Online arbitrage involves leveraging price discrepancies you find online to purchase products cheaply from one vendor then resell at a higher price for profit. While more complex than just buying and selling directly, properly executed online arbitrage can deliver huge ROI.
This comprehensive guide covers everything you need to know about making money through online arbitrage, including:
- What is online arbitrage and how it works
- Tools for identifying price differentials
- Where to source underpriced inventory
- Calculating your profit potential
- Setting up systems to scale sourcing
- Filtering for the best products to resell
- Optimizing listings and marketing
- Managing multi-channel inventory
- Fulfilling orders efficiently
- Customer service and reputation management
- Top online arbitrage niches and verticals
- Transitioning from retail arbitrage to online
- Mistakes and pitfalls to avoid
Let’s dive into how to build a lucrative ecommerce business around online product arbitrage!
Table of Contents
What is Online Arbitrage?
Online arbitrage involves purchasing products from clearance sales, liquidations, overstocks, and other online discounts, then reselling those same acquired products on sites like Amazon or eBay for higher prices.
The key is exploiting pricing discrepancies you discover between:
- Vendor or distributor discounts vs marketplace prices
- Retail prices vs secondary market values
- Clearance vs MSRP or used prices
Online arbitrage lets you profit from temporary retail inefficiencies with a pure buy low, sell high approach.
How Online Arbitrage Works
A basic online arbitrage transaction works like:
- You source an appealing product available at a temporary discount or clearance price from an online merchant.
- You purchase quantities of that discounted product for a total cost of $X.
- You then create listings to resell the product on other platforms like Amazon, eBay, or Shopify for Y price.
- When your resale listings sell to customers at the higher Y price, you earn $Y – $X in profit on each item after costs.
- By scaling this process, sizable profits can be achieved.
Online arbitrage profits work by exploiting irregularities between sources able to sell products cheaply and markets willing to pay higher prices.
Tools for Identifying Online Arbitrage Opportunities
Specialized tools help surface lucrative product price differentials:
Keepa – Tracks historical Amazon price data to identify low points
CamelCamelCamel – Finds Amazon pricing dips over time
**BrickSeek **- Reveals discounted Walmart clearance inventory
The Sales Whale – Aggregates seller data on sales volumes, competition, and trends
ZikAnalytics – Tracks online seller prices across marketplaces
Google Shopping – Compares pricing across vendors for the same items
PricePulse – Data on marketplace price histories and trends over time
eBay Pulse – eBay completed listings and pricing insights
Software automation spotlights optimal buy and sell price spreads for profitability.
Where to Source Underpriced Inventory
Check these sites for deals ripe for arbitrage:
- Amazon – Temporary lightning deals and warehouse discounts
- Walmart – BrickSeek reveals clearance markdowns by location
- Home Depot – Special Buy of the Day and holiday sales
- Lowe’s – Deep holiday and seasonal clearances
- Wayfair – Sitewide sales with escalating discounts
- Overstock – Closeout and liquidation deals
- Brand Closeouts – Buy branded excess stock at huge discounts
- eVite – Business and industrial liquidations
- Ratex – Wholesaler special buys and customer returns
Uncover imperfect pricing driven by overstocks, model changes, customer returns and closeout pressures.
Calculating Your Online Arbitrage Profit Potential
To assess potential ROI for an online arbitrage opportunity:
1) Lookup product’s current resale value range
- Check Used and New prices on Amazon, eBay, other platforms
2) Find best available purchase price
- Include any taxes and shipping costs from vendor
3) Subtract your total acquisition costs from the resale price
- This gives your profit margin per unit
4) Factor in other costs
- Account for selling fees, payment processing, shipping, returns
5) Estimate total ROI
- Project order sizes, sellthrough rate, minus costs
These quick calculations confirm viable products with strong profit upside.
Building Efficient Systems to Scale Online Arbitrage
With manual approaches, identifying and purchasing sufficient online arbitrage volume quickly enough before deals disappear is challenging. Leverage systems that enable scaling:
- Automatic deal alerts – Use tools like DealCatcher to get immediate notifications when price drops or inventory comes back in stock.
- Wish lists – Create organized wishlists by vendor or product type to enable one click bulk purchasing.
- Repricing bots – Automatically reprice your listings competitively based on algorithms and competition.
- Multi-channel listing – Integrations like Linnworks enable managing your product catalog and inventory across multiple resale platforms.
- Dropshipping – For marketplaces like eBay, use dropshippers so you don’t need to hold or forward inventory.
Work smarter, not harder. Automate and streamline to scale profits.
Filtering for the Best Products to Resell Through Online Arbitrage
Not all discounted products make good arbitrage items. Vet products using these criteria:
Profit margins – After all costs, is there sizable spread between buy and sell prices?
Sell-through rate – Historical data tools estimate how quickly you can flip the item in your market.
Weight and dimensions – Larger, heavier items cost more to store and ship.
Competition – If many sellers, pricing pressure cuts into margins.
Demand ceiling – Niche hobby items have lower volume versus mass appeal.
Multichannel potential – Can it sell successfully across multiple platforms?
Seasonality – Trendy or holiday-specific items move in short bursts.
Shelf life – When will item become obsolete and need liquidating?
Analyze each deal critically – profitable arbitrage depends on high turnover of inventory.
Best Practices for Listing Products From Online Arbitrage
Well-optimized listings convert browsers into buyers. Best practices include:
- Engaging titles – Share key features and benefits prominent at the front.
- Elaborate details – Provide all relevant technical, size, material specs to set proper expectations.
- Showcase item condition – Note any wear, defects, missing accessories clearly to reduce returns.
- Flattering photography – Clean product against white backdrops, multiple angles, include any packaging.
- Maximize visibility – Research and integrate relevant search keywords throughout listings.
- Highlight value – Emphasize quality compared to used prices for items discounted due to packaging flaws etc.
- Leverage analytics – A/B test listing elements and pricing to increase conversions.
Compelling listings that build trust will turn your sourced inventory into sales revenue.
Fulfillment and Shipping for Online Arbitrage
You can handle fulfillment yourself or leverage third parties:
Fulfilled by Amazon (FBA)
- Excellent for arbitraging products resold on Amazon
- FBA handles warehouse storage, packaging, shipping
- Makes items Prime eligible
Fulfilled by Merchant (FBM)
- You store at home and ship purchases directly
- Adds work but higher profit margins
Third Party Fulfillment
- Services handle warehousing, shipping, customer service
- More hands off but additional fulfillment costs
Weigh convenience against maximizing profits when selecting fulfillment methods.
Customer Service and Reputation Management
Providing excellent customer service strengthens your online arbitrage business:
- Reply promptly – Answer all questions and issues same day whenever possible.
- Resolve issues – Refund or replace items if the buyer is dissatisfied. Avoid negative reviews.
- Thank customers – Follow up with appreciated notes when someone leaves you positive feedback.
- Encourage reviews – Kindly request they leave ratings on platforms like Amazon to build social proof.
- Improve over time – Let negative feedback guide you towards better packaging, photos, item descriptions, shipping care etc.
The goodwill generated provides a loyal customer base that returns again and again.
Top Online Arbitrage Niches and Verticals
While almost any product category works, these niches especially shine for online arbitrage:
Toys – Seasonal demand around gift giving and clearance sales create opportunity. Products like Legos hold value.
Collectibles – Rare, vintage and limited edition items build in value over time like trading cards and watches.
Books – Mass printings offer oversupply, while some titles remain in perpetual demand. Can sell used.
Electronics – New models quickly make the previous generation discounted to clear inventory. Accessories are easy to resell.
Home & Kitchen – Inexpensive shippable staples like kitchen gadgets can become cheap wholesale 5-packs.
Clothing & Shoes – Oversupply in fast fashion creates ample closeout deals. Leverage brand names.
Look in categories with frequent new product releases, supply/demand imbalances, high turnover and wide margin ranges.
Transitioning from Retail Arbitrage to Online
If doing retail arbitrage, use these tips to shift sourcing online:
- Search for the same brands, items you buy at discount in-store online at closeout sites.
- Look on business liquidation sites like eVite for major retailers excess stock and customer returns.
- Check clearance sections of online stores routinely for discounted items.
- Enable alerts for price drops and items coming back in stock.
- Revisit deal websites daily, even multiple times per day as inventory shifts.
- Buy larger quantities when discounts available to scale rather than one-offs.
- Set up automated purchasing and listing workflows to save time.
Online sourcing can provide far larger consistent volume than local brick and mortar arbitrage.
Mistakes to Avoid When Starting Online Arbitrage
Steer clear of these missteps as a beginner:
- Getting banned from retailers by overly aggressive couponing or price matching policies
- Assuming you can automatically relist used items for the same as new
- Not checking Amazon category approval requirements before purchasing restricted items
- Paying excessive shipping costs eating into margins due to suboptimal logistics
- Letting packages pile up without listing products promptly
- Buying from untrusted sellers and receiving counterfeit inventory
- Overpaying sales tax on purchases not requiring it
- Forgetting to account for your additional selling fees deducted from profits
- Attempting too much volume manually instead of leveraging automation
Learn and adjust to avoid headaches. Patience and persistence overcome initial hurdles.
While requiring more operational steps than simply buying and selling directly, online arbitrage offers the potential for rapid scaling of profits by exploiting marketplace pricing inefficiencies intelligently.
Success hinges on thoroughly vetting opportunities, establishing efficient sourcing systems, optimizing listings for sales velocity, and providing excellent customer service to cultivate a loyal following.
Amazon and eBay provide built-in audiences of buyers willing to pay above common retail prices for items temporarily available below cost.
With the right automation, intuition, and hustle, online arbitrage lets you repeatedly convert those buy low opportunities into sell high outcomes at scale.
FAQ About Making Money Through Online Arbitrage
Is online arbitrage legal?
Online arbitrage is completely legal as you are purchasing products legitimately then reselling them. You just take advantage of temporary discount pricing. It only becomes problematic if you violate supplier terms by dropshipping their products.
Is online arbitrage still profitable?
The online arbitrage business model remains highly profitable in 2022. While more competitive, automation and economies of scale allow efficiently identifying and capitalizing on pricing spreads. Categories like books, toys, liquidations, clothing, watches, trading cards, and collectibles still offer strong margins.
How much does it cost to start online arbitrage?
You can start online arbitrage for less than $1,000. Shop used books or buy discounted products in categories you know for resale. Invest gradually in automation tools. Costs scale with your inventory. Expect to put in time before significant profits.
Does online arbitrage require a lot of capital?
More capital allows purchasing more volume to scale profits faster. But you can bootstrap starting small, reinvesting returns. Just focus on high margin items needing low upfront cost. Don’t overextend early. Grow as sustainable.
What sells best for online arbitrage?
Brand name items, toys, niche hobby collectibles, exclusive clothing, limited edition sneakers and watches, jewelry, books, video games and consoles, electronics, kitchen gadgets sell well consistently through arbitrage. Almost any category can work with the right deals.
Hopefully these tips help you maximize success with online product arbitrage. Let me know if you have any other questions!