In fact, this is a business model I recently started myself. If you have visited my blog before, you know that I have already created my own private label product that I sourced from China and sent to the Amazon FBA warehouse.
The reason I now decided to try out dropshipping is that I do not have to spend thousands of dollars on inventory.
Instead, when any of my listings are selling, I purchase the product from a supplier and ship it straight to the customer. This is saving me a great deal of money from having to invest in manufacturing products.
The only major con with this business model is that the margins are lower. You have to sell on volume to make enough profit. It is also a bit risky to not be able to do the product quality control yourself and rely on other sellers to be ethical.
Update July 2017
After using dropshipping as eCommerce model for 6 months now, I have experienced the reality of unethical suppliers. I got scammed pretty bad on AliExpress, and I highly recommend to NOT dropship from them. At least, if you do not have a good relationship and already know the supplier. You can read more about what happened here:
I came by a great article by webretailer.com, where they interview British scientist, Ben Hovell, who started retail arbitrage by a coincidence and became very successful with it.
Ben Hovell From Scientist To Successful Retail Arbitrage Guru
Ben Hovell started arbitrage selling on eBay in 2008. He bought an item on eBay, only to have it arrive in a box from Amazon.co.uk.
Ben then discovered that the item was cheaper on Amazon than on eBay, and pieced together what had happened.
It is important to understand that this is not Fulfillment by Amazon (FBA), like I am introducing in:
The seller does not purchase products in advance and ship them to the Amazon warehouse for Amazon to handle the processing and shipping. The key is instead that the item is only bought from Amazon, or any other wholesaler, once a sale has been made on eBay.
Amazon is effectively being used as a drop-shipper. Find out more about dropshipping in my prior article:
Having understood the basics, Ben decided to get into the arbitrage selling business himself:
“Hard drives were very expensive at the time, so I listed ten on eBay and copied the prices from Amazon, with a bit added on. Then I sold one, which was wonderful. I sold another one a week later, which was wonderful again”.
The next sale did not go as smoothly. The price had gone up on Amazon, and he lost money on the sale. Amazon actually makes millions of price changes every day, which creates a major challenge for arbitrage sellers.
The next step was creating a piece of software to check Amazon prices three times a day and if they had changed, create an upload for eBay’s File Exchange System to update the prices. With this automation in place, Ben scaled up his business, and had hundreds of eBay listings running:
“It had gone from a hobby to a little more serious. We are talking about $129 or $260 in profit per week. Not a living, but worth having. I realized my constraint on growth was twofold: one, I needed more eBay listings and two, I needed to update prices more frequently”.
Next, Ben commissioned more powerful software to check prices every hour, and found a company in India to outsource the work of writing eBay listings. Both constraints were resolved, and the business “just ballooned and ballooned.”
Sales were growing rapidly, and both eBay and PayPal fees started to go down thanks to volume discounts. By using an Amex credit card with cash-back, the Amazon purchase price was in effect lowered by 1.5%, reducing costs further.
At this point Ben employed someone for 2 to 3 hours per day to place orders on Amazon – up to fifty a day – and was making tens of thousands of pounds in profit a year. Ben was spending millions of pounds on Amazon.
What Did Ben Sell?
Anything and everything on Amazon’s bestsellers lists, as long as it was priced between $65 and $650. Ben would list everything on eBay for the Amazon price plus a percentage and a fixed “fee” – a kind of commission for handling the transaction. But then things changed:
“It got increasingly difficult to buy. Amazon said “hey, this is not for personal use”, and stopped me from buying. I don’t know why it happened, there is no dialogue there. There are ways to get around it but I decided that it would not last forever and went back to being a scientist”. That was in 2012.
Ben’s style of arbitrage selling was based on high volumes, and clearly it can be profitable. With good software and outsourcing, it seems like he found internet marketing’s holy grail of a “passive income”.
So What Is The Catch?
It is a zero-sum game with a race to the bottom. Not everyone can make money doing the same thing. But arbitrage selling will continue to exist as a niche, run by people with the willpower and programming knowledge to do it.
It is like trading on the stock exchange, which still has arbitrage with fast frequency transactions, and we still have arbitrage in the betting markets. It is exactly the same game and will always be there. It just happens to be doing it with consumer goods (source: webretailer.com).
“Not Everyone Can Make Money Doing The Same Thing”
Yes, there is a point in this statement from Webretailer but with the growing eCommerce market there are still lots of opportunities out there.
Some people say it is best to focus on a small niche and some, like Ben Howell, advises you to sell “a bit of everything” and focus on volume.
My plan is to do both.
In this moment I am building an eCommerce business that will focus on good deals of a number of different products. In the pipeline is also to build another eCommerce store that is niched. I will keep you posted on my progress, and what seems to work the best.
Until next time, stay blessed, and make sure to create your own dream – not someone else’s!
About the Author
My name is Stina Pettersson. I am the founder of Make A Living From Home In 2017 and Get Happy e-Deals. I am the author of the articles on this site. Originally from Sweden, but love the warm weather in Florida where I now reside.
I help people to start their own online business and make a living from home. I am especially fond of helping people interested in eCommerce – Amazon FBA, Dropshipping and Online Retail to get started and make a good living from home.
I hope I will get the honor to help YOU achieving your online success.
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