What Is Online Arbitrage? How Does It Work?

Online arbitrage might seem initially like an easy and quick way of earning money. You buy anything and sell the same at Amazon or other social sites by adding some bucks to that money.

It might sound like a perfect way to become a millionaire. But sadly ask people who are into online arbitrage and they will tell you that it is much more difficult than you actually think.

People who are into online arbitrage are daily holding up huge inventories of the product which couldn’t be sold. The correct way of earning extra bucks through online arbitrage is by finding the correct product by use of a combination of data and tools so that it can be priced correctly and thus sold easily.

How Does It Work:

Finding the correct product which you can buy at less and then sell with some added profit at Amazon or any other online marketplace –

Buy the product and either get it delivered to yourself or to some FBS warehouse
Add some margin and list the product for sale at the marketplace
The product gets sold and you earn profit

1. Understand Arbitrage

In simplest form Arbitrage can be understood as the price advantage because of the difference in two geographies. This is capitalism in nature.

Here we are talking about physical products.

For instance, Board games A is being sold at $23 on Amazon but it is available at only $5 at your nearest Walmart store.

So, why not you buy the product from Walmart and then sell the same at Amazon. This will fetch you a comfortable margin of $20. And the margin will increase when you are selling a huge number of these games.

2. Is It Legal?

Arbitrage is 100% legal. The price difference is because of the difference in product availability at different geographies.

Also, It is directly based on the marketing golden rule which is demand and supply. Consumers at Amazon are impatient and thus the price point is really high there and thus you are earning.

3. Understanding Online Arbitrage?

Online arbitrage which is also known as retail arbitrage is very similar to any other sales venture. This is based on the concept of “buy lower and sell higher”. Goods are available at a lower price at offline or even online stores and then the same can be sold at other online marketplaces at a higher price.

Online arbitrage can easily be done 100% online and would not involve brick and mortar store. And thus you can save a significant amount of money in that area too.

But you must remember that you need to buy the item before listing it for sale online. Thus, you need to carefully analyze the item and decide which one will have better-selling prospects. Also, the point of selling here is the price difference. So, the price difference shouldn’t be massive and thus easily ignored by the consumers.

You can simultaneously use different platforms to sell your products like eBay, Craigslist, the Facebook marketplace, in your own store, OfferUp, Let Go, Walmart, Amazon marketplace.

4. What Is The Minimum Financial Requirement Which Is Required To Get Started With Online Arbitrage?

This directly depends on the fact that how much profit are you aiming at in the beginning. This will help you to estimate the capital requirements here.

For instance, in the first month, you want to earn $1500, then you must keep a selling price of $3000 to earn a 50% margin over your sales. Then again the next month you can re-invest this $1500 and then you would be aiming at the selling price of $9000.

5. What Products To Target

This depends on your storage space. In case you are planning to store the goods in your house only and you don’t have a designated space for the same then go for smaller goods. This will keep your shipping costs low. Once you feel that the sales are increasing then obviously you can increase your supply of goods and even rent a place for storing your goods.

In case you have knowledge of some specialized niche like electronic or tech products then you can also include them in your buying list.

6. So, How To Proceed

This is a very tricky question. Let’s assume that you are low on both budget and time. Here we will give you some easy tricks to move ahead. Let’s also assume that you want minimum profit margins of 30%.

$5 should be the minimum net profit per item
The maximum time of inventory lying in the warehouse should be 2 weeks
Keep the maximum product buying cost up to $50. It is not advisable to lock your money into the stock at the start.
Make your own sourcing guidelines as per your experience

You must remember that even bad products get sold. And you must be prepared to sell your products at the buying price if the same doesn’t get sold out within your stipulated time frame.

7. Slow Start And Learn Gradually

It is very important to identify what kind of income are you considering from your online arbitrage. It means that is it your full-time income or it a side income. Our advice is to proceed slowly but steadily. Try to understand how demand and supply work. And also try to get a grasp on the entire process and then only proceed fully. Give it some time and let yourself dive through the experience.

8. How To Buy Online

Keep a tab on early morning sales or maybe the end of season sales
Remember something which is of smaller niche or unconventional can also get sold
Pay attention to the deal sites which sells low-cost products for a limited time. But make sure that they don’t fall into the expired category.
Keep a track on discount codes and promo codes along with free shipping
If Possible invest in gift cards at a lower cost because they come with redeemable award mechanism
Sign up for stores reward program and get enrolled into their mailing list. Some of the best pages for the same are – Disney Kohls and Kmart.