Amazon Retail Arbitrage vs Private Label (Which One is Better?)

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Amazon Retail Arbitrage vs Private Label (Which One is Better?)

August 14, 2024

Amazon retail arbitrage is better for new entrepreneurs looking for a low-budget, low-risk way to start an Amazon business. It involves purchasing low-priced products from physical stores and then reselling them online for profit.

Meanwhile, private label is ideal for those who have substantial capital to invest and have advanced ecommerce experience. In this business model, entrepreneurs create and sell products under their own brand.

Amazon Retail Arbitrage

Amazon retail arbitrage offers a low-risk, low-cost entry into e-commerce. It only requires minimal upfront investment and doesn’t need business registration.

Arbitrage sellers source products from local retail shops. They buy cheap items and sell them for a higher price point on Amazon.

The business model benefits from selling trusted branded products that appeal to buyers.

The process of setting up an Amazon retail arbitrage business is fairly quick and easy. Profit margins, however, are low and sellers heavily rely on the inventory of local stores.

Amazon Private Label

Amazon private label offers the advantage of full brand ownership. Sellers have greater control over product selection, pricing, and marketing.

The business model is more scalable and has higher profit margins than retail arbitrage.

Instead of buying from local retailers, private label entrepreneurs source products straight from manufacturers.

Amazon private label business is more complicated to start and requires a substantial initial investment of $12,000 to $15,000.

A retail arbitrage seller can earn $500 to $5,000 per month on average. Profit margins are usually at 20%. In a YouTube video, successful arbitrage entrepreneur Nikki Kirk shares she made $490 profit from a single retail shop visit. According to her, she made a 190% return of investment after purchasing items from a store called Pop Shelf.

When done correctly, Amazon private label can also be profitable with profit margins of over 25%. Case in point, Tim Sanders managed to earn $2,759 within 30 days of selling one product. Profits reach as high as $44,279 during peak season in November and December.

In this feature, we’ll compare retail arbitrage and private label in detail. We’ll discuss about the pros and cons of both business models. Finally, we’ll also share why local lead generation is more scalable. In fact, it can generate passive income and command profit margins of up to 90%.

Amazon Retail Arbitrage vs Private Label: Head-To-Head Comparison

Retail Arbitrage

Private Label

Initial Investment

Low Initial Investment

High Initial Investment

Business Registration

Unnecessary to register a business

Must register a business to start

Risk

Low risk because of low capital requirements.

High risk because of high capital requirements.

Setup Time

Quick setup. You can start selling products right away.

Long setup. Requires intensive preparation.

Order Requirement

No minimum order to start selling arbitrage items.

High minimum order. You're the only bulk buyer of your products.

Brand Awareness

Can't sell gated products without approval.

You own product and don’t need any approval.

Product Gating

Can't sell gated products without approval.

You own product and don’t need any approval.

Product Supply

Limited stock. Inventory depends on what you can purchase from stores.

Unlimited as long as the manufacturer can meet your production requirements.

Seller Payments

Long payment cycle. Can almost take 3 weeks to 1 month.

Same payment cycle but offers options for advance payments.

Featured Offer

Harder to win Amazon Featured Offer because of constant competition.

Easier to win Amazon Featured Offer.

Time & Effort

Continuous high investment of time and effort in sourcing products.

High investment of time and effort only at the beginning.

Delegation

Difficult to delegate.

Easy to delegate.

Scaling Operation

Difficult to scale.

Easier to scale.

Income Predictability

Not predictable.

Steady and predictable.

Profits

Low profits.

Big profits.

Brand Ownership

You are not the brand owner.

You own and control your brand.

Competition

High.

Pros and Cons of Amazon Retail Arbitrage

Pros of Amazon Retail Arbitrage

Low initial investment. You don't need to invest a lot to start in retail arbitrage. Signing up for an Amazon seller individual plan is free. You only pay $0.99 per item for each sale you make. You also pay the shipping fee to an Amazon FBA warehouse if you’re using FBA. Any other fees are added to the selling price and paid by the buyer. There’s no minimum number of items required to sell, so you can literally start with any amount. According to Jungle Scout, 39% of new Amazon sellers start with less than $1,000. You can even start selling some items you have at home. However, it can be a good idea to put in more as you start so you can have more products to sell.
You don’t need to register a business entity. Just sign up with Amazon Seller Central and you are ready to start. This makes arbitrage more accessible than other business models. Beginners who are testing the waters of e-commerce do not have to deal with business registration.

You don’t need to register a business entity. Just sign up with Amazon Seller Central and you are ready to start. This makes arbitrage more accessible than other business models. Beginners who are testing the waters of e-commerce do not have to deal with business registration.
Low risk. There's little risk in retail arbitrage because you only put in a small amount of money. This makes it an appealing option, especially for inexperienced online sellers who want to minimize potential losses.
It’s fast to set up. Requirements are minimal and you can make your first sales within a week of starting. This means you can get your initial investment back quickly and roll it over to your next purchases.

No minimum order quantity. You can start with what you can afford. For the most part, your success “heavily depends on how wisely you choose your products,” says Redditor Future_Feedback_6116. “You can buy items for $30 to $50 and make a profit of $10 to $15 each.”
Brand awareness. Buyers are more likely to make a purchase because you’re selling branded products. Exploding Topics says 81% of consumers “need to trust a brand to consider buying.” Salsify also reports that 46% of consumers are “willing to pay more for a brand they trust.”

Cons of Amazon Retail Arbitrage

Product gating. You can't sell gated products unless you have approval from Amazon. This can limit your product selection. Gated categories often include high-demand items like top electronics and popular brands.
Limited stock of products. Once you sell all your stocks, you can no longer sell that product. Arbitrage sellers don't have any agreements with retailers to supply them with those same products. This can lead to inconsistent inventory levels and potential gaps in your product listings.
Long payment cycle. Getting paid can take 3 weeks to 1 month. If you don't have extra funds, you'll need to wait to receive your payments before you can restock your store with new products.
Limited chance to win the Amazon Featured Offer. The Featured Offer is a critical source of sales. According to Statista, it accounts for over 80% of sales on Amazon. Unfortunately, you will rarely win it as a small seller. You’ll often have to compete by lowering your price. Also, having an active Professional selling plan is a requirement. You can’t win it if you’re on an Amazon Individual selling plan.
You need to invest time and effort to find good products to sell. As an arbitrage seller, you're always out there visiting retail stores, hunting for new products to sell online. According to successful sellers, they spend around 20 to 30 hours per week sourcing products from retailers.

Difficult to delegate. It's not impossible, but it's going to cost more compared with private label. You’ll need a hands-on approach as you look for potential products in retail stores in your area.
Difficult to scale. A retail arbitrage business is difficult to scale without hiring more people. Your expansion depends on hiring the right people and using the right technology. Scaling often requires significant investment in both time and resources.
Your income is not predictable. There's no way to predict your revenue because your products vary from month to month. Sudden price changes can affect your overall earnings. This unpredictability can make financial planning a challenge.
Lower profits. You are directly competing with many other sellers selling the same products. Price wars are common among sellers on Amazon.
You're selling other companies' products. This lack of brand ownership means you have less control over product quality and customer loyalty.
High level of competition. The low barrier to entry makes it easy for anyone to start a retail arbitrage business. Moreover, many wholesalers, brands, and even Amazon itself are competing in the Amazon marketplace.

Pros and Cons of Amazon Private Label

Pros of Amazon Private Label

You own the brand. You are in total control of your Amazon private label business. This means you get to decide what products to sell and how much you want to sell them. Furthermore, you can customize and market them on your own terms. If you build a successful product line, that can open up new product lines. If your brand grows and succeeds, you can eventually decide to sell the business.
Potential for big profits. You can earn high profits if you pick the right private label niche. As you avoid saturated markets and look for one with few competitions.
Income is more predictable. Your monthly revenue is more stable and calculable as a private label seller. Because you are selling the same product, you can have a good idea of the demand and expected sales.
You can enjoy advance payments. Even though retail arbitrage and private label have the same payment cycle on Amazon, a private label merchant can make an advance or get a loan against the pending payment. There are sites like Clearco and AccrueMe that provide this service. These sites require a business entity and a minimum sales volume, so most retail arbitrage sellers won't qualify.
You can hire people to help run your business. Unlike arbitrage that requires much of your attention, you can delegate day-to-day tasks to team members. You won’t need to scour retailers daily to find good deals. Instead, your suppliers are only an email away. That said, a JungleScout survey says 61% of private label sellers only spend less than 20 hours each week on their businesses.

Cons of Amazon Private Label

A private label business takes a long time to set up. You need time to develop your brand concept. You'll also have to create a marketing strategy and find a reliable manufacturer. Seller App says it takes an average of 3 to 6 months to launch a private label product on Amazon. You must register your business. Your supplier and Amazon will require that you have a legitimate business entity to get started.
A private label business requires high initial investment. You will need about $12,000 to $15,000 for a $6 product to start an Amazon private label business. The actual amount may vary with different products and suppliers. However, that's the amount I ended up needing for the Amazon FBA case study I conducted. I initially thought I’d only need $3K for the initial order of $500 units. However, manufacturing and shipping the product to Amazon took 90 days. So I ended up needing to place additional orders to make sure I don’t run out of products to sell. Also, I needed to pay for shipping, storage costs, and marketing.
Selling your own brand brings higher risks. Because your brand is unknown, there's a high probability that it will fail. You’ll also need to invest in advertising to boost brand awareness. This means spending on paid Amazon PPC (Pay Per Click) ads and other methods.
Competition can be tough. As with retail arbitrage, you will be going head to head against numerous sellers in the marketplace. In fact, you may even have to compete against Amazon if the platform is selling similar products.

Is Retail Arbitrage Profitable?

Amazon retail arbitrage is still profitable in 2024. According to Jungle Scout, 60% of Amazon sellers using retail arbitrage made a profit within their first year. Even beginners can see quick returns, though the scale of profitability can vary. In a YouTube video, 15-year-old Stephen Yaz generated a revenue of over $4,000 trying out retail arbitrage for 30 days. He eventually quit the business model because of scalability issues.

Retail arbitrage can be worth it if you enjoy shopping for good deals. For example, even top entrepreneur Gary Vaynerchuk mentioned he likes flipping. According to him, he enjoys the hunt. So arbitrage can be worth it if you enjoy what you are doing.

Meanwhile, Mike Rezendes of Reezy Resells is an example of an Amazon seller who showed its possible to earn income from retail arbitrage. He was able to make $8M in 15 years. However, he eventually stopped doing retail arbitrage. He decided to build his own skateboard brand instead. According to him, his experiences during the pandemic made him re-evaluate his business. It led him to start a new venture.

Like Stephen and Mike, there are many Amazon FBA sellers who have quit selling on Amazon even if they were making good money. A Marketplace Pulse report found that 30% of Amazon sellers eventually move on to other business models or platforms, often citing the desire for more control and stability.

How Do You Get Started with Amazon Retail Arbitrage?

Sign up on Amazon Seller Central. Start with an individual FBA account.
Look for products to sell in big-box retail stores, thrift stores, and liquidation stores. Use the Amazon Seller App to scan products and see if they are profitable.
Confirm that you can sell the product for a profit. Make sure it’s not a restricted or gated product. Use the Amazon Seller app’s profit calculator to make sure you can sell at a profit. Then buy the products.
Add the products to your seller catalog.
Pack and ship the products to the Amazon warehouse.

Is Amazon Private Label FBA Profitable?

Amazon private label is profitable when done with the right product research and business execution. I made as much as 32.88% profit margin on my first Amazon private label product. That said, there are so many risks that can wipe out your profit. While some believe private label is dead, the global private label market is projected to grow at a CAGR of 5.3% from 2021 to 2028.

Still, it is worth noting that some aspects of the business will be outside your control. For instance, your supplier could produce a bad batch of products. This can lead to bad reviews from your buyers. Delayed shipping may also disrupt your supply chain and inventory management. These obstacles can affect your expected earnings and your brand’s reputation.

How Do You Get Started with Amazon Private Label?

Select the right product. This is a very important step. You need to do intensive product research. Study the different categories. Use various research tools like to look for a best-selling product and improve on it.
Crunch the numbers and see if it makes sense to push through with that product. You need to figure out your cash-flow, break-even price, ROI, inventory turnover, etc…
Set up your company.
Find a reputable supplier that you can deliver as they promise.
Develop the product with the supplier. This is going to take time and could require as much as 90 days.
Create the product listing
Prepare your funds and make your first order.
Prepare your marketing plan and product launch plan.
When you start selling, check your stats and review your results. Find any adjustments you need to make to sell more of your branded item.
Replenish your inventory when it’s running low. Consider the time that the supplier needs to deliver your product.

Why Local Lead Generation Is Better Than Retail Arbitrage And Private Label?

If you are looking to start an online business, you may want to consider local lead generation. Unlike retail arbitrage and private label, you will not be selling products to online buyers. You also won’t be competing with thousands of sellers on Amazon. Instead, you are offering valuable service directly to small business owners.

With lead generation, you own and control digital assets like websites and landing pages. You rank them on leading search engines by using proven SEO tactics. Once they reach top ranking, you can rent them out to local entrepreneurs and earn passive income.

When building your sites, you will be focusing on specific areas and niche keywords. This means you get to eliminate major competition right from the get go. Instead, you will only be competing with 5 to 10 local businesses.

With over 41,683 ZIP codes in the USA, you can target multiple locations to create and rank many lead gen websites. This can boost your earnings since most customers are willing to pay $500 to $3,000 per month as you bring them leads for their businesses.

As a former Amazon FBA business owner, I only earned around $15,000 per month. Much has changed after I learned the lead gen business model. Now I make a passive income of up to $52,000 per month.

If you're like me and you want a business that is predictable, scalable, and profitable, local lead generation may be the right online business for you.

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Ippei Kanehara

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