Tools for Online Arbitrage: Sourcing, Research and Profit Calculation
By Richard Shrubb
Online arbitrage sounds like the perfect work-from-home business: If you have a computer, an internet connection, and a few hours to spare each week then you’re all set.
So what do you have to do to? It’s pretty simple: you buy products from ordinary online stores, then sell them for a profit on the Amazon marketplace.
But making money as an online arbitrage seller is not as easy as it sounds.
It’s not easy to find products to buy for less than the price on Amazon – much less, if you want to make a respectable profit. The price difference has to cover all of Amazon’s fees and any other expenses you have.
It’s also not easy getting a grip on Amazon’s constant and unpredictable price changes. A deal might look great at the moment you find it, only for Amazon’s price to fall off a cliff a few hours later and force you into a loss.
Then there’s the fees. Sure, Amazon tells you how their fees work upfront, but they’re detailed and complex. It’s easy to make a mistake and calculate your profit wrongly.
So in this post I’ll explain what online arbitrage is really like, and how you can use online tools to help with all of the main challenges: sourcing, price research, and fee calculation.
What is Online Arbitrage?
James Rugg, founder of Amazon seller tools company Daily Source Tools, and a former arbitrage seller in his own right, told us:
Arbitrage is exploiting a price mismatch between two marketplaces. For Amazon resellers that means finding things in retail stores and online that we know are selling for a higher price on Amazon.
Online arbitrage is not a risk-free way to make money. It requires some capital investment: perhaps a few hundred dollars (or pounds) to make a good start.
It also requires an investment of time. Not only are the fees complex, there are many rules, policies and good practices to learn if you want to sell successfully through the Amazon marketplace.
But there is a real opportunity out there. Ed Brooks, founder of online arbitrage product scanner ProfitSourcery, has also seen the potential at first hand:
My wife spends half a day a week on FBA and makes more money out of that than her part-time job as a librarian. Recently she found a Barbie convertible car on Tesco at a low price, bought 30 and has sold 15 in under a month. She’s made £225 profit on a £375 spend.
A big attraction is the low barrier to entry: if you can shop for products on the internet, then you can do online arbitrage. Can you make a fortune from it? Probably not. Can you supplement your income with some useful extra cash? Yes, you can.
What is Online Arbitrage NOT?
Retail Arbitrage
This isn’t “retail arbitrage”, where you buy products from physical bricks-and-mortar stores.
Retail arbitrage typically requires spending hours with a scanning app to find products at a low enough price to make a profit, then buying up as much of that product as you can get. It can be profitable, but it’s not what we are talking about in this post. With online arbitrage products are only sourced from online stores.
We interviewed Robyn Johnson just a couple of months back about her successful business based largely on retail arbitrage. It’s a great introduction to that topic.
Reselling
This isn’t reselling either.
The reselling model involves buying products from conventional business-to-business sources: wholesalers, manufacturers and distributors. With online arbitrage, you are buying from normal consumer-facing stores like Walmart and Target in the US, or Tesco and Argos in the UK.
Buying from wholesale has the big advantage that profitable products can be easily reordered, but it’s often not accessible for sellers just starting out. At small volumes, the prices are often too high to be profitable. At larger volumes, the high risk and capital will be difficult to justify.
We wrote about reselling recently in Five Ecommerce Business Models: Reselling, Private Labelling, Used and More.
Amazon-to-eBay Arbitrage
In Amazon-to-eBay arbitrage sellers do not buy any stock in advance, but simply take items that are available on Amazon and list them for a higher price on eBay. When an order comes in from eBay they buy the goods from Amazon and have them delivered directly to the eBay buyer.
Web Retailer covered Amazon-to-eBay arbitrage in detail in The Truth About Amazon to eBay Arbitrage. What’s the key difference compared to online arbitrage? With “mainstream” online arbitrage, products are purchased before they are sold. Also, with Amazon-to-eBay arbitrage, where there is no need to invest money up front, profit margins are often paper-thin.
Tools of the Trade
Arbitrage Deal Finders
Your online arbitrage business will never get off the ground if you can’t source products. Amazon is known for being extremely competitive on price, so it’s rare to find items for sale much cheaper elsewhere. But it’s not unheard of. There are so many online stores, and so many products being sold, that one-in-a-million opportunities come up every day – you just have to find them.
There are tools that completely automate the work of finding arbitrage opportunities, providing daily lists of products that can be resold at a profit. Tools in this category include ProfitSourcery (UK and US), ScanDroid Pro (US) and FindSpotter (US). The Web Retailer directory includes arbitrage deal finders, and prices range from around $20 to $100 per month.
A lower level of automation is available using browser extensions like OAXRAY and Cleer Platinum, both for Chrome. OAXRAY turns product search results from 21 different online retailers into spreadsheets of product information – including current Amazon selling prices and fees. The output is similar to that from the daily product lists, but it is driven by browsing through stores rather than the list service scanning automatically. OAXRAY is $99 per month.
Cleer Platinum adds links to product pages on Amazon, eBay and 20 other supported online stores, to the same product on major marketplaces and sourcing sites. It costs $97 as a one-time payment. A free version with a lower level of features is also available, called Cleer Pro.
Price and Rank History
If you use an arbitrage deal finder, why would you need anything else? One reason is that prices are always changing, and deal finders are only accurate at one point in time.
Amazon price trackers like camelcamelcamel and Keepa provide price history and volatility of several million products sold on Amazon. Both show how the price and sales rank have changed over time, providing an insight into the typical price and sales volume for a product. If an arbitrage deal is only profitable because of an abnormal – and possibly temporary – price jump on Amazon, it may be best to avoid it. Price trackers should make that easy to spot.
Keepa also shows how often a product has gone out of stock by Amazon themselves. Frequent stock-outs by Amazon can be a big opportunity to win sales while Amazon is out of the running.
ProfitSourcery have created a detailed guide What Makes A Good Product To Buy? which covers many of the factors for choosing profitable products beyond just a low buying price. It’s normally just for ProfitSourcery subscribers, but they have kindly provided it for free to Web Retailer readers.
Fee Calculators
Amazon provide their own revenue calculator which covers marketplace fees as well as FBA fees.
The North American Amazon revenue calculator covers Amazon.com, Amazon.com.mx, and Amazon.ca.
The European Amazon revenue calculator covers Amazon.co.uk, Amazon.it, Amazon.es, Amazon.fr and Amazon.de.
A number of tools link to the Amazon revenue calculator, including a Calculator Widget for Chrome which saves time by adding a link from Amazon product pages, and automatically populating the product’s ASIN.
Fulfillment by Amazon (FBA)
Amazon’s FBA fulfilment program offers two big advantages:
You don’t need to pick, pack and despatch orders yourself – that’s all part of the service.
You get increased exposure to buyers on Amazon, with an advantage in the Buy Box and Prime eligibility.
By using FBA you don’t have to keep stock at home while waiting for orders. Your products only need preparing (labelling, packing etc.) and shipping to an Amazon fulfilment centre. Even that is avoidable by using an FBA preparation service such as Amazon’s own or a specialist third-party provider.
Online Arbitrage FAQs
We asked Ed Brooks from ProfitSourcery and James Rugg from Daily Source Tools a number of questions that we frequently hear about online arbitrage – and product lists in particular. Here’s what they told us.
Isn’t everyone chasing the same deals?
Ed Brooks said:
Not everyone gets exactly the same list of products. There will be some overlap obviously! If you are on our Accelerated Plus program, you get around 300 products a month. It is very unlikely that everyone on that program is going to go after all those opportunities. Some people naturally gravitate towards electronics or babywear or whatever it might be. And we won’t take on a huge number of customers – we’ve got a limit.
James Rugg has a similar approach:
My USP is the exclusivity of my lists. I’ve got one that I limit to 60 people, and one that’s limited to just 25 people. If all 25 people went for a product, then some people would not make money on that item. But not everyone opens the list every day. Some do, but the majority don’t. My products have a sales rank in the top 1.6% and an average 96% net profit margin across both lists, so there’s plenty to go around.
What if the price drops suddenly before you have sold your stock?
Ed Brooks said:
We’ve got a direct link to camelcamelcamel. That shows how stable the price history of the product is. If you know that for the last year something has been continually selling for $20 then it is quite unlikely that it is going to drop to $10. If someone does undercut you, let them sell out and the price is likely to go back up to what it has been averaging in the past. With any business there is an element of risk but we try to provide enough contextual information to understand that. You have to use a bit of common sense.
Won’t you make more money if you ship orders yourself?
Ed Brooks said that FBA really is worth the investment:
We have very, very few problems with FBA. We have sent in 300 items at a time, and it has been fine. If you think of all the personal time to do the packing and go to the Post Office, it’s a huge time saver. It means that you can have a permanent full time job and do Amazon FBA.
Do you need a repricing tool?
James Rugg thinks that an automatic repricing tool is essential in the online arbitrage business:
Repricers are an excellent way to stay on top of price movement. The automation they provide is brilliant. If you are buying wisely then it is invalid to complain that repricers are causing a race to the bottom. Yes, you can use them wrongly, and someone new going for the Buy Box can burn through their stock in no time. You’ve got to be aware of your strategy and how you’re going to use them. They definitely make the business more efficient, and you’re at a disadvantage if you don’t use one.
How should sellers handle returns?
Ed Brooks said:
We sold 2,500 items in our testing program, and we had no more than 25 returns. That’s about 1%. People send the product back and you can sell it as used on eBay. When you first get the stock in you need to check it is in A1 condition. If a retailer sells you something in bad condition, you should always send it back to them. The key thing with returns is to provide people with good customer service. If you do that it keeps your Amazon account in good standing. That’s critical in everything from winning the Buy Box to having your account suspended.
Does online arbitrage scale?
Many people starting with online arbitrage just want to make a little extra money in their spare time. Those who are successful often want to turn it into a full-time income. We asked Ed Brooks and James Rugg if that’s possible.
James Rugg said:
Online arbitrage is a very good way of learning the ropes. But over time you should find lines that you want to hold in stock day in and day out. If you can do that, something like my list is going to become less necessary. I have clients who have been using my list for 18 months, but they are not relying on it as their sole means of product sourcing. Many do at first, but then they branch out to find higher volume items they can buy repeatedly.
Ed Brooks told us:
Try buying a few things that are going to sell fast before you spend hundreds or thousands. It really does work as long as you’re willing to put in a bit of time learning the ropes. There’s a real mix of people doing this. You have people like my wife who spends half a day a week on it. At the other extreme there’s a guy in the US who’s turning over $10 million a year. It is very possible to be earning $4,000 to $5,000 a month just using Amazon FBA.
On balance, I think that online arbitrage provides a low-risk way to start selling online. It’s not zero risk – you can certainly lose money, but probably not your shirt. And it’s not zero skill: although it’s easy to get started there is a lot to learn to become a real expert.
So if you have time to spare, and like hunting for online bargains, it could be a great way to earn some extra cash.
Or, if you have big ambitions in the ecommerce business, it could be a great way to learn but it’s probably not the road to your dreams.
(SOURCE)
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