Online Arbitrage vs Wholesale on Amazon. What is the difference?
Online arbitrage is reselling cheaper-priced products for profit on Amazon. Wholesale is reselling bulk lower-priced products from a brand or supplier on Amazon, also for profit. The main difference between them is the quantity you buy and the money you invest.
This post will help you better understand how to apply wholesale and online arbitrage in your Amazon business and how to scale it with these two models.
What Is Wholesale?
Wholesale is a business model of purchasing products in bulk directly from the manufacturer or supplier at a discounted wholesale price and reselling them on Amazon for retail price with profit.
What Is Online Arbitrage?
Online arbitrage is a business model of finding lower-priced products in online stores, discount aggregator websites, or elsewhere online and reselling them on Amazon for profit.
Online Arbitrage vs. Wholesale – What’s the Difference?
First and foremost, the difference between these models is the scale of the sales operations and upfront investment.
Also, the approach to looking for suppliers is entirely different. Wholesale sellers negotiate with brands and distributors directly, while arbitrage sellers buy from online stores or websites.
Below, we will compare wholesale and online arbitrage models.
Wholesale sellers buy products in bulk. They profit from the difference between the lower rates they get from the brands or suppliers because of the significant volumes and the higher retail prices on Amazon.
The manufacturer or brand typically has a Minimum Order Quantity (MOQ) that may range from $2,000 to $30,000 and up.
It means wholesale sellers must invest sufficient funds in logistics and storage fees and efficiently manage their sales operations. The higher the sales volumes, the bigger the return rates, shipment issues, etc.
The approach to product research of wholesale and online arbitrage sellers is similar. However, you need to be much more careful with the wholesale product. This is because if you fail to resell 10 products for $10 with online arbitrage, you’ll lose $100, while failure to resell 500 items for the same $10 will cost you $5,000.
Wholesale products compared to online arbitrage should:
- have a Best Seller Rank (BSR) of less than 8,000;
- have a price between $15 and $50;
- have low competition (the number of sellers on the listing should be between 2 and 5).
Wholesale sellers negotiate directly with manufacturers or brands to get profitable order terms. Brands usually have Minimum Order Quantities (MOQ) and already existing distributor networks. Therefore, it’s quite a job for a wholesale seller to find the right product supplier.
A wholesale seller must develop relationships with the brand and convince them they will benefit from the cooperation. On the other hand, if you buy from an international manufacturer, for instance, from China, it’s essential to verify the supplier and ensure they will supply quality products.
Online arbitrage doesn’t have any Minimum Order Quantity limitation. Sellers can buy as many items as they want. The quantity depends on the money at hand and product profit margin.
You can start this business with little money, like $500, and it can still be profitable. However, you’ll earn less due to the smaller quantities you resell.
For online arbitrage, product research is also fundamental. On the other hand, there’s more flexibility in product research parameters of online arbitrage items because you don’t buy them in bulk. The focus must be on profitability.
Online arbitrage, compared to wholesale products, can:
- have a Best Seller Rank (BSR) of up to 10,000;
- have a price between $15 and $100;
- have moderate competition (the number of sellers on the listing should be between 2 and 10).
Related: How to find Profitable Products for Amazon Online Arbitrage
Arbitrage sellers usually source a smaller number of products limited to what the online stores have in stock and their available funds.
They must find a profitable deal and ensure that the product matches Amazon's listing. There’s no need for them to enter into ongoing negotiations with the supplier. Instead, online arbitrage sellers need to grab the profitable deal and list it on Amazon quickly.
Pros and Cons of Wholesale and Online Arbitrage
Pros and cons of wholesale
Sellers using the wholesale model have better chances to get products in demand from manufacturers or established brands and set competitive prices. For that reason, their profitability can be higher. Also, they don’t have to spend much on ads because they’ll most likely sell a product that already has market demand.
However, wholesale sellers need to invest essential funds upfront. That’s why the financial risks are higher.
Fast to launch
It takes around six weeks to set up a wholesale business. The most effort and time-consuming processes are finding a supplier for the product and negotiating with them.
Low per-item price hence high-profit margins
Many wholesale sellers on Amazon gain a higher profit margin because they get a good per-item price from the brand or supplier. That results in a good return on investment (ROI).
Higher possibility of winning the Buy Box due to a lower price from a supplier
Since the wholesale seller gets good prices with the brand or manufacturer, they can offer lower prices on Amazon and have better chances of winning the Buy Box.
Lower advertisement costs
Wholesale merchants sell the already existing popular product. Therefore they don’t need to invest much in ads.
Good possibilities to scale business
Wholesale business is easy to scale. Grow sales volumes, order more, and diversify your product portfolio.
Larger upfront investment
Most brands have minimum order quantities (MOQ), which can be quite large. Therefore, you need to be ready to put money in.
It’s necessary to thoroughly account for all product costs due to bulk sales.
If you calculate your costs wrong for bulk products, this may result in a significant loss.
Higher risks due to large product batches
If you lose money on a couple of products, this is unpleasant, but that’s not the end of the day. But if you lose a lot on wholesale, that may seriously hit your business.
Finding a supplier can be a challenge
Often, big brands are not ready to negotiate with one more supplier because they already have distributors. You need to convince them to sell to you.
Related: How to Find Amazon FBA Wholesale Suppliers
Pros and Cons of Online Arbitrage
Online arbitrage is a great model to start a business on Amazon because you don’t need much money to launch it. It’s fast and easy to set up, and you can scale it as your profit grows.
On the other hand, it’s not easy to find online arbitrage deals due to the high competition on Amazon.
Fast and straightforward to set up
One of the main advantages of this model is that you can start it in a few weeks. You register an account on Amazon, find a profitable product, select a supplier, and start selling.
Small upfront investment
With this model, you don’t need much money to start. Many sellers launched online arbitrage businesses with $500.
You don’t buy a lot of products. If you fail with one of them, you’ll not lose much.
Diversity of product ideas
The Internet offers you plenty of profitable product ideas. You can find products in online stores, discounter aggregators, and more.
Helps learn how to sell on Amazon
Arbitrage is an excellent model to start a business on Amazon and learn to sell.
Product research can be challenging and time-consuming
Finding a profitable product consumes hours because of the high competition on Amazon. Using product research tools makes it much easier, but it’s still quite a task for sellers.
Unstable profitability due to constant price changes on Amazon
Prices on Amazon can substantially go up and down due to intense competition. Therefore, it’s challenging to estimate profit margins long-term.
Not high margins after Amazon fees
Online arbitrage sellers don’t earn as high margins as Private Label merchants. Therefore, they need to account for all costs very accurately.
You can’t resell certain products or need approval
There are specific restricted categories and brands on Amazon. That means you need to get approval from Amazon to sell them. Not always are you eligible to sell the product. Check it in your Seller Central first.
The items you find may look different from what’s listed on Amazon
The items listed on Amazon and those you found may be different, though they look similar in the picture. That sometimes happens with the goods sourced from China.
Related: Amazon Business Models: How to Choose the Right One in 2022?
What Is More Profitable - Wholesale or Online Arbitrage?
Generally, a wholesale model is more likely to generate more significant profit margins because of the discounted rates for the purchased product (around 25-30%). Online arbitrage typically brings lower margins (10-20%). However, it depends on the products, the size of the business, the competition, and more.
Both models are market-proven to be profitable with the right product and suppliers.
How Can Seller Tools Help Wholesale and Online Arbitrage Sellers?
Seller tools help find profitable deals, do product research, price products, and calculate expenses and profit.
Seller Assistant App is one of them. It’s a powerful product research tool for wholesale and online arbitrage sellers that helps see all essential product metrics right on the Amazon search and product pages. You can also save results to Google Sheets. It enables you to estimate product profitability, Amazon fees, check product restrictions, and many more. It will help you select the right product to resell for a profit.
Both wholesale and online arbitrage are profitable market-proven models. You can select any of them depending on your budget. Seller tools help both wholesale and online arbitrage merchants take care of product research, as well as digging out the right supplier.
Seller Assistant Аpp is one such tool. It’s an all-in-one extension that incorporates the features vital for product research. Advanced IP Alerts can immediately tell you if a product has any sales restrictions or has led to problems with account health in the past. It combines an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker in one tool.