What is Arbitrage?

According to Webster, “arbitrage” is “the practice of buying something (such as foreign money, gold, etc.) in one place and selling it almost immediately in another place where it is worth more. What is Arbitrage, as it relates to Amazon or Ebay resellers? Keep reading for a detailed breakdown, as well as some additional resources for the Arbitrage business model.

While the word doesn’t perfectly represent what we do as online sellers, it’s pretty close. The objective of every seller is to find inventory that can be bought at a price that allows for it to be resold on some online platform (Amazon, eBay, etc.) at a profit.

At its core, arbitrage for the online seller is about finding deals that can be bought and sold for a profit. There are two main models to follow to accomplish this.

The first arbitrage model is to find products priced severely under retail prices and sell them at or below the regular retail price for a profit. The second arbitrage model involves finding products that can be bought at retail and sold at a significant markup due to demand being greater than supply.

The ideal scenario is to find items that can be bought significantly under retail AND sold at a significant markup over the regular retail price. One way this can happen is when an item is new to market. Last year we sold a $6.99 Paw Patrol Zuma Badge toy for $99.99 twice in 24 hours. A week or so later, the price was down to around $40 on Amazon.

Why did it sell for so much? Simple supply and demand. This was a new toy and a hot character in this hot series. At least two parents were willing to shell out $100 to buy this toy to make little Johnny or Sally happy. This is an extreme example, but it’s not uncommon for new toys that are in high demand to sell for seemingly ridiculous prices early in their life cycles.

Another reason an item might be able to be purchased for under retail and sold for significantly higher than retail online is that is is discontinued. Maybe the item is being reformulated; maybe it’s being discontinued altogether; maybe the product is being sold to another company and there will be a lag in production. People who are loyal customers will pay a premium to get the products they are familiar and comfortable with.

Here’s a list of some discontinued products that we’ve been able to buy on clearance and then resell for a profit: Twinkies, Sony Portable CD Players, Cushion Grip Denture Cream, Sugar Free Metamucil, Duracell Spotlights and Flashlights, and Swiffer Refills.

Each of the above items presented a window of opportunity. Hostess went out of business, Sony stopped making the CD Player, Cushion Grip was sold to another company who hasn’t started producing it again yet, and the other products involved simple packaging or design changes that caused them to be liquidated.

What is Arbitrage? Arbitrage is a viable business model for Amazon and Ebay resellers. Find out more on the Arbitrage page on SellerEssentials.com

As an online seller, your job is to consistently find items that can be sold at a profit. If you can do that, whether it be in-store deals, online finds, wholesale products, liquidation inventory, garage/estate sale buys, etc. you’ll be on your way to a successful arbitrage business.

We will be giving some real-world strategies to help you find profitable items in the next few installments of this series on Arbitrage.