I can help you make sense of the chaos, so that you can make the best decision to start your online business.
Today, I’m going to break down four common online fulfillment methods: Arbitrage, Dropship, Wholesale, and Private Label.
I have been where you are—confused and trying out multiple types of online stores. But the Just One Dime team, and our over 50 years combined experience selling on Amazon is here to help. Some of our top students, including several 7-figure sellers, got their start with arbitrage.
What Is Arbitrage and How Does It Work?
Arbitrage is when you purchase an item at a low cost and then resell it for a higher price somewhere else. It’s a great way to make quick money.
For example, let’s say you buy a foam roller for $5 at a store closing sale.
You then sell that same foam roller on Amazon for $20.
You pocket $15 minus Amazon fees and boom! That’s arbitrage.
Arbitrage is a fairly straightforward process: You can start with one sole item. Sell it. And then source more products for your store with the money you make from that sale.
Because arbitrage allows you to start making money off of little investment and inventory, it’s one of the easiest and lowest cost ways to start selling online. In fact, I sold products arbitrage to help fund my businesses.
If you want to test the ecommerce waters without risking a big loss, or you’re short on funds, arbitrage is a great method.
Take it from former Just One Dime student, Eric Abbey:
Eric had a small arbitrage business where he fulfilled all of his own orders. With Just One Dime’s training, Eric scaled his business in just a few months. He went from selling 10 to 20 products a week to selling thousands of units in the same amount of time. Eric supplemented his income and, ultimately, purchased his family’s dream home.
However, no ecommerce method is perfect. Arbitrage has its drawbacks—specifically, the unending demand on your time.
Whenever you make a sale, you must replenish your stock. Without a dedicated inventory or supplier, you have to hunt products for your store. This takes time and makes it harder to scale your business.
Take our foam roller, for instance. It was a one-off. There was one left in the store, you snatched it up and resold it, but now you’re out of inventory. Without a huge supply of closeout foam rollers waiting to be uncovered, you must now take your $15 in profits and find another product to add to your store and keep the business viable.
Even if you bought 100 foam rollers on clearance, that supply will run out without a way to refill.
Arbitrage becomes a question of “what’s next?” And potential arbitrage products might not always be easy to find. Arbitrage stores require research so that you can find items, with fairly consistent sources, that will not only sell, but will sell well enough that you can make money. Check out the best product categories for arbitrage here.
Additionally, because you are relying on someone else’s products and brand, arbitrage is not as sustainable as other methods. You can make decent money while starting from very little. But you won’t have a brand to sell in the end although you can sell the operation itself.
Arbitrage requires constant sourcing to maintain inventory. Instead of one offs, let’s check out how to build a scalable store with dropship.
What Is Dropship and How Does It Work?
Dropshipping is when another company owns the inventory that you sell to shoppers. When a shopper buys from your listing, the company that owns the inventory fulfills your shoppers’ orders.
In other words, you find a product and a source store. You create a listing for that product. And then whenever someone clicks “buy” on your listing, you buy the product from your source company who then ships the order to your customer.
For example, let’s say you find a company on AliExpress that sells foam rollers for $18 each.
You create an Amazon listing to sell their foam rollers at $30 per piece.
When someone clicks “buy”, you take the $30 from that transaction and purchase one of the $18 units from your source company.
The source company then processes the order and ships the foam roller to your customer.
You keep $12 in profits minus Amazon fees and shipping fees.
Dropshipping allows you to start selling with little to no money, making it one of the lowest cost ways to sell online.
More specifically, you don’t buy or stock inventory. You don’t pay your source company until a transaction occurs on your listing, and then you can use the money from that transaction, from your customer, to pay that company to fulfill the order.
So, if you want to start selling with little-to-no startup money, dropship could be your winner.
Dropshipping can require some backend work on your part to ensure orders are fulfilled. When someone clicks “buy” on your foam roller listing, you must go back to your AliExpress source and purchase it for that customer.
Fortunately, you can automate the process with software so that your transactions autofill for you.
However, even though dropshipping can be low cost and simple, it’s not necessarily as profitable as other methods.
Most of the companies you’ll work with for your dropship store typically work off of minimum order quantities (MOQs) where the more units you buy, the less you pay per individual unit. These minimums often start in the hundreds, at best. For example, you may only pay $2.50 per foam roller if you order a thousand units at once.
But the customers who buy from your listing buy individual units. In fact, most of your shoppers will need one foam roller, maybe two, max. They certainly don’t need 1000.
This is more work for your source, so the price per unit skyrockets, which only cuts into the money you make from your sales.
You can raise your listing price to try to make this money up, but keep in mind all products have their cap. You may want to sell a foam roller for $100, but that doesn’t mean there’s a customer willing to buy it.
Just as with arbitrage, you’ll have to do product research to find an item you can purchase at a price that leaves enough margin for you to make good money.
Additionally, with dropshipping, you don’t physically deal with your inventory, nor can you request an inspection for each batch of inventory—which means you lack quality control over what you sell. This means you might end up selling too many duds, and when a shopper receives a dud, they could hurt your listing with a critical review.
Add to that, you are still relying on someone else’s brand. This means you won’t build a brand to sell. You can scale, but not sell a brand.
Arbitrage and dropship stores can take a decent amount of time to get off the ground and can come with a lot of back end work. Let’s take a look at how to move a lot of product quickly with wholesale stores.
What Is Wholesale and How Does It Work?
Wholesale is when you secure the rights to purchase name-brand products in bulk at a discount and resell them at a higher price.
It’s like arbitrage except you buy directly from the company that makes the product (rather than a retail store), and you buy a lot of inventory at once.
Instead of paying full manufacturer’s suggested retail price (MSRP) on an item, you pay less per individual unit because you buy in large quantities. You then resell the product for more than you paid (ideally at or around the MSRP).
It’s the same reason you spend less per roll of toilet paper when you buy a 30 pack from Sam’s Club or Costco: companies are willing to sell a product for less per unit when you buy a lot of units at once. Instead of Costco making a ton of profit per unit and sell one unit at a time, Costco makes less profit per unit, sell more units at once, and makes more profit overall.
It becomes all about volume.
For example, let’s say you want to sell a lot of foam rollers. You connect with the brand TriggerPoint and sign a contract to purchase 300 of their foam rollers for $15 each. This product typically retails for $35.
You resell your TriggerPoint foam rollers on Amazon for the standard $35. Every time someone clicks “buy” on your product, you pocket $20 in profits, minus Amazon and supplier fees. These foam rollers sell more easily than others because the name TriggerPoint already carries brand recognition.
By leveraging a brand name with a pre-established following, your product sells right away. You’re offering something people already know, love, and crave. This makes wholesale an incredibly efficient and attractive fulfillment method.
However, you have to buy big.
Just like you buy your toilet paper in bulk at Costco for their discount, you can’t get a discount to sell wholesale without ordering product in mass quantities. That wouldn’t make sense for the brand.
Wholesale stores require much more upfront capital than other stores because you buy your inventory in bulk. If you buy 300 foam rollers, even at the discounted $15 rate, you still need $4,500 upfront for inventory, alone.
And while wholesale does come with pre-established brand recognition that moves products quickly, it doesn’t necessarily guarantee sky-high profit margins, as you might hope.
Additionally, if you sell your TriggerPoint foam rollers on Amazon, you may not be the only seller. There could already be a listing for that product from other, independent sellers.
You can add yourself as a supplier to the listing. However, in order to make your product more appealing than other sellers’ options, you must reduce your price.
If the current supplier offers their foam roller for $35 (MSRP), you can list yours for $32 to win the buy box. Winning the buy box means you are the seller shoppers buy from when they click Amazon’s “Add to Cart” and “Buy Now” buttons. Shoppers can buy from the sellers who did not win the buy box when they click the “New & Used from $x” section buried at the bottom.
Even after you win the buy box, you run the risk that the original supplier, or even a different seller, will swoop in and out-price you at $30 to win the buy box back, and so on and so forth.
This cuts into your profits. Wholesale can quickly become a race to the bottom when there’s heavy competition. The more competitive the market, the less money you see in return.
That’s a win for the shopper but not for you.
Also, consider that your supplier can end your contract whenever they see fit (depending on the terms). This means you can be out of business in a second.
If TriggerPoint decides to sell their foam rollers on the same platform you sell on, like Amazon, they might require you stop selling on Amazon to avoid competition for the foam roller buy box.
And just as before, you will not create a wholesale business to eventually sell for profit. You are explicitly selling under someone else’s brand name by contract. So, your business ends when the contract does.
Arbitrage, dropship, and wholesale all depend on someone else’s label, which, to be fair, has its advantages. Private label, however, is different.
What Is Private Label and How Does It Work?
Private label is when you build your own brand and create products that offer solutions for your customers. If you do it right, you can create a well-known company that eventually sells for a lot of money.
So, instead of selling TriggerPoint foam rollers, you could sell McGee foam rollers (if your name is “Bobby McGee). However, you must give the shopper a reason to choose your brand over any established brand.
How? Your brand must solve a problem for your consumer that other brands are not solving.
A “problem” could be aesthetic or functional. For example, problems can be as simple as a different color or as complex as re-doing a product’s functionality.
When you solve a problem your competitors aren’t solving, you differentiate yourself from your competitors. Now, shoppers have a reason to choose your product even when you have no brand recognition or reviews.
For example, let’s say you develop your own brand, McGee Foam Rollers.
You find out in yoga forums that a common complaint is that the foam rollers get too hot in the sun. So, you figure out a way to solve this problem with a special material that resists heat. You then find a supplier that can make it a reality.
You pay the supplier for 1,000 units and get the inventory shipped to Amazon fulfillment centers. You list the special McGee foam rollers on Amazon and run an ad campaign. Shoppers see your new listing because of your paid ads, and they buy because you offer unique value. Then, Amazon fulfills the order for you.
Once you have your listing and ad campaign optimized, you will have less and less to do in order to sell a lot of units.
Over time, your income becomes more passive. It sells while you sleep.
This is what Just One Dime does: teaches you how to build passive income through private label so that you get the time and financial freedom to do the things you love with the people you love.
Getting started with private label typically requires more startup money than arbitrage or dropship, and more time than wholesale.
But you have a much greater opportunity for high profit margins with private label.
Plus, you won’t be dependent on other brands. You build your own brand that you have control over. Then, you can one day sell your brand for a massive exit. This is what hundreds of Just One Dime students across over 150 countries are doing right now.