Arbitrage is a simple ecommerce strategy that newbies can follow. It does not require you to keep or ship your own inventory. If you are looking for a way to make some extra income then this is a suitable method for you to consider.
Arbitrage is a method whereby you act as a middleman, connecting a customer to a vendor. You list an item for sale on your website. When you get a buyer, you go to a vendor who is selling that same product, and you buy it from him. You type your customer’s name and address in the vendor’s shopping cart.
Arbitrage Pros And Cons
There are a number of advantages with this business model.
- Add your own markup – The markup can be as much as 200%. The key is to find the right vendor who is selling the item at a really low price.
- You don’t have to worry about inventory or shipping – That is the vendor’s responsibility, not yours.
- You can go vendor hopping – Very often you will find the same exact item being sold by multiple sellers. If one vendor runs out of stock, you can go to another.
- Doesn’t cost much to get started – You do not need to buy your own inventory. You just need to set up your own storefront and be able to receive payments. Shopify’s basic plan costs just $38 a month, which amounts to about $1.20 a day. If you make one sale a day you could easily cover your cost.
As with any business model, arbitrage has its disadvantages too.
- Manual labor – Every time a customer makes a purchase on your storefront, you will need to head over to the vendor’s storefront and manually purchase the item there. That is quite manageable if you have maybe 10 customers a day, but if you start to scale up and get 100 sales a day then you may want to consider outsourcing the task.
- Finding the right vendor – You need to find a few vendors who can be trusted. The reason why you should find more than one vendor is because of what I mentioned earlier. If one vendor runs out of stock, at least you have another vendor to go to. Apart from that, every vendor will be selling the item you want to arbitrage at a different price. Obviously the lower the price, the higher your profit margin. You’ll need to add that into your consideration when finding a vendor.
- Finding the right product – You cannot arbitrage branded items such as iPhones or laptops. Also it is recommended that you pick a product that is light in weight. In most cases the products you’ll find which can be arbitraged are sold for a low price point so your profit margin may not be as high.
That’s about it for the pros and cons of arbitrage. It’s fairly simple to get started so why not give it a shot? Let us know how it goes! Of course there are other ecommerce strategies that consider besides arbitrage so do your research and pick the strategy that you like best.