Online Arbitrage Side Hustle Opportunity — Is It Worth It?
In this article I would like to introduce you to the Online Arbitrage business model and discuss its advantages and disadvantages. At the end of this article you should be able to decide for yourself whether this business model can be a suitable side hustle for you or not. Without further ado, let’s get started.
What is Online Arbitrage?
Before we get into the definition or explanation of online arbitrage, let’s first clarify the term arbitrage. Essentially, it is a concept that has been around for over 1000 years. We are talking about classical trade, where goods are bought cheaply and sold on at a higher price. The difference (also called margin) is the profit that is made. In online arbitrage we do nothing different. The only difference is that this time we buy the goods online at a low price and sell them online at a low price. Whereby we do not necessarily have to sell the goods online. In the course of this article, however, I will stick to this case, where the goods are bought as well as sold online.
How does online arbitrage work?
Imagine you visit a Walmart near you and look for cheap products. But instead of physically visiting a Walmart store, this time you decide to go online by visiting Walmart’s online store. Again, you’re on the lookout for great value products. Once you’ve found one that you think you can resell at a higher price, you’ve already mastered the first task of the online arbitrage model — product discovery. But thinking does not mean knowing. At this point you have to make sure that this product can be resold at a higher price. Now there are several ways to find out. But before we can find out, we have to be clear about where we want to sell the product in the first place. There are basically two possibilities (online):
- We participate in a marketplace (like Amazon)
- We sell it through our own online store
Both options have their advantages and disadvantages.
The basic advantage with the marketplace is mainly the reach. If we join a marketplace, we don’t necessarily have to provide traffic anymore. Because, as we know, this is usually already available at the marketplace. Especially if we stay with Amazon, traffic is the least of our worries. But where a lot of traffic is concentrated, you should also expect a lot of competition. That’s exactly how it is with Amazon. You can already expect that the product you want to sell on the Amazon marketplace will also be sold by some other people. A price war is to be expected in the vast majority of cases. Which means nothing else than: You undercut each other to a certain degree to get the buy box. This is the only way to increase the probability that the product will be sold.
With the online store, the advantages as well as disadvantages are very similar to the marketplace, except that we can actually turn them around. The advantages of the marketplace are the disadvantages with the own online store and the disadvantages are the advantages. Because with our own online store, no one but us (except agencies) takes care of traffic generation. We have to take this into our own hands and this task still turns out to be a special task for many webshop operators. However, the advantage lies in the independence in product presentation and pricing. Of course, even with our own web store, we still have a large number of competitors — for example, Amazon and other store operators would then fall under it — but we have a lot more creative freedom than with participation in a marketplace.
In the course of the rest of the article, I will use the first option “marketplace” as an example.
So once we have found a product that we think can be profitable, we need to check it out. In the end, we can do this relatively easily by checking the prices of the target platform (in our case, the respective marketplace such as Amazon).
Example:
We see an item at Walmart for $5. After researching on Amazon, we notice that the item is selling for 7.5$. So, simply calculated, we could say at this point that we will make an expected profit of 2.5$ if we sell the item on Amazon.
At this point, however, I must note that this example calculation should be viewed only for a better understanding of the process. There are some other variables that become important in the process, such as shipping costs, fees, taxes, … that were not considered in this calculation.
But in essence, this is the process of online arbitrage. We buy online cheap and resell elsewhere the product more expensive. The difference is our profit at the end of the day — that’s all.
Now for final question:
Should I consider dropshipping as a side hustle?
I believe that the entry level for this business model is relatively low. You only need some capital to order the first products. After that — should you decide to go for the marketplace variant — you only need some know how about the possibilities of the respective marketplace. With Amazon, for example, there would be FBA. This allows us to send our ordered goods to an Amazon warehouse. Then, when we sell our item on Amazon, the item is shipped on Amazon’s part. So we don’t have to worry about that anymore. Something that has both advantages and disadvantages.
All in all, it’s a side hustle that definitely deserves “you can definitely give it a try” status. That’s because, in essence, the risk involved is relatively low. In the worst case scenario, we are left sitting on our goods should we fail to sell them. However, countless guides here on Medium and also on other content platforms give a variety of tips so that you can rule out this scenario as much as possible.
Personally, I’m a big fan of the arbitrage model. Mainly because the progress can be felt relatively quickly. We purchase our items online, wait a few days for them to ship, package them, and then ship them to an Amazon warehouse/storage facility. At this point, the process is also over. The main task to be able to do online arbitrage successfully in the long run is the permanent sourcing of suitable products. This is what most people who view this side hustle a bit more seriously spend most of their time doing.
Disclaimer
This article/blog post and the information it contains are for informational purposes only. It should not be considered financial or legal advice or the like. Not all information is accurate/correct. Before making any major (financial/legal) decision, please consult a financial or legal professional.
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