Amazon Arbitrage: Finding and Reselling Products – How the Business Model Works

Selling commercial goods and private label products on Amazon or engaging in dropshipping is something most people can envision. However, a fourth business model that far fewer sellers actively pursue is Amazon Arbitrage, also known as online arbitrage or retail arbitrage.

Arbitrage could be a manageable yet rewarding approach for Amazon beginners to gain valuable experience with selling on Amazon without immediately exposing themselves to significant financial or legal risks. Therefore, in this article, we want to clarify what is meant by arbitrage in e-commerce, how the model works, and whether it can be operated legally at all.

What is Amazon Arbitrage?

The term “arbitrage” originally comes from finance and refers to the exploitation of price differences of the same asset in different markets to achieve risk-free profits. For example, a trader can buy an asset on one market at a lower price and simultaneously sell it on another market at a higher price. The word itself is derived from the French “arbitre,” which means “referee.”

Similarly, retail arbitrage or online arbitrage in retail and e-commerce refers to the practice of exploiting the price difference between two or more markets to generate profit. In this process, sellers purchase a product at a lower price and then resell it at a higher price on another platform.

Example: A tent from a popular manufacturer is offered at a discounted price of 499 euros on eBay. However, the same model is being sold for 575 euros on Amazon. Buying it on eBay and selling it on Amazon would yield a profit of 76 euros due to the price difference between the two markets.

Advantages and Disadvantages of Arbitrage

Like any business model, retail or online arbitrage on Amazon has its advantages, but it also has its share of downsides.

Pros

Cons

In particular, gray market suppliers and unofficial distribution channels put arbitrage sellers on Amazon in a dilemma. On one hand, branded products can be obtained cheaply there. On the other hand, there is the risk that the product or even the entire selling account could be suspended by Amazon.

Contrary to what is often claimed, products traded in this manner are not illegal. The gray market differs from the black market in that the goods sold are legal but enter the market through unauthorized channels.

Typical characteristics of gray market suppliers (and some of the reasons why Amazon does not like these products on its platform) include:

Therefore, sellers should always carefully consider whether they want to buy from the gray market and, if necessary, check the Amazon Brand Registry.

Differences from Other Business Models on Amazon

What distinguishes retail arbitrage from other Amazon business models? Essentially, there are three other business concepts: commercial goods, private label, and dropshipping.

Commercial Goods (Wholesale)

Commercial goods, or wholesale, are authorized brand products purchased in large quantities directly from the manufacturer or a wholesaler. The items are then resold to the end customer at a markup. Since large quantities are purchased, this entails a significant initial investment as well as a certain financial risk if the goods do not sell as expected. Pricing is usually calculated based on a constant price advantage from bulk purchases and is supported by repricing strategies.

The risk in wholesale is still moderate, as sellers typically purchase products with stable demand and good availability. Warranty and return rights are usually clearly defined, as they work with official suppliers.

Private Label

Private label, which means store brand, refers to products that are manufactured for the respective seller so that they can sell them under their own brand name. It is possible to either purchase a pre-made product, possibly customize it, and brand it with one’s own logo, or to design and have an entirely new product produced. Thus, the seller has complete control over the product, design, brand, packaging, marketing, and distribution.

Private label sellers have more freedom in pricing, as they source the product directly from the manufacturer and can charge higher prices once the brand is established. This requires a corresponding long-term strategy, which is hardly possible with arbitrage. However, the risk is significantly higher, as the investments, organizational effort, and legal hurdles are substantial.

Dropshipping

Dropshippers are intermediaries who purchase or even manufacture a product only when an order is received. Typically, the supplier or manufacturer then ships the goods directly to the end customer. Sellers make a profit in dropshipping by the difference between the purchase price and the selling price.

Dropshippers therefore do not have their own inventory and rely on the product quality and shipping speed of their supplier. At the same time, they also have no product costs and do not need to purchase goods in advance.

The differences between the various business models can be significant. It is important to emphasize that hardly any professional Amazon seller follows just one strategy. Typically, marketplace sellers deal with both commercial goods and private label products. Amazon dropshipping and arbitrage, on the other hand, are not as widespread but can provide an opportunity for beginners to gain experience.

Amazon Arbitrage for Beginners: Here’s How It Works

Every beginning is difficult. But for those who want to enter the Amazon game, the arbitrage model can be a relatively easy way to start. Below, we provide an overview of the most important steps.

In this blog post, we can only provide a brief overview of the necessary steps. Read our detailed article on selling on Amazon for more information.

Amazon (Retail) Arbitrage: Product Sourcing – But How and Where?

Product search and selection is the core competency of every arbitrage seller. However, no master has fallen from the sky. Be prepared to make a lot of mistakes at the beginning of your self-employment – from which you will learn. This also applies to product selection. To make it a bit easier for you to get started, we have compiled some tips on where to look for good products.

Online Marketplaces and Shops

First, the obvious. You can find numerous platforms online to conveniently discover new product ideas. Contrary to popular belief, Amazon is not always the cheapest marketplace, which creates good conditions especially for the arbitrage model. These platforms can often compete with the e-commerce giant in terms of pricing as well:

Retail

You can also find worthwhile bargains in physical stores from time to time, but of course, the selection is smaller here. Therefore, sellers should particularly focus on the following types of stores:

Specialty Stores

Tip: Price comparison sites like Idealo or Google Shopping help you find the lowest prices and identify price differences.

Amazon Arbitrage: Software and Tools

Every Amazon seller, whether engaged in arbitrage or not, must deal with the topic of tools. In the initial phase, this business may manage without external software, but as it becomes more professional, there are simply too many tasks to operate profitably without helpful tools. We present the most important tools in the area of Amazon (Retail) Arbitrage software.

Tactical Arbitrage

This is a sourcing software specialized in arbitrage that scans stores and websites and automatically compares product prices with those on Amazon. If a store is not yet included, it can be added. Additionally, Tactical Arbitrage covers what are known as replenishables (deals that do not arise from special offers and are therefore regularly available). Sellers can reorder these replenishables repeatedly, thereby creating a sort of baseline income.

However, Tactical Arbitrage is not exactly self-explanatory. Therefore, beginners should first learn the basics of sourcing in order to be able to use this software effectively.

Business Analytics

SELLERLOGIC Business Analytics is a professional profit dashboard tailored to the needs of Amazon sellers. Sellers can monitor their business metrics in real-time and gain a comprehensive overview of their business performance – at a global level as well as at the account, marketplace, and product levels.

Business Analytics takes a data-driven approach to provide a deep, realistic picture of all business outcomes, allowing for informed analyses to be conducted. Sellers can reliably identify their bestsellers as well as the profit killers that diminish the profitability of their business. This precise overview of all revenues and expenses, including all Amazon fees, serves as the basis for all important strategic adjustments.

Refund Management of FBA Errors

Most Amazon sellers eventually use FBA. And Amazon FBA arbitrage is not uncommon either. Shipping through Amazon can be a real help in logistics and fulfillment. However, no program is perfect. Thus, Amazon also makes mistakes from time to time (e.g., items damaged in the warehouse), for which the seller is entitled to compensation – after all, their property, the goods, has been damaged.

The catch: This does not happen automatically. The seller is responsible for identifying such FBA errors and submitting a refund request. It’s a tedious task that consumes too much time to be economically viable. Fortunately, there are services available that completely automate this work.

With SELLERLOGIC Lost & Found, sellers do not have to conduct their own analysis of FBA errors. Lost & Found independently handles every step towards a successful FBA refund. The AI-powered system ensures smooth processes and maximum refunds. It monitors all FBA transactions 24/7 and automatically detects errors – up to 18 months retroactively. It promptly enforces any resulting claims, allowing the seller to receive the maximum refund amount from FBA errors.

Conclusion

Amazon (Retail) Arbitrage offers beginners in selling on Amazon an attractive opportunity to gain initial experience without having to make high upfront investments. The business model exploits price differences between various sales platforms to generate profits, which can be quite rewarding when applied correctly.

However, the advantages such as low entry barriers, flexible working hours, and low inventory costs are countered by challenges. Time-consuming product research, difficult scalability, and potential legal risks, especially when using gray market suppliers, must be taken into account.

For newcomers, Amazon arbitrage still offers an interesting opportunity to experiment in e-commerce before considering more complex business models like private label or commercial goods/wholesale.

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