amazon.
Sign up for alerts on popular products so you’ll be notified if there is a temporary price decrease, allowing you to source and flip for a profit.
Check Clearance Sections
Browse the clearance and seasonal sections on major retailer sites. Look for steep discounts on still desirable products you can resell closer to full value.
Leverage Coupons and Cash Back
Use coupons, promo codes, and cash back apps like Rakuten to further reduce the price paid for products you plan to resell at a higher fixed price. Every dollar lower boosts your profit margin.
Step 2 – Setting up Your Online Store
To resell products through online arbitrage, you need an ecommerce platform to showcase and sell your products. Here are the top options to consider:
Amazon – The World’s Largest Marketplace
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- Over 197 million monthly visitors
- Fulfillment and shipping services
- High conversion rates
- Built-in Prime customer base
- Competitive fees – ~15% on average
- Account restrictions for new sellers
- Little brand customization ability
Amazon should be a core component of any online arbitrage business model due to its unrivaled reach and built-in services. But restrictions for new sellers make it difficult to fully rely on Amazon alone.
Shopify – Build Your Own Branded Store
- Fully customizable storefront
- Competitive 2.9% + $0.30 transaction fees
- Integrates with sales channels like Amazon, eBay, Walmart
- Need to drive your own traffic to the store
- Monthly subscription fees for basic plans
Shopify enables you to build a branded storefront linked to sales channels. This allows for custom branding while leveraging the traffic of major marketplaces.
eBay – The World’s Largest Auction Site
- Massive buyer marketplace – 147 million active users
- Lower competition than Amazon for niche items
- Great for one-off clearance and liquidation product listings
- Can be time intensive to create many listings
- Store subscription fees
- High 12.55% average fees
eBay is better suited for arbitrage sellers sourcing one-off deals vs. bulk inventory. Lower competition makes it easier to rank listings vs. Amazon.
Walmart – Compete with Free 2-Day Shipping
- Free 2-day shipping without membership fees
- Lower competition than Amazon
- Can manage listings via ChannelAdvisor
- Strict application process for new sellers
- High 15% average fees
Walmart has quickly grown into a major retail destination. Arbitrage sellers can take advantage of the lower competition levels to build a store. Just getting approved can be a challenge.
Step 3 – Listing Your Products
Once you’ve sourced profitable products and set up your ecommerce platforms, it’s time to create listings to showcase them to buyers. Follow these tips for maximizing sales:
Optimize Titles For Search Keywords
Include popular search phrases that buyers are using to find your products. But don’t keyword stuff – keep titles sounding natural.
Write Detailed Descriptions
Go beyond manufacturer descriptions to provide additional context, specs, pros/cons, etc. This builds trust and positions you as an expert.
Take Professional Photos
Invest in a quality camera and lighting set up to showcase your products in the best light. This gives your listings a retail-level look and feel.
Price Higher Than Competition
Check competitor prices, but don’t be afraid to price higher. Higher perceived value attracts more profit per sale. You can always lower the price later.
Offer Fast Shipping
Promote fast, reliable shipping times in listings. Free expedited shipping also incentivizes buyers to purchase from you over competitors.
Monitor and Update Listings
Check your inventory and prices regularly. Update pricing based on changing demand and competitor actions. Keep listings optimized.
Step 4 – Leveraging FBA for Fulfillment & Shipping
One of the most time intensive aspects of ecommerce is shipping out orders. Fulfillment By Amazon (FBA) alleviates this burden by having Amazon handle fulfillment and shipping.
How FBA Works
- Send inventory to Amazon warehouses
- Amazon picks, packs and ships products when orders are made
- Amazon handles customer service and returns
Benefits of FBA
- Prime eligibility – Free 1-2 day shipping
- Reduced overhead/labor – Amazon handles fulfillment
- Less risk – Amazon takes inventory liability
- Higher conversion – Customers trust Amazon’s fast fulfillment
The fees for FBA are higher than self-fulfillment but are often well worth it for the time savings and Prime eligibility. It also allows you to scale up exponentially since you don’t have to process every individual order.
Most serious online arbitrage sellers leverage FBA to maximize sales and minimize the day-to-day workload.
Step 5 – Analyzing Data & Improving Profitability
Like any business, continuous analysis and improvement is key to boosting profitability over time. Follow this process to refine your online arbitrage operations:
Track Detailed Accounting Records
Use accounting software to analyze real product costs, profit margins, inventory levels, sales velocities, fees, etc. Identify best selling items vs. slow movers.
Run Split Marketplace Testing
Source the same products and run split testing across marketplaces like Amazon, eBay, Walmart. Gauge which channels drive the most sales and profitability.
Experiment with Pricing Strategies
Try various pricing tactics like higher perceived value pricing, psychological pricing, competitive undercutting, bundle pricing, etc. Assess impact on sales and profits.
Evaluate Listing Optimization Opportunities
Analyze listing content, titles, photos, etc against top competitors and search volume. Identify areas for testing and improvement.
Streamline Operational Processes
Continuously evaluate and refine product research, inventory management, listing creation, shipping, analytics, and other processes. Automate where possible.
Expand To New Marketplaces
Diversify across multiple sales channels. Tap into niche sites like Rakuten, Newegg, Sears, Overstock, etc. to expand your reach.
Online arbitrage offers immense flexibility to constantly test new ideas and pivot to more profitable products, prices and platforms. Stay agile, gather data, and keep improving.
Frequently Asked Questions
Still have questions? Here are answers to some of the most common online arbitrage FAQs:
How much money can you make from online arbitrage?
Profit potential depends on your business scale, sell-through rates, and profit margins per order. Most sellers aim for $10-$30+ average profit per sale. With enough volume, 6-figure income is achievable.
Does online arbitrage require a lot of startup capital?
The business model is extremely capital efficient, with little upfront inventory risk. Many sellers start with just a few hundred dollars sourcing clearance and liquidation items. Capital needs increase as you scale up.
Is online arbitrage legal?
Yes, buying discounted goods and reselling them at market value is completely legal. You just need to properly represent condition (new, used, open box) and follow sales platform rules.
Is online arbitrage too saturated nowadays?
While more competitive than a decade ago, there is still massive opportunity as ecommerce grows. New sellers must be creative in finding deals and executing at a high level. But profits remain strong for savvy sellers.
Is online arbitrage passive income?
It can generate mostly passive revenue once products are listed, with some ongoing work required for customer service, restocking, improving listings, etc. True 100% passive income is difficult for any business.
Do I need a sales tax permit or reseller license?
If your online sales exceed economic nexus thresholds for any state, you need to collect and remit sales tax. A reseller permit exempts you from sales tax when sourcing wholesale inventory.
Building a business through online arbitrage leverages the massive reach of ecommerce marketplaces while requiring minimal upfront investment and inventory risk. With the right optimization and effort, sellers can scale up to 6-figures or beyond.
This guide outlines the key steps and strategies needed to successfully source profitable products, set up online stores, manage fulfillment, and operate a scalable online arbitrage business.
While competitive, the opportunity remains immense given the trajectory of ecommerce growth and the flexibility of the business model. Savvy entrepreneurs willing to learn, test, and refine can still build highly profitable online arbitrage operations.
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