Retail Arbitrage 101 – The ultimate guide for buying retail and reselling on Amazon
I will tell you that how to earn money for online from Retail Arbitrage. Jessica and Cliff make a full time income selling on Amazon and help others do the same.
What is Retail Arbitrage?
Retail arbitrage is where you buy an item from a retail store and sell it to someone else for a higher price. The difference is your profit! And thus you will be able to earn money for online
When we talk about retail arbitrage here at The Selling Family, we’re talking about retail arbitrage for Amazon sellers. Specifically, through the Fulfillment by Amazon (FBA) program.
For this business model, you buy items from retail stores, send them to Amazon, and Amazon ships the items to customers who purchase your items. And you’re in luck because you can get started selling on Amazon with retail arbitrage with a very small initial investment and just a handful of tools.
Can you really make money with retail arbitrage?
Before you invest any time in learning about retail arbitrage, you’re probably wondering if it’s really possible to make money this way. Let’s take a look at the numbers you’ll need to know to run a profitable Amazon arbitrage business.
Amazon selling fees
If you buy a toy for $5 on clearance and sell it to your neighbour for $15, you’ve profited $10. But if you buy that same $5 item and sell it for $15 on Amazon, you’ll end up with closer to $5 profit.
That’s because Amazon deducts fees from the purchase price of the items you sell.
Now before you give up at the thought of being “nickel and dimed” by Amazon, let me briefly remind you of the benefits to you as an Amazon FBA seller:
- Instead of packing and shipping items to each customer, you get to ship in lots of items at once to Amazon at discounted rates
- Amazon pays for prepping, packaging, and shipping the items to your customer
- If your customer has a problem with their order, Amazon handles the customer service
- You can go on vacation and your items keep selling
- You get access to Amazon’s already massive audience of loyal customers and eager buyers
This last one is so important that it’s probably worth the fees alone. If you’re selling a toy on Amazon, you have all of Amazon’s customers searching for the item and stumbling upon your offer. Now if you listed that same toy on your own website JacksNiftyStuff.com, how many people would find it? Probably not that many.
For FBA sellers, it’s even better. Not only are your items available on Amazon, but they are available for Prime customers to buy with free 2-day Prime shipping. Prime customers are paying $119 per year to take advantage of free, fast shipping, so when they’re shopping, they are specifically looking for Prime-eligible offers (like yours when you use FBA!).
So instead of thinking about Amazon “taking” fees from you, remember how much you stand to gain by listing your products on the Amazon platform.
How to start reselling on Amazon with retail arbitrage
The first thing you need to do before you start your retail arbitrage business is to set up an Amazon seller account. You likely already have an Amazon buying account, but you need to go ahead and apply for a selling account as well.
You can sign up for your selling account here. You’ll need to decide if you want to start as an individual seller (free plan) or as a professional seller (paid plan). Don’t worry too much about this choice because you can always upgrade or downgrade your account later.
Once you have a seller account, you’ll also get access to some helpful tools like the FBA Revenue Calculator and the free Amazon Seller app for your phone. You’ll need at least one of those free tools to help you decide which items to buy at the store (more on that later).
You will also need some basic supplies before you make your first FBA shipment, but you do not need to buy any of them before you start exploring retail arbitrage. You can always try out sourcing in stores before you purchase any supplies.
The 3x rule of Amazon arbitrage
To make money selling on Amazon, you need to sell items for a profit. And to know your profit you need to know the following information:
Selling Price – Fees – Your Cost = Profit
You will always know your cost and you should have a good idea of the selling price before you send an item to Amazon. The fees are the biggest variable, but they are usually roughly one-third of the selling price. So if an item sells for $15, the fees will be about $5.
So for that $5 toy you’ve found on clearance, your profit would look something like this:
$15 (selling price) – $5 (Amazon’s fees) – $5 (the price you paid to buy it) = $5 profit
If you put all of the pieces together, you’ll see the beauty of using the “3x Rule” for retail arbitrage sourcing. You want to look for items that are selling on Amazon for 3x the amount you’ll pay in stores. This will help you make quick decisions about which items are worth considering for retail arbitrage.
The 3x rule works best for items selling at the $15-$20 range and higher on Amazon. If an item is selling for $5 FBA, there’s really no way you can make money on it, even if you get it for $1 in the store.
How to tell which items are profitable
“Which products should I sell?” is a great question! This is the part of retail arbitrage that will make or break you as a profitable business. You can’t just send any item to Amazon and expect to sell it for a profit.
You may find a great deal on an item only to find out that Amazon is selling it for an even cheaper price. Or you might spot a cool looking kitchen gadget for $5, but if you can only sell it on Amazon for $7, you’re not going to make any money (remember, it would need to be selling on Amazon for closer to 3x your purchase price).
Fortunately, the free Amazon seller app will show you everything you need to know to make a smart buying decision. There are other scanning apps available too, but you can definitely start with the free one from Amazon.
Our goal with retail arbitrage is to find products that are being sold at enough of a discount that we can still make a profit on Amazon even after Amazon deducts their fees from the selling price.
So once we’re at a store, we simply open up our amazon scanning app, use the phone’s camera to “scan” the barcode on the product, and the Amazon Seller app returns the information to us. The app shows us at a glance how much the item is selling for and what the FBA fees are.
You’ll see that the FBA fees are $5.53, or about one-third of the selling price as we discussed earlier.
Then, to get our profit, we need to subtract the cost of the item itself (what we’re paying for it at the store.) To do that, click on the “Gross Proceeds” to get to a second screen with even more information.
Enter your cost of purchase and the app will calculate your profit.
As an example, this is an item at Walmart that usually sells for $5.69. But I found it on clearance at one store in town for $3.00. At that price, I’m left with a profit of $6.82 if I sell this item on Amazon for $15.59. The app will also show you if you’re going to lose money on an item, so be sure to scan every item before you buy it.
For example, I recently spotted a kids’ lunch kit for $9.99. But when I scanned it with my app, I saw that it is currently selling for $10.49 on Amazon. That means that after shipping and fees, I would lose $4.36. I left this one on the shelf and decided to keep scanning until I could find a profitable item.
To get comfortable with your scanning app, do some practice scans of items in your home. Just look for any items with barcodes such as books, items still in the original box, or clothing with tags on.
The #1 way to know if something will sell on
AmazonOne of my favorite features on eBay was the ability to check the past sales of an item I was considering selling. I could see all of the prices that an item had sold for in the past. With Amazon, we can’t see how often an item sells. But they do give us small clues. One of those clues is the Amazon Best Seller Ranking.
The easiest way to interpret the rankings is to know that the lower the rank the better.
In our Amazon Boot Camp, I give a full ranking guideline based on category. But for now, I can give you an overall ranking guideline of 150,000. If a rank is higher than that, I would skip the item for now (at least until you have gained some personal experience.)
Many sellers don’t know and/or think about the best seller rank when they get started and regret it. Because when you buy based on profit only, you are missing part of the equation and may end up with inventory that sits for a really long time.
What are the best stores for retail arbitrage?We think that beginners can’t go wrong with drug stores like Walgreens, CVS, and Rite Aid. These are our top picks for a few reasons:
- They’re smaller and less intimidating than grocery stores and Walmart
- They have multiple locations so if you find good items at one, you can hit the other nearby locations to try to buy more
- They have great clearance aisles, sometimes with items 75% off or more
Once you feel comfortable with the drug stores, you can venture into other nationwide and regional chains. Here are some retail stores that are popular with Amazon sellers:
- Home Depot
- Best Buy
- Big Lots
- Tuesday Morning
- TJ Maxx
- Trader Joe’s
- Office Depot
In other words, don’t worry about running out of stores anytime soon! And if you don’t recognize all of those store names, that’s because some of them are only in certain parts of the country. I’ll tell you later why that’s a good thing!
Here are a few words of encouragement before you head out on your first sourcing adventure:
- You might feel a little nervous the first time you scan. You’ll get faster as time goes on and you’ll learn that really no one is paying attention to you!
- Don’t give up too soon! Try to set a goal like scanning an entire shelf or aisle and don’t leave until you’ve met your goal. You never know when you’ll scan a winner!
- Don’t overthink it! Some sellers make assumptions about which items are worth scanning. As a beginner, all items are worth scanning! So stop trying to guess what sells well on Amazon and let your Amazon scanning app do the work for you!
- Don’t be afraid to buy. It’s easy to get stuck in “analysis paralysis” trying to make the absolutely perfect buy. You’ll probably make a bad decision on some of your items as a beginner (we all do!). It’s ok if you sell some of your items at a loss as long as the majority of your items are profitable.
Wait. Why would someone buy on Amazon if it’s cheaper at the store?I know what you’re thinking. With all those great deals in your local drug stores and supermarkets, why would someone pay three times more to buy from Amazon?
There are many reasons why people love to shop on Amazon, but here are three common ones.
1. CONVENIENCE Let’s face it, most people don’t have lots of extra free time to drive around and run errands. And for most people, the thought of getting in the car, sitting in traffic, driving to Target, finding a parking spot, shopping, waiting in line, and driving back home isn’t too exciting. Especially in the hectic holiday shopping season!
Plenty of shoppers are willing to pay more for the convenience of having their items delivered right to their door. And with more and more cities eligible for free same-day Prime shipping, there’s even more incentive to shop online.
2. DIFFERENT TYPES OF BUYERS Maybe you’re a natural bargain shopper. You might even enjoy the thrill of scoring a good deal (I find that many people drawn to retail arbitrage are!).
Well, not everyone shops around for the best price. Many people are happy to head to their favorite store and buy their favorite brands, no matter the price.
Plus, when some people see the selling price on Amazon, they just think that that’s the price everywhere. They don’t know (or need to know) that you happened to find the item on clearance.
3. PRODUCT AVAILABILITY
Not everyone has access to the same products. Even in big chains like Walmart, some store locations will run out of stock of popular items faster. As the items get harder to find, the price goes up.
Manufacturers will also discontinue items from time to time, meaning that loyal buyers are eager to stock up at any cost.
Is retail arbitrage legal?
Retail arbitrage is perfectly legal. I’ve been doing this for 10 years and I definitely wouldn’t teach it to others if it weren’t legal.
I remind people that all profitable inventory-based businesses are based on buying items at a low price and selling them to consumers at a higher price for profit.
It is just as legal as a wholesale or private label business model on Amazon and it has the added benefit of requiring less money to get started sourcing.
Ready to start your retail arbitrage business on Amazon?
If you’ve read through this article, you already have all the basic information you need to start your Amazon retail arbitrage business TODAY. With a smartphone and a free app, you can head to a store and find your first purchase. In fact, I encourage you to do just that! So, you must know how to earn money for online with Retail Arbitrage