Arbitrage
In this post we are going to cover the basics of Arbitrage and how you can start earning an income from it.
The Basics of Arbitrage
Arbitrage by definition is the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.
In essence, it is the buying of products to resell at a higher to make a profit.
The two types of Arbitrage – Retail and Online.
Retail arbitrage
Essentially, retail arbitrage is when you would do the “footwork” of arbitrage. You would go to a supplier or store, buy the products in person, and resell them either online or in person.
This can be done by heading to a local shopping store such as Walmart, Dollar Tree, or others we discuss further in this post.
After you’ve purchased the products, you will create a listing online and essentially wait for it to sell.
Online Arbitrage
Essentially, online arbitrage is the same thing as retail arbitrage, with the exception of buying and selling the products online instead.
Buying online has its perks too, such as not having to do any footwork and being able to earn an income from home.
Moreover, buying online can save you money.
A lot of times there are other discounts, such as cashback or coupons for online purchases.
For example, you can save money or get cash back with the Rakuten, BeFrugal, and Honey browser extensions on many online stores.
Those that have savings will be listed below under the US suppliers.
Now that you have a brief understanding of what arbitrage is, let’s dive a little deeper.
First, we will discuss the best stores/websites to purchase from.
Second, how to know what kind of profit margin you’ll get from the products.
And third, how to actually sell the products
Extra tips: Check the odd places. Specifically, if the store has a clearance section or an “as seen on TV” section, for example, don’t overlook them. These are sure to have some gems, as well as things others aren’t selling.
Additionally, coupons can work wonders, especially at Walgreens considering they let you double up on them!
Keep your receipts. For tax purposes, and the occasional yet possible check-up on your sales, you’re going to want to have these.
An app like Turboscan is great for this, however, you can just take a picture with your phone. Just remember to stay organized so you can easily find them when you need to.
Now, let’s move on to the best places to purchase your products.
In essence, the best places to purchase your products are going to be from US stores or suppliers.
8 Benefits of using US suppliers
- Faster shipping
- Reliable tracking info
- Multiple shipping options
- Higher inventory
- Higher quality products
- Is preferred by your customers
- Better customer support
- Branding isn’t necessary
Although you can get products remarkably cheaper from overseas, this can add a lot of extra hassle when first starting your arbitrage journey.
Communicating, shipping costs, and shipping times are just a few of the issues you can run into when using a company overseas.
If you’re ambitious and really want to tackle this, it is possible of course. However, if it’s something you haven’t done before it may get overwhelming.
Dropshipping, however, is going to be when you will most likely work with overseas suppliers (because you’ll rarely need to communicate with them directly.)
If you want more information on dropshipping, you can get the full concept here.
With arbitrage, it’s much easier to get the products, send them to where they need to go, and collect a profit.
That is why starting with a US supplier may be your best bet, apart from other benefits.
The following list is going to give you our top recommended places to buy products for arbitrage. They have a wide selection of products and great pricing, which will increase your profit margins.
10 Best US places to purchase your products for arbitrage.
- Walmart (6% cashback with Rakuten, 9.8% with BeFrugal, up to 2% with Honey browser extensions)
- Costco ($10 cashback with Rakuten browser extension)
- Home Depot (up to 3% cashback with Honey, up to 8% with BeFrugal browser extensions)
- Dollar Tree (6% cashback with BeFrugal browser extension)
- Dollar General (2% cashback with Rakuten, up to 5% with Honey, 2% with BeFrugal browser extensions)
- Marshalls (free shipping with registration, Avg 4% cashback with Honey browser extension)
- Best buy (1% cashback in certain categories with the Rakuten, 1.5% with BeFrugal browser extensions)
- Walgreens (up to 3% cashback with the Rakuten, avg 22% with Honey, up to 5% with BeFrugal, 6% cashback with Bing rebates browser extensions)
- TJ Maxx (free shipping with registration, avg 4% cashback with Honey browser extension)
- Target (1% cashback in certain categories with Rakuten, up to 11% with Honey browser extensions)
Although the following stores are the recommended choices to buy products, there are some other sites to mention.
Buying in bulk or from wholesalers
If you can find a great wholesaler, buying items in bulk that are going to be profitable could help save you time, work, and more importantly, money.
The best way to do it this way is to first find a product (or several) that you want to sell.
These products should have at least a 30% profit margin to be able to cover your selling fees and still make a profit.
Second, contact the supplier or manufacturer directly. Doing this will likely help with costs, ease of purchases, and your overall profit margin.
For example, let’s say you found a great product in the clearance section at one of the stores. (The profit margin is there, the demand is there, and it’s going to have low shipping costs.)
If the product is in the clearance section, then typically, that store isn’t going to be getting any more of those products in.
This can really work in your favor since many other sellers are not going to be selling this product. At least, not for long that is. And also, they won’t be going through the extra step of contacting the manufacturer/supplier.
That is why this is such a recommended tip of doing arbitrage. After all, the less competition for you, the better.
When reaching out to a supplier there is a couple of things you’ll want to do.
Communicating with suppliers
When it comes to communicating with suppliers, there are a few things to keep in mind, and a few tricks to help you accomplish what you wish to.
Below are some common things to be aware of and help you with communicating with these suppliers.
Introduce yourself with positivity and professionalism.
Most of the time when customer service representatives get phone calls, they’re not good calls.
They’re calls with complaints or unsatisfied customers.
Presenting yourself (vocally) in a pleasing way can bring a little light to their stressful day.
This, in turn, can increase the chances of them fully listening, understanding, and wanting to help.
Be transparent.
Suppliers can get a lot of phone calls throughout the day.
You want to be as direct and detailed as possible with your inquiry, while still remaining friendly.
Let them know what you are aiming to accomplish with your conversation.
Aim to bond.
Building a partnership with the brand/supplier/manufacturer can typically help you in multiple ways.
Getting better prices, ease of purchase, and acquiring business ethics, are a few examples.
Letting the supplier know you are going to be a repeat customer (especially if your product is selling like hot cakes) will in turn, help to form a partnership between the two of you.
Know your top price
Have an idea in mind of what you’re willing to pay for the number of products you’ll be buying. This will make so it easier to negotiate once you’re on the phone with them.
Another reason to speak with a brand directly is that it will make replenishing your inventory easier down the road.
While we are on the topic of buying in bulk, there is also the option of buying from wholesalers.
Though there are many wholesale sites out there, not a lot of them actually have great prices.
In fact, if you do some research, you’ll realize that most of the “wholesale prices” aren’t very “wholesale-priced”.
This is quite unfortunate, however, there are a few that may be worth checking into.
Wholesale sites for arbitrage.
Bulq.com
BulQ isn’t necessarily a wholesale website, but it may be somewhere to find some gems. This site is a place people can sell boxes of products for whatever price they set. Some of the boxes will be all the same product, whereas others will be random products basically thrown into a box. It might take some digging to find products that will be worth it, however it’s definitely worth checking into.
Inventory Source
Inventory Source is another one that may be worth your while. This site gives you access to tons of wholesalers that you can buy from or reach out to. Again, it might take some digging to find a good one, but once you do it could be a great find.
Salehoo
Salehoo is not a wholesaler, but instead, a directory for wholesale suppliers. In addition to that, they offer education about drop shipping, finding niche items to sell, and helpful information about importing. They are more of a useful tool for dropshipping, which we cover in more detail on our dropshipping post.
There are other wholesalers out there that are great for clothing and accessories. If this is something that interests you, here are a few to check into.
Wholesalers for clothing or accessories for Arbitrage
Sanmar
Tasha Apparel (offers dropshipping)
CC Wholesale Clothing
Simplee Apparel (offers dropshipping)
Bulk Shirts Warehouse
Bloom Wholesale (offers dropshipping)
You’ll notice next to some of these that they offer dropshipping. This basically means that the company is familiar or already integrates their stores with sellers that do dropshipping.
Now that you’ve gotten a grasp on where you can buy the products for your arbitrage journey, you’re probably wondering what products you should sell.
How to pick winning and profitable products
Now, there are some sellers that will sell products without doing any research at all.
Sometimes you get lucky, and the products just naturally sell.
However, they may not take into consideration their profit margins, shipping costs, or do any research.
If you want to be successful quickly and continue to be, these are things you should pay attention to, among other things.
6 Factors to Picking your first product for Arbitrage
- It’s inexpensive to ship
- You can order a lot at once
- The demand is high
- There isn’t a ton of competition
- It doesn’t weigh a lot
- It’s small
When it comes to Arbitrage, Amazon is obviously going to be your biggest competitor. That’s why it’s best to sell a product Amazon is not already selling.
You will know if Amazon is selling the product because underneath the item it will show if Amazon is a seller.
Or, if you’re using a keyword research tool it will show you in the seller’s section.
You may make some sales with your product if Amazon is also selling it, but not nearly as many as you would if they weren’t.
This brings us to our next point.
Where to sell your products.
There are a number of places you can sell your arbitrage products.
However, only a few make the most sense.
If you are selling products that you already own, or that aren’t brand new, Ebay is a good place to start.
Another option for products such as these is OfferUp, which has greatly increased in popularity.
However, the most popular way of selling new products is selling with Amazon.
7 reasons to use Amazon for Arbitrage
- When it comes to online sales, Amazon holds 50% of them, that is a massive amount when you consider every other site on the internet you can purchase from.
- It is unstoppable, and it’s only going up from here. In 2016 Amazon had a revenue of 136 Billion. 3 years later, in 2019, their revenue was over 280 Billion, and in July of 2021, over 450 Billion.
- Amazon has a catalog of 12 million products across all categories and services. Whatever you want to sell, you’ll be able to sell.
- Currently, the retailer ships products to more than 100 countries outside the United States, meaning you’ll be able to sell to these countries as well.
- In a conducted study by Feedvisor in 2019, they found that 89% of U.S. consumers are more likely to buy a product from Amazon than other online stores.
- When it comes to searching for products, 1 in 2 people start with Amazon as opposed to Google or any other search engine.
- It’s very seller friendly. Amazon provides step by step tools on how to become a seller and makes it extremely easy to do so.
Your only job is picking the right product, shipping it to Amazon, and replenishing your inventory when it gets low. They take care of everything else (shipping, returns, storage, reviews, customer service, etc.)
Step by Step Guide to Selling on Amazon
Determining your Arbitrage profit margin
When it comes to Arbitrage, one of the most important factors is determining your profit margins on your sales.
The easiest way to do this is to search for the product online and see what it’s selling for.
Aim for a profit margin of at least 30%.
If you want a more in depth way of how to find a great product to sell or what niche is trending, check out the keyword research section within the site.
Of course, once you start increasing your revenue from your arbitrage business, you will have more leverage for a better product.
Other opportunities with Amazon
If sending in products to sell doesn’t sound like your thing, there’s always the option of becoming an Amazon Associate instead.
Associates are basically marketers for Amazon.
They promote Amazon products, and earning small commissions on the sales.
The general term used for this process “Affiliate Marketing.”
See the commission rates for Amazon Associates below
Using the right system and the right promotions could potentially earn a decent income.
Compared to other programs, Amazons commission payouts can be considered low.
However, there are tons of companies out there that offer affiliate marketing for their companies/products.
To get a good understanding of affiliate marketing and some great companies to market for, check out Affiliate Marketing for Beginners.
After reading this post you should have a general understanding of the concept of Arbitrage and how to do it.
Your next step is to just begin. Start creating your multiple streams of income so you can become yet another millionaire in the 21st century.
With access to basically everything, anyone really can do anything they set their mind to. Hopefully in the end, you can now say that you understand how to become a successful arbitrager.
So read that book, take that course, do that research, and reach your fullest potential.
Finally, and most importantly,
Believe in yourself.