Retail Arbitrage Business with Amazon FBA

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One of the great aspects of setting up a business on Amazon is there’s an option out there for everyone. Whether you want to start small and learn the basics of selling on Amazon or whether you want to go big and launch your own brand and sell a range of products this is all possible.

In this article we will cover retail arbitrage, it’s an attractive option if you’re just starting out in the world of selling on Amazon.

What is Retail Arbitrage?

Retail arbitrage simply involves finding products at a discount or at a cheaper price which you can then later sell elsewhere for a profit. You’re essentially taking advantage of pricing inefficiencies.

For example, your local supermarket is selling a Lego set at a 50% discount. Let’s say after the discount, the price is £15.00, you check on Amazon and you can see it’s retailing for £35.00. You could relist it on Amazon for £35.00 and pocket the difference (minus Amazon’s selling fees and commission) and make a nice profit. Repeat that over and over again and you could have a good business.

Factors to Look Out for with Retail Arbitrage?

Best Seller Rank (How Popular is it on Amazon)

When you source your products, you will need to make sure they will sell on Amazon. There’s no point finding out you’ve bought something which initially appears cheap but you can no longer sell as there’s no demand for it.

A way to check for a product’s demand on Amazon is to check the Best Seller Rank (BSR) of the product. This is listed under the ‘Product information -> Additional information’ section of the product’s page. Products could be listed in multiple categories.

Under the BSR section, you will usually find that there is a top level category, in the below example it is #1 in Garden & Outdoors and a subcategory, #1 In in Garden & Outdoors > Plants, Seeds & Bulbs > Indoor Plants > Bonsai and 1# in Garden & Outdoors > Plants, Seeds & Bulbs > Grow Your Own Kits.

Products with a BSR of #1 mean they are the most-purchased item in that category. Ideally you’re looking for a BSR with a low sales rank. Naturally the rank can depend on a number of factors including trends, seasons and competition, therefore it can fluctuate.

We would recommend to purchase products that have a BSR of under 50,000, and you should ideally aim for less than 30,000 in the overall category NOT the sub-category. If you find a product with a BSR of less than 30,000, you can expect to sell at least one to a few units a day.

Avoid Bulky & Heavy Products

Amazon categorises products sizes into two, standard and oversize. Stick to smaller sized products, this way it’s easier and cheaper to ship to Amazon’s fulfilment centres also you will incur less storage and other FBA fees.

ROI

Ideally when sourcing products you’re looking for a good return on investment (ROI), the higher the better. We would recommend finding products which have at least an ROI of 100% when you first start out. With popular products on Amazon, there will be competition, in order to reduce risk i.e. you may need to reduce your selling prices, so a higher ROI provides you with a safety net.

The ROI can also be linked to the BSR, for example, if a product has a BSR of 3000 on Amazon, you could reduce your ROI to say 50% as you know it’s a popular product so you should be able to sell out quickly and your risk is reduced.

Check Whether Product/Category is Gated

Some brands or categories on Amazon are gated, which means they’re restricted to certain sellers. There’s no point buying a product and then finding out you can’t sell it on Amazon. In order to check whether you’re approved to sell an item, you can use the free Amazon Seller App. Go to ‘Add a Product’ from Seller Central and it will tell you whether it’s restricted or not.

Avoid Expensive Products

Like with any product you may sell, there will be customer returns from time to time. If the product returned has been used by the seller, you may not be able to re-sell it again and it will need to be destroyed so you will be out of pocket. Also, on higher-priced items you’re more likely to be scammed. For this reason, it’s important to concentrate on purchasing items which are not too expensive, ideally you should be looking in the £15 – £50 price range so you don’t lose too much if this does occur.

Does Amazon have the Buy Box?

On popular products, there will be a number of sellers which may include Amazon and third party sellers.  If Amazon sells a particular product, they are more likely to have the buy box, especially with new books, and may not share it with other sellers.  Naturally this will depend on a range of factors including the seller’s metrics, the seller’s price and whether they’re using FBA or not.  You will need to take this into account when deciding whether to go ahead with a product when Amazon sells it as well.  If you do, you may need to wait for them to run out of stock before other sellers win the Buy Box, so it could be a waiting game.

Checking the Product’s Price History

You’ve found a product with an ROI of 150% and it has BSR of only 5,000, you think great, you buy 10 of them. The next day you check Amazon again and you see the price has drastically dropped and you now find the product is not as profitable as you originally thought, you may even lose on it now.

How do you reduce the risk of this occurring? Well, there’s a fee tool called CamelCamelCamel which is very useful. It provides the pricing and sales rank history of a particular product. It allows you to see price trend for a particular product so you can make a better informed decision regarding the average selling price and whether the price may eventually fall or not.

Free Retail Arbitrage Seller App

A recommended tool which retail arbitragers can start off with is with the Amazon Seller App (Android) (iOS) which is free to download onto your smartphone. The Amazon tool has a feature which allows you to scan a product’s barcode using your camera’s phone which then provides you with the current product’s selling price on Amazon. It also lists the products seller rank, FBA fees, total number of sellers and the product’s category. This is perfect if you’re looking for products to source for retail arbitrage.

Amazon, also provides a Fulfilment by Amazon Revenue Calculator which is also free to use. The tool allows you to enter your product costs and will calculate your selling fees and potential profit.

Where Can I Find Product Deals for Retail Arbitrage?

You can source retail arbitrage opportunities anywhere from your local supermarket, toy store, grocery store, pharmacy, charity shop, car boot sale, clearance aisle, classified ads, liquidation stores and many more!

Online Arbitrage

Online arbitrage is similar to retail arbitrage, the only difference is that you source your deals over the internet from the comfort of your own home/office.

The main advantage apart from the convenience is that you can find a huge amount more deals online and have them dispatched directly to you. For example, you can use a number of free offer/discount websites to search for products suitable for arbitrage opportunities (see below for examples).

UK Deal/Offer Sites:

US Deal/Offer Sites:

Use Cashback Sites (Increase your ROI!)

One trick when purchasing products online is to first check whether your retailer is listed on a cash back site. If it is, than you may get a percentage off your purchase which allows you to get the product even cheaper and increase your ROI.

UK Cash Back Sites:

US Cash Back Sites:

Online Arbitrage Tools

As you’ve seen, there are many free online offer sites out there to help you find arbitrage deals quickly. One of the main problems with these popular sites though is that really good offers will sell out quickly and some retailers may impose a limit of how many you can buy.

Ideally you therefore need to find the good deals quickly before they appear on offer sites. There are a number of online tools out there which can help with this and can automate part of the process to find suitable arbitrage opportunities. These tools can scour an online retail site and return a list of products that can be resold later for a profit. For example, some of these allow you to filter by ROI so they only return products which are truly profitable (see below for a list of tools).

An Online Arbitrage Example

You’ve loaded an online offer site up and are searching for arbitrage opportunities. You see there’s a Lego set which has been discounted to £35.00 on a popular supermarket’s online retail site.

You search for the same Lego set on Amazon.co.uk, you can see it’s selling there for £69.48. Amazon does not have the Buy Box, it’s a third-party seller who does.

You next check the Best Seller Rank (BSR) for the product and you can see it is 17,283 in the ‘Toys & Games’ category which is good and the reviews look pretty good.

As the product looks profitable and has a good BSR, you take a copy of the product’s ASIN which is listed under the ‘Additional Information’ section of the product listing.

Next you launch the Fulfilment by Amazon Revenue Calculator and enter the product’s ASIN and you click on the ‘Search Button’.

In the ‘Amazon Fulfilment’ section of the calculator, you enter £69.48 ‘Item Price’ which is the price you expect to sell it through Amazon FBA. You also enter £35.00 into the ‘Cost of Product’ field which is the cost to you of buying the product.

You’re thinking of buying 3 Lego sets, you know from past experience the cost of sending a box of the same item quantity to Amazon’s fulfilment is around £5.00. You calculate the postage per item which is £1.67 (£5.00 / 3 items) so you enter that value into the ‘Deliver to Amazon’ field and you click on the ‘Calculate button’.

The calculator then calculates the net profit as well as the net margin.

The net profit is £17.26 although if you’re not VAT registered (you shouldn’t be if your revenue falls below £85,500) Amazon’s selling fees will incur 20% VAT.

So the selling fees will be:

£10.42 (selling fees) + £6.80 (FBA fees + Deliver to Amazon) = £17.22 * 1.2 = £20.66 total selling costs

£35.00(cost of product) + £20.66 (total selling costs) = £55.66 total costs

£69.48 (selling price) – £55.66 (total costs) = £13.82 Net Profit per Item

So as you can see, your net profit per item would be £13.82. As you’re buying 3 Lego sets, the total profit would be £41.46. Not bad for just a few minutes work checking an offer website. Imagine if you could buy in bulk, let’s say 100 boxes that would amount to a profit of £1,382.

If you keep finding the deals, you can see that it is not impossible to build up at least a 6 figure business per year.

Do I Use Fulfilment by Amazon or Fulfilment by Merchant for Retail Arbitrage?

With retail arbitrage we would recommend using Fulfilment by Amazon (FBA) over Fulfilment by Merchant (FBM). FBA essentially means you ship the product to their fulfilment centre and they store them in their warehouses and ship the orders out to the customers when they sell.

One of the benefits is you don’t need to store your products at home. It allows you to order as many products and have Amazon store them for you. They also deal with customer support and returns so you don’t need to worry about that. Using FBA you’re more likely to win the Buy Box so even though it incurs more charges over FBM, the benefits outweigh the negatives (see why in some circumstances it might be better to use FBM over FBA).

Advantages and Disadvantages of Retail Arbitrage

Advantages

One of the advantages of retail arbitrage is it’s a pretty straightforward business model. You only need a small outlay to start off with and you can grow your business over time and learn how the Fulfilment by Amazon (FBA) process works.

If you’re thinking of starting a private label business but don’t have sufficient capital, you can start off with retail arbitrage and build enough capital up before you move over to private labelling.

Disadvantages

One of its advantages of retail arbitrage is also one of its disadvantages, the low barrier of entry. Anyone can set-up a retail arbitrage business, this means finding products with a high ROI can be challenging at times. There are number of online tools out there which you can use as we’ve mentioned earlier in the article like FBA Wizard.

A good idea, is to build a number of good contacts with local retailers who can let you know whenever there’s a good offer available so you will be the first to know.

With retail arbitrage, you can’t rest on your laurels, you constantly need to find the next deal, otherwise you won’t be making any money. With a private label business you can just re-order from your supplier when your stock runs low on Amazon, that’s not possible with retail arbitrage. Retail arbitrage is also not as scalable as a private labelling business.

Secrets to Success with Retail Arbitrage

Buying in Bulk

As you can see, finding the right deals can sometimes be challenging, you will also be competing against other arbitragers at times. When first starting out we would recommend just buying a few products with good ROI, so you can learn the process and reduce your risk. Once you’ve gained more experience and confidence, we would recommend that you buy products with a good ROI in bulk, providing it matches all your criteria.

Outsourcing (Using Virtual Assistants)

Sourcing for arbitrage opportunities can be a time consuming process. You’re checking your local retailers for offers, you’re also checking online offer sites as well as using arbitrage tools to find the next product to buy. You may also be trying to hold down a full time job and look after your family at the same time.

One way to manage your workload is to outsource this work to virtual assistants. You can provide them with your buying criteria and they can search for offers and provide you with interesting leads. A site which we would recommend for finding virtual assistants, is Onlinejobs.ph. The site is dedicated to workers from the Philippines. The workers speak good English and they are very reasonable and are great workers. There are other sites out there, such as upwork.com where you can employ other VA’s to help source products.