05/08/2022
Diving into Online Arbitrage Chapter 1
Chapter 1: What is online arbitrage and how to start it?
What is arbitrage?
Arbitrage means that the same product of the exact same quality is sold on two different platforms at a different price. In this, the market is not in equilibrium which gives investors an opportunity to earn the spread the market is providing.
How to start?
1) You can start online arbitrage with a very minimal budget but the best is to at least start from $2000. Invest 70% of it and keep 30% as a reserve for purchasing more inventory. Do not invest 100% of your budget because in the end you won't be having any cash in hand for purchasing and all will be with amazon.
2) You can start with an individual account as well unlike Wholesale where the company is a must. This is because we don't take brand approvals and don't purchase inventory from wholesalers.
What should be done?
Daily hunting should be done for more and more profitability just like drop shipping.
Per product, margin can be high or low but accumulated profit from a single product will be low as we only order 8-15 units of a single product. So for overcoming this issue, you daily need to hunt and launch more products.
Why online arbitrage is better than drop shipping?
We purchase our own inventory and ship that to the amazon warehouse for fba. We don't do fbm in this. Secondly, there won't be any packaging as we deliver our inventory to the prep centre where packaging is changed by the agents. So no issue with packaging. This eliminates the chances of negative reviews (due to packaging complaints) and reduces the chances of Account suspension.
The next step?
If you think, a product is generating a good amount of money for you and you think that this product can be a good fit for Wholesale, then go ahead and take brand approvals for it and convert that product into a Wholesale model. This further improves your position as this totally eliminates any chances of IP and invoice issues. Also, you will get more of the BB as you will have more inventory (one of the factors of BB rotation).
Tips:
1) Always go for ungated categories at the start and slowly ungate the gated categories and launch those products as well.
2) Whenever you find a source, directly purchase the product and don't wait. Mostly, the retailers offering the lowest price goes OOS.
The next chapter will cover the topic of product hunting and sourcing. Stay tuned!