Image courtesy Markus Spiske

The Best Way to Start Selling with Amazon FBA: Retail Arbitrage Explained

Written by 

FBA Journey

Red start with arrow

Today, I’m going to discuss the best way to start selling using Amazon FBA, by describing the method known as Retail Arbitrage.  Retail Arbitrage is the most beginner-friendly way to start selling products on Amazon, and I’ll explain why below.

What is Retail Arbitrage?

Retail arbitrage is when you buy a product from a retail store to resell at a higher price on Amazon.  Often, but not always, the products you buy will be sale or clearance items.   The sale or clearance price will be lower than the price on Amazon, allowing for a profit.  Profiting from this price difference is the arbitrage in retail arbitrage.  (See this Wikipedia link for a complete definition of the term arbitrage).

Why is Retail Arbitrage the Best Way to Start?

First, retail arbitrage requires very little money to start.  You can realistically begin with less than $100, and buy sale or clearance products from any local retail store.  This makes retail arbitrage one of the lowest-cost ways to be an entrepreneur you’ll find anywhere.

In fact, the absolute lowest-cost retail arbitrage method I know of involves going to your local thrift store to buy used books to resell on Amazon.  The books in these stores are typically $1 or $2 each, and can be sold for $12 to $20 or more, if you’re lucky enough to find the right books.

Also, you can gauge the level of demand for a product on Amazon by scanning the UPC barcode with your phone and viewing the Amazon Best Seller Rank.  This means no guessing if a product will sell or not—you’ll have a good idea of the level of demand before you buy.

I’ll discuss the details of scanning a product and sales rank later in this post.

What It Feels Like Doing Retail Arbitrage

One of the most interesting benefits of retail arbitrage is that it can be fun!  Imagine this scenario, which has happened to me many times over the course of my retail arbitrage career:  you’re walking down the aisle of a store, and spot an item that looks promising.  You pick it up and scan it with your phone, and you see it sells quickly, and that you can sell it on Amazon for 5 times the selling price in the store!  Better yet, there are enough units of this product to fill your cart.  You quickly figure out this will make you several hundred dollars from this product alone!

This isn’t how every shopping trip goes, but the thrill of the hunt for the next winning product can be incredibly motivating!

What Retail Arbitrage Isn’t

For one thing, retail arbitrage isn’t a “get-rich-quick” scheme.  Like any new venture, this will take time and commitment from you to be successful.  If you want to see results using the retail arbitrage method, you should be prepared to spend several hours per week at a minimum visiting stores looking for inventory.

Using myself as an example, I started out visiting stores on the weekends when I had time.  While I had the freedom to go when it best worked for my schedule, I still knew I would spend 2 to 3 hours driving and shopping.  It was slow going at first, but once I started seeing sales on Amazon and I could see the potential, it fueled my desire to keep shopping weekend after weekend.

Retail Arbitrage Provides Real Life Experience Selling on Amazon

In my opinion, the biggest benefit to spending time doing retail arbitrage is the real life insight it provides into selling products on Amazon.  For very little startup money, you get to experience the life cycle of selling a product in a real retail marketplace!  You’ll get a feel for which items will sell well or won’t, what kind of prices you can pay for an item for it to be profitable on Amazon, and you’ll gain familiarity with brands worth keeping an eye out for, and which to pass over.  In short, if you’re dedicated and motivated, you can become a very educated retail arbitrage buyer in a relatively short amount of time.

The “How To” of Retail Arbitrage

To start doing retail arbitrage right now, the most important tool you need is a smartphone with the Amazon Seller app, which is free to download and install.

You also need a free seller account with Amazon.  You can find Amazon’s instructions on opening an account here.

Product Scanning

The primary activity of retail arbitrage is product scanning.  Using your smart phone’s camera, you scan the UPC barcode on the product itself from inside the Amazon Seller app. 

Example UPC barcode
Scan this UPC barcode

When you scan the barcode, the Amazon app will show you a screen that looks like the picture below. You’ll see whether or not the item is listed on Amazon, and if it is, you can tap on it to take you to the Amazon Product Details page.

The Product Details page contains the two most important pieces of information you need to make a buy or don’t-buy decision:

  • the selling price
  • the sales rank
Amazon Seller Central product details for book "Mistakes Were Made (But Not By Me)"
Amazon Seller app showing Product Details screen

Selling Price

The selling price is what the item is currently selling for on Amazon.  You’ll see this price displayed on your smartphone, then the FBA fees charged by Amazon, then the gross proceeds for the item after the fees.  If this gross proceeds number is larger than the price of the product in the store, you’ve found a potentially profitable product to sell on Amazon!

Calculating Your Profit

For example, if you scan an item that costs $4.99 in the store but sells for $24.99 on Amazon, and after FBA fees of $7.50 the gross proceeds are $16.50, your profit before shipping costs is $11.50 per unit.  If you allow a shipping cost per unit of $1, for example, this product is definitely something you want to sell on Amazon!  See below for a breakdown:

Amazon selling price:     $24.99

FBA fees:                             -$7.50

Product cost:                     -$4.99

Shipping cost:                    -$1.00

Total profit:                        $11.50

*** A full survey of shipping costs is a topic I’ll cover in a future post, but for the sake of today’s discussion, let’s say a small, lightweight item (let’s say boxes of sandwich bags) will be less costly to ship, maybe $0.20 per unit, whereas a large, bulky item (like a toaster oven) may be $5 or more per unit to ship.

Sales Rank

The Amazon seller app also shows you the sales rank of the product, which gives a rough idea of the demand for the product on Amazon.  The lower the sales rank number, the more frequently the item sells, meaning a lower number is better.  For example, if you scan a frying pan and you see its sales rank is 29,500, you can safely say this item sells frequently on Amazon.  If, however, the frying pan has a sales rank of 1,900,000, you shouldn’t buy it because it rarely sells on Amazon.

A “good” ranking item will vary by product category, because different product categories have more or less total products than others.  For example, the Camera & Photo category is relatively small, so a product in that category ranked 50,000 won’t sell very often, whereas a product in the Kitchen and Dining category ranked 50,000 sells frequently.

For a complete overview of sales ranking, see this post.

High Selling Price + Low Sales Rank = Buy It

Putting the ideas from above together, if you find a product that has a price on Amazon that is high enough to make a profit , AND the sales rank is low enough for it to be in demand on Amazon, you should buy the product!

While this concept takes a bit of explaining in a blog post, the actual process of scanning items to see their selling price and sales rank is pretty fast, taking no more than a few seconds per item.

This is the power of having the Amazon Seller app in your hand—you can make hundreds of buy or don’t-buy decisions per hour, making your way through a thrift store or clearance section quickly.

Is Retail Arbitrage Worth It?

In a word, yes, and if this quick introduction appealed to you, I encourage you to read more about it.

There is a book on the subject, called “Arbitrage: The authoritative guide on how it works, why it works, and how it can work for you”, that you can pick up inexpensively on Amazon. This book helped inspire my Amazon selling career, so I recommend it wholeheartedly.


Interested in reading more about retail arbitrage? Check out my post about how your competition is bad at it, which is good for you.

FBA Journey

Have something to add? share your thoughts in our comments section below.