Amazon Arbitrage vs FBA Private Label – A Detailed Comparison

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Do you want to sell on Amazon but don’t know where to start or which business model to choose? This Amazon arbitrage vs FBA private label comparison should help!

Choosing which business you’d like to pursue is often the hardest part of your online selling journey. To help, I’ll guide you through two super successful methods, Amazon Online Arbitrage and FBA Private Label, and highlight the differences between them, so you can choose the right one for you.

What is Amazon Arbitrage?

Arbitrage is the process of buying products at a lower price from one marketplace or store and selling them at a higher price in another marketplace or store.

For example, you can buy a product for $2.50 from a thrift store and sell the same item on eBay for $10. Assuming you spend an additional $2 on fixing or servicing the product and an extra $3 for shipping, you still make $2.50.

If you sell the product on Amazon marketplace, it is called Amazon Arbitrage.

There are two forms of Amazon arbitrage:

• Amazon Retail Arbitrage: In this method, you buy products at a lower price point from retail stores offering discounts or clearance sales. You then sell the product on Amazon.
• Amazon Online Arbitrage: With this model, you acquire the products from a variety of online marketplaces at a lower price and sell them on Amazon at a higher price.

One advantage of online arbitrage is that you don’t need to visit retail stores physically. You can purchase products directly from an online store and enjoy doorstep delivery.

There are some challenges with online arbitrage. For instance, you cannot physically inspect the products during purchase. Plus, certain products are found exclusively in retail stores.

Similarly, retail arbitrage has it’s own set of challenges. You need to physically go out and spend time and travel costs. You’ll be responsible for product damage during transit. Also, some products are available for purchase only (meaning you can’t resell them).

No matter which model you choose, online or retail arbitrage, you’ll need to ensure two things. First, that you’re allowed to sell the product on Amazon. Second, that the product will sell for a higher price than what you can buy it for.

What is FBA Private Label?

FBA Private Label is a business model in which you sell products on Amazon using their fulfillment service (FBA – fulfillment by amazon), under your own brand. To engage in FBA you’ll either manufacture the products yourself, or more likely, purchase the products from an overseas manufacturer and use your branding, known as private labelling.

Unlike retail or online arbitrage where you tend to purchase singular or lower amounts of products, private label sellers purchase products in bulk.

As a seller, you’ll order products from your supplier, and have them shipped to Amazon’s warehouse. Amazon will then take care of dispatching the products to buyers.

Amazon will charge specific fees and commissions in exchange for its fulfillment services and for offering a massive market.

A big challenge with private-label products is the amount of competition on Amazon. Therefore, the FBA Private Label business model requires a strong brand, extensive product research and some upfront cash to invest in stock.

Amazon Arbitrage vs FBA Private Label – What are the Advantages?

Amazon Arbitrage Pros

Low Initial Cost: The initial cost will be modest regardless of whether you choose retail arbitrage or the online arbitrage business model. Most online or retail arbitrage sellers start by acquiring as few as 10 units of a product. Generally, the startup cost is below $500. You can even start with zero investment if you are willing to flip some products you already own and reinvest the profits. However, in the zero-investment case, you’ll need high-profit margins to reinvest for stock acquisition.

No Brand-Building: With retail arbitrage and online arbitrage you’ll sell pre branded products. So, you won’t need to build your own brand or file trademarks. You only need to identify price gaps in different marketplaces, purchase the products, and resell them at a higher price on Amazon.

Endless Opportunities: There are millions of products on Amazon and endless opportunities. With a proper repricing tool, you can effortlessly sell across multiple categories.

FBA Private Label Pros

True Ownership: With private-label products, you call the shots. You’re in control of your brand, be it product research & sourcing, inventory size, marketing & advertising, etc.

Smooth Sailing: The business is easier to sustain once it enters the profitability stage. You’ll have a well-established supply chain, a set selling price, and a clear understanding of your expenses and profits.

High-Level Automation: For the most part, once up and working, an FBA Private Label business can run on automation, including product sourcing, inventory management, and PPC advertising. Automation saves time that you can use for competitor research and market intelligence, find new winning products, and expand your business.

Amazon Arbitrage vs FBA Private Label – What are the Disadvantages?

Amazon Arbitrage Cons

Low Margin: The profit margins are small because both online stores and retail stores will charge a retail price. Retail prices are always higher than wholesale prices, which means lower margins.

Limited Scalability: Both offline and online retailers have limited inventory. When you purchase from them, your supplies will be limited. Scaling your business will be difficult if you rely on a single product.

Time-Consuming: The arbitrage model requires you to keep looking for profitable products. Since you need to scout online and offline stores, sourcing products will be time-consuming.

FBA Private Label Cons

Big Initial Investment: If you want to sell your own private-label products, there will be a big initial investment. You’ll need to spend on inventory, marketing, branding, shipping, storage fees, and other costs before the business becomes profitable.

High Competition: There may be other sellers selling the same product. If you identify a niche product, other sellers may also recognize the profitable product with various tools available. When many sellers try to cash in, profitability will decrease. You’ll also be competing with Amazon, which is a private-label seller.

Time-Consuming: Starting an FBA Private Label business requires intensive product research. Your research will include everything from identifying profitable products, checking the sales rank of each product, competitor analysis, keyword research, historical data analysis, and so much more. Research can take weeks, and you’ll need robust FBA product research software.

Amazon Arbitrage vs FBA – How To Make Money With Amazon Arbitrage?

Here are the steps to make money with Amazon Arbitrage:

Step 1: Choose between retail or online arbitrage model

Decide whether you prefer to be an online or a retail arbitrage seller. It’s a personal choice.

Step 2: Open an Amazon Seller Account

Start by opening an Amazon Seller Central Account. You can use your existing Amazon login ID. However, don’t sign up for the Professional Selling Plan, which will cost you $39 monthly. You want to keep the costs low.

Step 3: Choose between FBA or FBM

FBA stands for “Fulfilled by Amazon,” where Amazon will pick, pack, and ship your products and take care of customer service. In return, Amazon will charge FBA fees. There is an additional variable Amazon Referral fee for using the Amazon platform.

FBM stands for “Fulfilled by Merchant,” where you will be responsible for shipping and customer service. There will be no FBA fees, but Amazon will charge the referral fee.

Step 4: Download Amazon Seller App for retail arbitrage

The Amazon Seller App is a free and valuable tool to identify products for arbitrage. The app will scan product barcodes and display information like sales rank, estimated profitability, and competitors’ listing.

Now visit a retail store and start scanning products using the app. There are no specific product selection criteria. Use your wits. Amazon will display the product details. Check the sales rank. Products with low Best Seller Rank have high sales volume.

Step 4 (Alternative): Search for discounted products online

For online arbitrage, look for discounted products online using tools like BrickSeek. Then find the same items on Amazon. Look for products that sell at a higher price on Amazon.

You can use tools like Jungle Scout and Tactical Arbitrage to search for products in bulk. I recommend Jungle Scout because it has the highest accuracy and supports all Amazon product-selling business models.

Step 5: Calculate the Profitability with FBA Calculator

Use the Amazon FBA Revenue Calculator to calculate the profitability. You can use a competing product’s ASIN and product price to calculate the net profit and margin.

Step 6: Assess Demand with Jungle Scout Sales Estimator

You’ll need the BSR and the product category that you can find on the Amazon product page. Now feed the data into the Jungle Scout Sales Estimator to get an estimate of the monthly sales volume.

Step 7: List and Sell High!

Now acquire inventory, list the products on Amazon, and sell high!

If you need training on Amazon retail and online arbitrage, check out Jim Cockrum’s Proven Amazon Course. It’s a collection of powerful tools and training modules that can help you build your arbitrage business. I recommend Jim Cockrum’s training course on REPLENS.

Amazon Arbitrage vs FBA – How To Make Money With FBA Private Label?

Here are the steps to make money with Amazon FBA Private Label:

Step 1: Perform Product Research

The first step is to find a profitable product. For a successful FBA Private Label business, the winning product must have high demand but low competition. I recommend using Jungle Scout’s Product Database to identify profitable products.

You can use alternative tools like AMZScout or Helium 10. But they are not as accurate as Jungle Scout.

You can also find profitable niche product ideas using Jungle Scout’s Opportunity Finder. You can even track the historical performance of the top 100 products across all categories using the Product Tracker tool.

Step 2: Assess Product Demand

After you find winning products, assess their demands using the Jungle Scout Sales Estimator tool. You’ll need the BSR and product category that you can grab from an Amazon product page.

Step 3: Perform Keyword Research

Finding a profitable product isn’t sufficient. You need to know the keywords that buyers on Amazon use to find the product. It is likely to find other Amazon sellers selling the same or similar products.

Jungle Scout’s keyword research tools can help you find high-performance keywords. You can also reverse-engineer competitor ASINs to find the keywords they are using. These keywords will later help you with your product listing.

Step 4: Find Suppliers and Source Products

Use Jungle Scout’s supplier database to find reliable global suppliers and manage them in a single place. You can use the Jungle Scout interface to place orders and acquire inventory. The Inventory Manager tool will also help you to manage your stocks once your product(s) go live on Amazon.

Step 5: Create Brand

Spend time and money creating your brand name, logo, etc., and register your business.

Step 6: Create Amazon Seller Account

You’ll need an Amazon Seller Central Account to sell on Amazon. Check the fees and costs for using FBA and FBM. I suggest using the FBA model to offload shipping and customer service responsibilities to Amazon.

Step 7: Create Amazon Listings and Ship Products to Amazon

Use Jungle Scout’s Listing Optimization tool to build optimized listings for your products. You can use the keywords you found to improve your listings and increase their visibility on Amazon searches.

Once your listings go live, ship the products to Amazon for fulfillment. That’s it!

Amazon Arbitrage vs FBA – The Verdict

The Amazon arbitrage method is good only when you don’t have enough funds to start your online selling business. If you can manage the initial investment, the FBA Private Label business model is more sustainable and scalable.

You’ll have complete control over your private label business, and if someday you want to sell the business, you can do so easily.

For private-label selling, you can use robust research tools like Jungle Scout to stay ahead of your competitors, manage suppliers, keep a tab on your inventory, and optimize your PPC advertisement expenses from a single platform.