Online arbitrage (OA) is one of the easiest ways to start selling on Amazon, but it comes with recurring problems that eat into profit: finding good products, competing with other sellers on the same leads, sudden price drops, returns, account health issues and cash flow. The good news is that almost every OA problem has a practical fix.
Quick answer: The 10 most common problems in Amazon online arbitrage are (1) finding profitable products, (2) managing inventory, (3) complying with Amazon’s policies, (4) high return rates, (5) weak pricing strategies, (6) poor cash flow, (7) market and price fluctuations, (8) authenticity and IP complaints, (9) data management, and (10) protecting your seller reputation. Below, we explain why each one happens and how to solve it.
1- Struggling to Find Profitable Products
In the bustling world of online arbitrage, time is money. Insufficiencies in sourcing products can lead to a severe drain on resources in terms of time and capital. Every minute spent sourcing insufficiently is a missed opportunity – a product overlooked, a profitable sale lost. So, an insufficient approach to Amazon product sourcing can significantly decrease profitability and your chances of success.
Why It Happens: a lack of adequate research strategies and an inefficient approach to product sourcing
How to Deal with It: the best solution to this challenge is testing different sourcing methods and developing a strategy accordingly. Consider using reliable online arbitrage sourcing lists, exploring sourcing tools and software designed to streamline the product research process, or using manual sourcing (although manual sourcing is not recommended because it’s very time-consuming). After testing each method, compare their ROI and continue using those with a good ROI. We recommend testing at least one sourcing list, because good OA leads lists are checked by experienced sourcers before they are shared. Keep in mind that every member of a list sees the same leads, so act quickly, check each lead yourself and choose lists that cap the number of members. Our guide on ways to find OA leads compares the main sourcing methods.
2- Managing Inventory
Managing inventory is another example of the challenges and problems of online arbitrage. Managing a diverse portfolio is challenging for OA sellers, and failing to do so effectively can lead to various online arbitrage problems. The most common inventory problems for OA sellers are overstocking, stockouts, and not knowing exactly what they have in stock. Overstock is especially costly on Amazon because FBA storage fees rise from October to December and aged inventory can incur extra surcharges, while your FBA capacity limits cap how much you can send in.
- Why It Happens:
- The lack of an efficient inventory management system
How to Deal with It: if this is the root cause of your problem, you must implement an effective inventory management system that seamlessly tracks stock levels, monitors sales, and even automates the reordering process. It doesn’t have to be expensive software; you can start with a simple Google Sheet.
- Why It Happens: the inadequate forecasting of demand
- How to Deal with It: If you can’t accurately forecast demand, you must find out the root of the problem and try to resolve it. Maybe the sales estimation tool you use provides inaccurate results, or your estimations are too optimistic/pessimistic. Either way, if you find out something is wrong with demand estimation, ensure you find the root cause and resolve it to prevent future problems. Mastering demand estimation for OA can also help with this.
3- Complying with Amazon’s Policies
One of the critical problems of online arbitrage that can make or break your business on Amazon is complying with its rules and policies. As a highly customer-centric eCommerce leader, Amazon has strict guidelines to maintain a high standard of trust and quality in its marketplace. Failing to comply with these policies can lead to penalties such as account suspension and even termination.
- Why It Happens: a lack of awareness or a misunderstanding of Amazon’s policies
- How to Deal with It: take the time to regularly review Amazon’s policies and read through the guidelines to make sure you fully understand them. If anything is unclear, contact Amazon Seller Support and ask your questions. It’s also good to visit Amazon seller forums regularly or follow people who broadcast Amazon’s latest policy changes or guidelines to keep yourself updated.
- Why It Happens: negligence or intentional violations of Amazon’s policies
- How to Deal with It: Always adhere to Amazon’s policies, as an intentional violation can lead to account suspension, which can be lethal to your business. Remember, you can’t build and manage a long-term business without following the rules.
4- High Return Rates
High return rates are like the kryptonite to the profitability and reputation of OA sellers. Such problems of online arbitrage impact your bottom line directly through refunds and operational costs and undermine your standing in the eyes of customers and Amazon, leading to longer-term implications.
- Why It Happens: the nature of the items sold – some categories, like clothing or complex tools, come with higher return rates
- How to Deal with It: when considering a lead, estimate the return rate using the product’s rating, complexity, or category. Weigh the likely return rate against the profit margin, and if you want to sell in high-return categories, ensure that your profit margins are robust enough to absorb the impact of returns while remaining profitable.
- Why It Happens: poor customer service leads to customer dissatisfaction.
- How to Deal with It: address customer queries efficiently and empathetically, resolve issues proactively, and offer excellent customer service.
- Why It Happens: recurring product or operational issues that haven’t been addressed
- How to Deal with It: regularly review the reasons for returns and customer feedback to identify common issues leading to returns. Then, address these issues head-on and actively resolve them.
Returns also cost FBA sellers directly: Amazon charges a returns processing fee on products whose return rate is above a threshold set for their category, so check the return-rate data in Seller Central before restocking an item. Learn more about Amazon’s return policy for sellers and how to handle Amazon FBA returns.
5- Inadequate Pricing Strategies
Inadequate pricing strategies can lead to two equally adverse outcomes: overpricing can scare away potential customers and decrease sales volume; underpricing squeezes your profit margin and affects your bottom line. This can lead to problems of online arbitrage, like decreased profits and competitiveness.
- Why It Happens: setting prices without considering the pulse of the market and competition
- How to Deal with It: leverage the best Amazon repricer tools to optimize your pricing strategy based on market trends and competition. These tools provide valuable insights into pricing patterns, ensuring pricing stays competitive and profitable.
- Why It Happens: failing to take all costs, including Amazon’s fees, into account when pricing products
- How to Deal with It: understand your total cost basis and factor in all costs, including Amazon’s fees, when pricing products to set a price that covers these expenses and ensures a healthy profit margin. You can use a reliable tool like the free Amazon FBA calculator.
- Why It Happens: failing to revisit and adjust pricing strategies as necessary based on performance data and market trends
- How to Deal with It: to prevent this problem, regularly review and adjust your pricing strategies when necessary. This will ensure your prices stay competitive and optimized for profitability.
6- Poor Cash Flow Management
Cash flow is the lifeblood of your OA business, allowing you to invest in new inventory, cover operational costs, generate profits, and avoid problems of online arbitrage. However, poor cash flow management can lead to a lack of funds to replenish inventory, creating a domino effect and resulting in stockouts, missed opportunities, and financial instability.
- Why It Happens: inadequate forecasting of sales and expenses
- How to Deal with It: You should implement tools and software to help forecast sales and expenses, providing a clear picture of your cash flow and allowing you to manage it effectively.
- Why It Happens: overinvestment in slow-moving inventory, which leads to tied-up cash in products that take too long to sell
- How to Deal with It: regularly review your inventory turnover rates to find out how quickly your stock is selling, and adjust your orders accordingly to avoid overinvestment in slow-moving items.
- Why It Happens: the lack of a safety net in the form of a cash reserve for emergencies
- How to Deal with It: maintain a cash reserve for emergencies, such as unexpected expenses or sudden market turndowns.
7- Market Fluctuations
Market fluctuations are a fact of life, especially on a dynamic platform like Amazon. Prices fluctuate rapidly, and a lucrative product may become a financial sinkhole in days. This means sellers must remain vigilant, constantly monitor prices, and adjust their strategies to remain profitable. But this process can be time-consuming and stressful, adding to the complexities of running an OA business and problems of online arbitrage.
- Why It Happens: inadequate analysis of the lead beforehand and failure to understand historical price trends
- How to Deal with It: analyze the price history chart of a lead using tools like Keepa. Check its historical price fluctuations to assess price consistency and reliability. The more stable a product’s price history, the less likely it is to have sudden drops or spikes. Also, consider other factors like profit and ROI to balance the risk and reward.
8- Product Authenticity Claims and IP Complaints
Sometimes, buyers may claim the product they received is not genuine, or a brand owner may file an intellectual property (IP) complaint against your listing. Both lead to disputes, listing removals, account health warnings and, in the worst case, account suspension. Because OA sellers buy from retailers rather than distributors, they usually can’t provide the supplier invoices Amazon asks for to prove authenticity, which makes these complaints harder to resolve.
- Why It Happens: sourcing products from unreliable or unverified suppliers
- How to Deal with It: source your products only from reliable and reputable online suppliers. Thoroughly vet your suppliers, review their credibility, and ensure they have a track record of delivering authentic products. Keep every receipt and order confirmation.
- Why It Happens: selling brands that actively enforce their IP or restrict resellers
- How to Deal with It: before buying a lead, check whether the brand has a history of IP complaints (tools like SellerAmp and Seller Assistant show IP alerts) and whether you need approval to sell it. Read our guide on IP complaints on Amazon and monitor your Amazon account health regularly.
9- Data Management
You’ve probably heard that data is the king of the digital age. One of the challenges or problems in Amazon online arbitrage is managing sales data, profits, fees, and other relevant information. While efficient data management is vital for making informed, strategic decisions, poor data management can lead to overlooked insights, less-than-optimal decision-making, and reduced profitability.
- Why It Happens: the lack of an efficient data management system
- How to Deal with It: learn about and set up a reliable data management system for your business to collate essential data that can be leveraged for decision-making. You don’t necessarily need complex tools; you can start with a simple Google Sheet. Just determine which data points need to be analyzed.
- Why It Happens: failure to regularly review and analyze collected data
- How to Deal with It: keep the bigger picture in mind and make it a habit to regularly review and analyze your data. This lets you gain valuable insights, spot trends, and make data-driven decisions.
- Why It Happens: an inadequate understanding of key performance indicators (KPIs)
- How to Deal with It: familiarize yourself with KPIs relevant to your business and monitor them regularly to continually assess your performance, identify areas for improvement, and take proactive steps to ensure you are on the right path.
10- Maintaining a Positive Seller Reputation
Your reputation can make or break your Amazon online arbitrage business. Negative reviews or seller feedback can cause problems of online arbitrage, like deterring potential buyers and impacting your ability to make sales. Maintaining a positive seller reputation is not a one-time task but a continuous effort that requires superior customer service and proactive management of any issues.
- Why It Happens: poor customer service leads to customer dissatisfaction.
- How to Deal with It: provide excellent customer service. Be responsive, patient, and understanding when dealing with customer issues.
- Why It Happens: failure to address negative reviews or customer complaints
- How to Deal with It: regularly monitor your reviews and address any negative feedback promptly and professionally. This shows customers that you value them and are committed to solving their problems and helps maintain a positive seller reputation on Amazon.
If you want to learn how to deal with negative Amazon seller feedback, click here.
Final Thoughts
In this article, we discussed common problems of online arbitrage and how to solve them. As we navigate the complexities of online arbitrage, we understand that a successful business and a steady income take work to achieve. Like any other business model, online arbitrage has its own challenges. However, there is a solution to every problem. Sellers should take the time to consider the challenges and solutions mentioned above and analyze their business to see what can be done better.
FAQ: Online Arbitrage Problems
What is the biggest problem in online arbitrage?
For most sellers it is consistently finding profitable products that they are allowed to sell. Many good leads are in restricted brands or categories, and popular leads attract other sellers quickly, which pushes prices down. A mix of sourcing methods, careful lead checks and gradual ungating solves most of it.
Can online arbitrage get my Amazon account suspended?
Online arbitrage is allowed on Amazon, but authenticity complaints, IP complaints and selling restricted products without approval can lead to suspension. Buy only new, genuine products from reputable retailers, avoid brands with a history of IP complaints, and keep your account health metrics in good standing. See how OA sellers can avoid account suspension.
Is online arbitrage still profitable?
Yes, for sellers who manage costs carefully. Profit depends on choosing leads with enough margin after Amazon’s fees, keeping inventory moving and avoiding the problems above. Our online arbitrage guide covers the basics if you are just getting started.
