February 8, 2017 Jessica Merrill

Retail Arbitrage Vs. Private Label

Thinking about selling on Amazon, but not sure how to start? Here are the two most common routes to take, along with their pros and cons.

What is Retail Arbitrage?

Ever heard of house flipping? Retail arbitrage is a similar concept: you buy merchandise at a low cost and then sell it for a profit online.

If you want to get into retail arbitrage, you’ll have to enjoy “the thrill of the hunt.” Retail arbitragers spend a lot of time searching for the most lucrative items that will get them the biggest profit. They usually purchase discounted merchandise locally from stores like Walmart, TJ Maxx, ToysRUs, or even thrift stores and garage sales.

What are the startup costs?

The great thing about selling on Amazon is that startup costs are relatively low: unlike a traditional business setup, you hardly have to purchase any equipment, and you can easily operate out of your home. You just need to invest in some startup inventory to get started with your retail arbitrage business. This can cost as little as a few hundred dollars!

The biggest “cost” of starting a retail arbitrage business is simply time. You will need to do some research and spend time tracking down items that will actually be profitable online.

How do I make a profit?

First, get an Amazon seller account and download the Amazon seller app on your phone. The app allows you to scan items and see how much they cost on Amazon. Compare that price to the price that’s being offered at the store. Generally, in order to make a profit, you’ll want to sell the item for at least 3 times the price you purchase it at. You need to keep in mind that you’ll have to pay Amazon fees and shipping costs, plus make enough profit to make it all worth it. (Some sellers try to inflate the profit much more, but 3x is a good starting place). So start going out to stores and scanning items that seem like they would make a good profit. Are they being sold for 3x more on Amazon? Purchase them! If not, keep searching.

What are the disadvantages?

It takes patience and discipline to be successful in retail arbitrage. You have to be very careful what you invest in, because you need to be reasonably certain that selling it on Amazon will fetch you at least 3x more than you purchased it for.

In conclusion…

Retail arbitrage isn’t for everyone, but if you think you would enjoy lots of shopping and comparing prices, it can be a great way to make money and build a business with very reasonable startup costs.

What is Private Label?

Private label means that you buy products directly from a manufacturer and put your own branding, logo, and packaging on the products.

What are the startup costs?

You will have to purchase your starting inventory, which can vary quite a bit based on the product. You’ll usually have to buy a minimum of a few hundred units to start out. Then, you will have some costs associated with labeling, shipping, and packaging. The starting costs can be anywhere from a few hundred dollars at the very least, to a few thousand.

How do I make a profit?

Just like retail arbitrage, in order to make a profit after Amazon deducts their fees you’ll need to sell units at a price at least 3x higher than you paid for each unit, preferably more. Starting out, you might not make a huge profit since you’re starting from zero. Most sellers sell their units at a low price to start out and then raise the price after their brand achieves some more credibility. You will probably need to be patient and build some good reviews before your listing will rank very well, but once you get going, you can raise the price and let it do its thing! Then all you’ll have to worry about is ordering more units to keep them in stock.

What are the disadvantages?

Oftentimes, you won’t be the only one selling the product on Amazon, which can make it hard to succeed amongst all the competition. However, you do have the opportunity to make your product appear better than the competition, since you’re putting your own brand name on it. If there are already copies of the same product on Amazon, you’ll have to focus on making your branding, packaging, and listings (photos & product descriptions) look much better than the competition, but it’s usually doable once you invest some time and effort.

Retail arbitrage or private label: which is better?

Both retail arbitrage and private label are effective ways to make a profit. It’s up to you—which one sounds more appealing? Which one do you see yourself becoming more successful in? Plus, remember that you don’t have to pick just one. Many sellers begin their Amazon journey with retail arbitrage, taking advantage of the low startup cost, and then get into private labeling later on when they’ve built up some savings and found a great private label product to invest in. Do what works for you!amazon logo - strong estate marketing


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