Retail arbitrage is best for beginners to get started as an Amazon FBA seller. Wholesale is the better business model over the long term. If you are serious about starting an e-commerce business, it’s important to do a deep dive into your options to ensure that you maximize your time and money and avoid setting up a business that ends up losing money.
In this article, you can look at 16 factors to compare Amazon retail arbitrage vs wholesale and see which is the better way to make money on Amazon. Use this analysis to choose between the two business models.
While Amazon FBA provides a lot of business opportunities for online entrepreneurs, it’s not the best online business model today. As you study the different online business models available, take a look at other better online business models like local lead generation.
Compare Amazon Retail Arbitrage vs Wholesale
- Low Startup Cost. Can be zero.
- Higher Startup Cost
- Business license not required
- Need a business license
Ease to Start
- Quick to start
- Takes time to get approval
Minimum Order Quantity
- Need approval to sell gated products
- Need approval to sell gated products.
- Limited by availability
- More available product
- Takes almost 3 weeks to get payouts
- Takes almost 3 weeks to get payouts but have options to access "expected income"
- Low-chance of winning
- Can win Buy Box
- High. Need to always look around different stores to source products
- High in the beginning to set the business up, then low when systems are running
- Harder to Outsource
- Can be Outsourced
- Hard to scale
- Easy to Scale
- Less stable
- More stable
- Low Margins
- Low Margins
Retail arbitrage is simply buying low-cost or discounted products from retail stores like Walmart, Marshalls, and TJ Maxx and reselling them on Amazon for a profit. Amazon online arbitrage follows a similar idea only this time you buy from an online store.
So the only difference between retail arbitrage and online arbitrage is where you bought the product - physical store for retail arbitrage and online store for online arbitrage.
Wholesale arbitrage on Amazon does not differ from the traditional wholesale business model of buying products in bulk from the manufacturer or distributor.
Pros and Cons of Retail Arbitrage
Pros of Amazon Retail Arbitrage
- It has low startup costs. You can start retail arbitrage with zero dollars or very little money. You can start by reselling products you already own. If there are things in your house that you have not used or barely used, you can sell them first. If you do need to buy, you only need to buy a few items to get started and get your feet wet.
- You don’t need a business license to sell on Amazon. You can start immediately if you just want to try online selling before committing to it.
- Because of the low startup costs, you have low risk. Retail arbitrage is actually a good way to test new products because you only need to buy a few to gauge demand and profitability.
- It’s quick to start. You don’t need a business license and you don’t need to get brand approval to start. Just set up an account and start uploading products.
- No minimum order requirements because you are not buying wholesale. There’s no minimum order from a retail store.
Cons of Amazon Retail Arbitrage
- You cannot sell brand-gated products. You need to get approval from Amazon to resell these products. It’s difficult to get approval as a retailer. The only way that is currently known to work is to first get an Amazon Professional Seller Account and then buy branded products from a reputable distributor or wholesale supplier. You then submit the invoices when applying for ungating from Amazon and hope for the best.
- There is limited product availability. Since the products you source are discounted heavily because of promotions or liquidations, once your stock runs out, you can no longer sell that item. You need to do consistent product research.
- Payouts take almost 3 weeks or more. You will need to have enough inventory or another source of funding to continue buying products to stock your store while waiting for your payouts. This requires proper planning.
- Lower chance of winning the Buy Box. Winning the Buy Box is important to get sales, especially in highly competitive categories. If you are competing with good wholesalers, they are more likely to win and secure the tremendous benefits of winning the Buy Box.
- Large time commitment. You will need to always look around different stores to source products when your stock runs out. While you can hire for this position, the cost is high because of the required working hours.
- More difficult to outsource to virtual assistants. You can’t outsource buying in retail outlets. You can outsource certain tasks such as uploading product descriptions to seller central, but the cost is high because you are always buying new products. Unlike a wholesaler, who can sell the same product for years without changing the product descriptions.
- Retail arbitrage is not scalable or extremely hard to do. The difficulty lies in sourcing products. While you may delegate sourcing, identifying products to sell will still take a lot of time and effort. And since there’s no assurance that these products will be available at retailers, you cannot reuse previous product listings. You will create new listings always because you will need to find new products to sell. And there will be times when you might not find products to buy, which means you will spend money on unproductive hours.
- There’s no income stability in Amazon arbitrage. You can’t project your profits because your margins are always changing. You can’t pin down a predictable pattern to make reliable growth plans.
- Profit margins are low depending on the product category. As more sellers sell the same product, prices decrease, shrinking profit margins for everyone.
- Competition is fierce in the Amazon marketplace. Because of the low barrier to entry to starting in retail arbitrage, many people try it. Not only do you compete in selling, but you also compete in sourcing the products.
- You don’t have your own branding. You can’t really build a brand in retail arbitrage because you sell other people’s products. If you want your own brand, you need to do Amazon private label. Compare Amazon retail arbitrage vs private label to see if it's right for you.
How much money can you make with retail arbitrage on Amazon?
Technically, there is no limit to the amount of money that you can make when doing Amazon FBA retail arbitrage. Fifteen-year-old content creator Stephen Yaz made close to $1,000 in profit in his first 30 days of trying out arbitrage.
It’s not impossible to make a lot of money too. You can get rich from retail arbitrage. Mike Rezendes of Reezy Resells claims to have made more than $8M in sales in 15 years of selling on Amazon. He could’ve made anywhere from $800,000 to $3.2M in profit assuming profit margins of 10-40%.
Ryan Grant of Online Selling Experiment claims to make $5.9M per year from Amazon with retail arbitrage accounting for 35% of his total sales. Assuming the same profit margins, he makes $206,500 to $826,000 from retail arbitrage.
So it’s possible to make not just a full-time income from retail arbitrage but wealth-creating income. That is encouraging.
However, retail arbitrage is time-consuming and you always have to do constant product research. You’re always building new product lines and you have varying profit margins because product lines always die when stock runs out.
There are also many ways to lose money on Amazon. Thus, you can’t really know with any certainty what your income will be on a month-to-month basis.
Also, it takes a long time to get a high income on Amazon FBA. It's difficult. It could take you 6 months to a year of building the business before you can start enjoying your income on Amazon.
It's interesting to note that Ryan Grant combines both retail arbitrage and wholesale in his business. Let's see why.
Pros and Cons of Amazon Wholesale
Pros of Amazon Wholesale
- You have more available stock. You just need to buy the product again from the manufacturer when stock runs low. There’s no fear of running out of a popular profitable product to sell. You will always have the product and continue to sell it for a long time.
- You have options to extract value from your pending payout. While you have the same 14-day waiting period for payouts from Amazon, sites like Payability can give you access to funding based on your pending payouts from Amazon. This improves your cash flow and allows you to restock inventory sooner. Most of these sites require a business entity and a minimum sales volume, so most retail arbitrage sellers won't qualify.
- You have a better chance of winning the Buy Box because you have more available inventory of your product. You still need to compete with other sellers but you have higher chances of winning over retail arbitrage sellers.
- The time commitment to build the business is high in the beginning then it goes down when your systems are running. Ryan Grant spends 10/hours per week on his Amazon business.
- It can be more easily outsourced. Because there’s less turnover on your product portfolio, you can systematize processes for existing products and outsource these tasks.
- It’s much more scalable because you can build on your past efforts. You can build systems and hire people more effectively.
- Your income is more stable because you can predict with certainty your sales output. You can make more reliable forecasts and plan your business accordingly.
Cons of Amazon Wholesale
- You need to be a registered business. It’s unlikely that a manufacturer or a distributor will deal with an individual even if you have the money to do it.
- It’s hard to get brand approval to be a wholesaler. It's important to show credibility as a company. You will probably need to set up a website, active social media channels, and a business plan to show how you can help the company. You will compete against other prospective wholesalers and probably even the company itself. Therefore, you can’t afford to take this lightly and will probably get many rejections in the beginning.
- There’s a high minimum order quantity. You can’t just buy 1 or 2 pieces to test a product. You need to buy in bulk which could mean many cases or even pallets of a product.
- Because of the minimum order quantity, this leads to high startup costs. And since you probably want to carry multiple products, this leads to high costs in the beginning. According to some estimates, you will need around $3,000 to $5,000 to pay for inventory and Amazon FBA fees.
- The high cost of starting a wholesale business means you’re taking a higher risk at the start. While you can do this on your own, you will probably want to have a team to support you, which increases your risk.
- Profit margins are low similar to retail arbitrage. Even Amazon is competing against its sellers with its own brands. Not only that, the brands or manufacturers themselves can enter Amazon and sell directly to customers, lowering margins for everyone if not outright kicking you out.
- As mentioned earlier, competition is fierce. More sellers continue to enter the space, especially foreign sellers from China. And popular high-margin products will always attract competition.
- And you don’t own your branding. You merely represent a brand. You can represent many brands, but you own no brands yourself. That is the unfortunate truth of a middleman in Amazon. If you want to build your brand, you must go with your own private-label product.
How much money can you make selling wholesale on Amazon?
There also is no limit to the amount of money that you can make when selling wholesale on Amazon. Going back to Ryan Grant, again he has a revenue of $5.9M. If he had a 15-40% net margin, that would be $870k to $2.36M in net profit.
In a case study, he shared how his team added a new wholesale product category to their business that earned more than $1,000 in gross profits in 3 months. And this is without his involvement even in product research. This is great because this means his company can grow even with little input from him and he can make passive income on Amazon.
So if you have a great team and solid systems in place, your business can flourish and there’s no limit to the income you can get on Amazon. That said, it’s vital that you grow and expand your business because there’s no guarantee that you can sell the same products forever.
Product lines can die for various reasons: over-saturation, foreign competition (mainly China), and loss of consumer interest can lead to revenue loss. A lot of things can go wrong. It's much harder to do business on Amazon now because of the increased competition, so Amazon wholesale may not be worth it anymore.
Based on our comparison, the better business model between Amazon retail arbitrage and wholesale is the wholesale business model. The wholesale business model is more sustainable over the long term, has fewer product restrictions, and is more scalable to grow.
But if you’re just starting out and don’t have a lot of capital to start, go with retail arbitrage first to get a better understanding of the market and experience as an Amazon seller. Once you understand which products sell better, you can then apply to be a wholesaler for those products and you will show a track record of selling those products.
You can also compare Amazon wholesale vs private label. Both models require significant capital upfront, so it’s not for beginners but it’s something you can plan to enter after growing your Amazon arbitrage business.
None of these business models is the absolute best for an online business. It's harder to get started on Amazon because it is super-saturated and competition is fierce, which brings down profitability for everyone. You might like a blue ocean business model better like local lead gen. It is far from being saturated, is highly profitable, and doesn’t require huge capital to start. It’s the best online business to build over the long term.