Online Arbitrage vs Dropshipping: Which Business Model Is Best For You?

Online arbitrage and dropshipping are two popular business models for Amazon sellers. Both models have their own advantages and disadvantages, so it's essential to understand the differences between them before you decide which one is right for you.

Online arbitrage is a good option if you're looking for a low-risk business model with the potential for high profits. However, dropshipping may be a better choice if you're short on time or don't want to deal with inventory management.

In this post, we'll take a closer look at their pros and cons and help you decide which one suits you best.

What Is Online Arbitrage?

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Online arbitrage (OA) is the practice of purchasing products from one online retailer and reselling them for a profit on another online marketplace, such as Amazon.

That is a low-risk business model, as you don't have to invest in large inventory quantities upfront. However, it can be time-consuming to find products selling for a high profit on Amazon.

Amazon online arbitrage can be a profitable business model, but it is essential to do your research and understand how the process of online arbitrage sourcing works.

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What Is Dropshipping?

Dropshipping is a business model in which the merchant does not keep any inventory they sell in stock. When a shopper places an order, the seller buys the product from a third-party supplier. After that, the supplier delivers the order directly to the customer. In this model, the seller doesn’t see or handle the item.

Dropshipping is a popular business model for online sellers because it allows them to start selling products without investing in inventory or warehousing. That can be a great way to get started in e-commerce, as it has lower entry barriers.

However, there are also some disadvantages to dropshipping. For example, you may have less control over the quality of the products you sell and be more sensitive to shipping delays. 

Note. Amazon allows dropshipping with certain restrictions. You must be the seller of record of your products. That means you must identify yourself as the merchant selling a product to the end customer and include your name and contact information in all product documentation, invoices, and on the packing slip.

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Difference between Online Arbitrage and Dropshipping

Online arbitrage and dropshipping are two popular business models for selling products online. Both are used to resell cheaper-priced products to make a profit on Amazon.

However, dropshipping doesn’t involve inventory management, while with online arbitrage, you must deal with inventory. Another crucial difference is that with online arbitrage, you must purchase inventory before selling it to a customer. In contrast, with dropshipping, you don’t purchase the item until the buyer orders it.

Online arbitrage is a low-risk business model and can make you essential money, but it takes a lot of time to find profitable online arbitrage leads. With dropshipping, you don't have to worry about prepaying products or sending them out to customers. However, you will typically make less profit with dropshipping than online arbitrage and have less control over the delivery process.

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Pros and Cons of Online Arbitrage

Online arbitrage can be a low-risk way to sell on Amazon, but it's essential to be aware of its potential upsides and downs before starting.

Pros of online arbitrage

Easy-to-start

To begin selling under the OA business model, you just need to have a seller account on Amazon and product research tools to help you find profitable products. There’s no necessity to invest much money in the inventory either. 

High-profit potential

If you can find products selling for a lower price on one online retailer and a higher price on another, you can make a significant profit.

Scalability

You can quickly scale your business by buying more products and selling them on more online marketplaces.

Cons of online arbitrage

Time-consuming

It can be time-consuming to find products selling for a profit on Amazon.

High competition

The online arbitrage market is becoming increasingly competitive, so it can be difficult to find profitable products.

Risk of returns

If a customer returns a product that you bought through online arbitrage, you will be responsible for the return.

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Pros and Cons of Dropshipping

Dropshipping can be a great way to start selling on Amazon. However, it is crucial to understand the advantages and disadvantages of this business model before you get started with the items to dropship on Amazon.

Pros of dropshipping

Low start-up costs

You don't need to invest in inventory or warehousing, so you can start selling products with very little money.

Low risk

There’s no necessity for you to invest in the inventory upfront. Therefore, you won't have to worry about losing money on it.

Easy to scale

You can quickly scale your business by adding more products or selling to more customers.

Cons of dropshipping

Less control over the quality

You may have less control over the quality of the products you sell, as you are not the one who is storing or shipping them.

Susceptible to shipping delays

If your supplier experiences shipping delays, it can affect your ability to fulfill orders on time.

Less profit margin

You will typically make a smaller profit margin on each sale with dropshipping, as you are not the one who sets the product's price.

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Which Is the Best — Online Arbitrage or Dropshipping?

When selecting the best model for your business, you must consider your circumstances and preferences. If your target is to do business on Amazon with a small initial capital and get the potential for high profits, then online arbitrage is for you. However, dropshipping may be an option if you are a newbie on Amazon and don't want to deal with inventory management.

Helpful factors in selecting online arbitrage or dropshipping

Your experience level

If you are new to selling online, dropshipping can be a better choice, as it is less complex than online arbitrage.

Your budget

If you have a limited budget, dropshipping may be better for you, as you don't have to invest in inventory upfront.

Your time commitment

If you don't have much time to dedicate to your business, dropshipping may be a better option, as it is less time-consuming to set up and manage.

Your goals

If you are looking to make a lot of money, then online arbitrage may be a better business model. However, dropshipping may be a better option if you want to start a business with low risk.

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How Seller Tools Help with Online Arbitrage and Dropshipping?

Seller tools are essential for Amazon sellers who want to find profitable deals, do product research, price products, and calculate expenses and profit. 

Seller Assistant App is one such tool that provides powerful product research capabilities for online arbitrage sellers and dropshippers. It allows you to see all essential product metrics right on the Amazon search and product pages, find the best online arbitrage deals and save results to Google Sheets. 

With Seller Assistant App, you can estimate product profitability, and Amazon fees, check product restrictions, and much more. This information can help you select the right product to resell for a profit.

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FAQ

Are online arbitrage and dropshipping the same?

No, online arbitrage and dropshipping are not the same. In online arbitrage, you buy products from a retailer and sell them on Amazon for a profit. In dropshipping, you don't own any inventory. When a customer orders a product from you, you simply place an order with a supplier, who then ships the product directly to the customer.

Is Amazon Online arbitrage still profitable?

Yes, Amazon online arbitrage can still be profitable, but it is becoming more competitive. In order to be successful, you need to be able to find products that are selling for a profit on Amazon, and you need to be able to do so quickly. Seller tools like Seller Assistant App help you do so.

Is online arbitrage worth it on Amazon?

Whether or not online arbitrage is worth it on Amazon depends on a number of factors, including the product you are selling, the competition, and the fees charged by Amazon. However, it can be a profitable business model if you are able to find products that are selling for a profit on Amazon. Seller tools like Seller Assistant App can help you find profitable deals.

What is the best Amazon online arbitrage tool?

The best online arbitrage software is Seller Assistant App. It is specifically designed for product research and shows all essential product metrics right on the Amazon product and search pages and lets you quickly estimate if a product is worth buying.

Final Thoughts

Now that you've read about online arbitrage and dropshipping, you can decide which business model suits you. There's no one-size-fits-all answer, as the best business model for you will depend on your individual circumstances and preferences.

Online arbitrage is an excellent solution if you're looking for a low-risk business model with the potential for high profits. However, if you're short on time or want to avoid the hassle of inventory management, you can go for dropshipping.

Whichever business model you select, your success depends on choosing products to sell. Seller Assistant Аpp can ultimately assist you with selecting the best products for Amazon arbitrage and dropshipping. This comprehensive tool displays all product metrics and the profit you will get. It also helps you immediately see if a product has any sales restrictions or has generated problems in the past. It includes an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker as one tool.