Online Arbitrage 101: Theory and Sourcing
Buy on Walmart, Sell on Amazon. Yes, it's that easy.
Q4 is wrapping up, and while my toy sales weren’t the home run I thought they’d be I still got solid returns and was able to sell most of my things at a profit. With January around the corner and some of my books starting to sell already, I’ve taken a break from sourcing textbooks. You could potentially still FBA books before the end of the year, but I’m not a big fan of cutting deadlines close. One thing that I decided a few weeks ago is that I definitely want to hit 100k in sales next year, and one approach I’m taking to reach that number is by expanding into other categories on Amazon. While I’m not done with flipping books and I will continue to write posts about book flipping as I see fit, the type of books that I’m good at sourcing (textbooks) spike in sales a couple times a year but are otherwise difficult to get rid of on a consistent basis. Therefore, I’ve shifted my focus for the time being into items that sell quickly at lower margins and I’ll share some of my methods with you into this post.
What is Online Arbitrage?
Online Arbitrage (commonly referred to as OA) is the process of buying things from online retailers, and then reselling them on another marketplace where they fetch for a higher price (e.g Walmart —> Amazon). While it might sound ridiculous that simple household items are selling for double, sometimes triple the price on Amazon, I assure you that people are buying these products and it is possible for you to get in on the action.
Some problems a lot of people have with starting eCommerce businesses is that they can’t come up with a good idea for a niche, or they aren’t experienced in creating ads / writing copy. The reason I love OA and why it’s beginner friendly is because there’s no guesswork involved - you don’t need to promote your products because they’re items that people already want, and are already buying.
My main focus with OA right now is replenishable items, more commonly known as replens. A replen is an item that you can purchase over and over, knowing it will sell because it’s an item people always need. Some really basic examples of replens include toothpaste, makeup, medicine, and grocery items. The purpose of replens is to create consistent cashflow in your business, even if it means you’re only making 25-30% ROI on these items. If you know that an item sells 300 units a month and there’s 10 sellers on the listing, you can reasonably infer that you can sell 30 units a month and make a consistent amount from that product.
What a Winning Product Looks Like
Let me show you an example of a product that I would consider a good replen. Take a look:
Looking at the Keepa chart (look at my previous posts if you haven’t seen Keepa before), it looks like this product is consistently in the mid 5 digit range for sales rank in the Grocery category which means it’s selling at least 75-150 units monthly (use the JS Sales Estimator to get an idea of how good sales rank is for a certain category.)
In this example, you can sell two of these tea bag boxes in a bundle for $15.75 when each one only costs $2.98. While the images don’t look the same, if you pay attention you can see that they are the same product since they have the same quantity and dimensions (also in the Walmart page the box says “new look”). Here’s what you get when plugging those numbers into the FBA Profit Calculator:
So for every $5.96 you spend, you earn $2.16 back which comes out to around 36% ROI. While this isn’t life changing money, the great thing about grocery items is that they sell a lot quicker than books so you can scale this model very quickly. To quote flips4miles, “Turning $10 into $14 doesn’t sound very impressive until you do it a thousand times”.
How to Source Profitable Items
While there are a lot of different ways you can go about sourcing profitable products, the most beginner / cost friendly one that I’ll go going over in this post is called storefront scraping. If you’ve read my other posts you’re probably familiar with this tactic, but it works a little bit differently for books so I’ll explain it again here. This is a left curve approach to finding products because instead of trying to find your own products, you’re finding products that already work for someone else and jumping on the opportunity (why do the work when someone else has already done it for you?).
The first step is to find someone who’s selling the type of products we’re looking for is to find listings for products that are unlikely to be sold via wholesale distributors. A good example of this is anything “Great Value”, which is Walmart’s generic store brand. If someone is selling Great Value items on Amazon, it’s almost guaranteed that they’re selling items straight from Walmart and not doing wholesale.
Once you find one of these listings, click on the list of offers (usually towards the bottom right of your screen) and start opening the storefronts on the listing.
When choosing stores to scrape, I recommend staying away from stores with 1000+ ratings. The review rate on Amazon is extremely low and anyone with that many reviews has either been on Amazon a very long time or they sell a LOT of products (either way usually means wholesale, impossible to compete with those prices). For reference, I’ve done about 300 sales and I haven’t gotten a single review.
Once you’ve found some good looking stores, simply click on their “products” page and start looking at what they’re selling. Look at the Keepa chart to make sure that the product is selling consistently at a stable price, and if the data checks out do a simple google search to see if you can find the product somewhere else.
After about 15 minutes of searching a store on this listing, I found a very interesting prospect:
This product is fluctuating in and out of 4 digit sales rank, so it’s fair to assume that this product is selling a few hundred units a month. All I have to do now is find out where I can buy it and if it’s profitable. A quick google search reveals that the item is available on Target’s website, and at a seemingly low price:
Since this is a 3 pack, it’s going to cost us $5.07 for a bundle. Let’s plug in the numbers and see what we get.
This gives us an ROI of 55%, which is actually really good for an item like this that sells really quickly. If I wasn’t sharing this lead, I’d probably buy as much as I can find of the stuff. The goal should be to build up a list of products like this that you can sell a consistent amount of every month to bring steady cash flow into your business and allow you to go for some riskier, higher ROI flips.
If we’re being completely honest, the OA business model is so much more complicated than what I could explain in a single post but I hope this at least gives you an idea of how things work and how to get started for yourself. I skipped over a lot of basic information about selling on Amazon because I already went over it in my first book flipping post so please take a look at that one if you haven’t already. I’ve been considering creating a discord server where people can ask questions and exchange ideas related to book flipping / OA but I’m not sure if the interest is there. You can always reach out to me on Twitter or ask questions in the comments if anything in this post was unclear, and if you want to see more posts on this topic be sure to let me know.