Dropshipping vs Retail Arbitrage – Which One To Do First

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There are many ways to you can make money online. High-ticket dropshipping and retail arbitrage are two methods that we have personally tried.

And one thing we see a few people asking is, which one is better for beginners? Which one should you do first?

To answer that question, we’ve written this guide and done a video comparing high-ticket dropshipping vs retail arbitrage. Our objective is to compare these methods on four key points:

  • Time to cash flow
  • Risk
  • Startup capital
  • Scalability

Let’s jump right in.

Time to Cash Flow

At this point, we’re going to examine how quickly you’re going to start making money through either retail arbitrage or high-ticket dropshipping. In other words, how long after you start do you need to wait for the payoff?

There are a number of factors that can lead to one being quicker than the other.

Generally, though, retail arbitrage tends to be quicker when it comes to cash flow, and you could see profits in as little as a few days. That’s because you don’t need to set up a website or figure out how to run ads.

All you do is go into a store or find one online, choose what you’re going to sell, buy it, and send it in. Nowadays, you may have to get your products ungated in some categories, but there are otherwise very few roadblocks to getting started.

High-ticket dropshipping can also be pretty fast. If you’re experienced in it, you could probably even do it quicker than retail arbitrage.

You could potentially set up a store in as little as two weeks if you understand how the infrastructure works. Where it can get slow is having to deal with other people, such as suppliers.

They’ll often work on their own time, and may not get back to you right away. You could see yourself playing phone tag or waiting on an email here and there.

Human interaction is naturally slower. You don’t have to deal with this as much in retail arbitrage; if you’re working with Amazon, for instance, most of it is automated, so you just sign up and send stuff in.

Read Also: High-Ticket Dropshipping vs Low-Ticket (What We Use for 7-Figure Stores)

Risk

Dropshipping vs Arbitrage Takeway: At the same time, though, working with other people in dropshipping helps protect you from risk. You’re able to work with actual people who have the power to get things done for you or resolve your issues.

Now, what about the risk involved with arbitrage and dropshipping?

We’ll start with dropshipping. One risk here is that relying on other people can be slower.

We’ve all seen it at our jobs. We’ve all played those games of phone tag or of emailing back and forth and waiting on responses.

At the same time, though, working with other people in dropshipping helps protect you from risk. You’re able to work with actual people who have the power to get things done for you or resolve your issues.

Because you have to establish a business entity in dropshipping, you should also learn a little about the legal side of running a business. We talk about the legality of dropshipping more in our guide: Is Dropshipping Legal?

With retail arbitrage, you’re probably dealing with just one party: Amazon. It’s mostly automated, which means there may be fewer initial obstacles.

But this can also be a downside. You’re putting all your eggs into that Amazon basket, because they have total control of your account.

We personally haven’t had a lot of problems dealing with Amazon. However, there are still some horror stories about people who have gotten their accounts suspended or terminated.

And if the worst happens to your Amazon account, working with their customer service can be a bit of a hassle. You may have to deal with numerous canned responses from customer service reps who don’t really have the authority to correct your issue.

This is another aspect that’s a huge difference between arbitrage and dropshipping. While your success or failure depends entirely on Amazon with arbitrage, your success isn’t dependent on just one party in dropshipping.

Say, for example, that Shopify shuts down for some reason. They’re only one link in the chain of your business, and you could otherwise use other ecommerce platforms for your dropshipping store.

But overall, we don’t think retail arbitrage is a huge risk. There’s still a slight risk, though, and you should be aware of it so you know how to use your cash flow to diversify quickly.

Personally, we think arbitrage works best as a starting point. Once that cash flow starts coming in, you should consider diversifying or stepping up to high-ticket dropshipping.

In our opinion, the best way to get started with retail arbitrage is with Jessica Larrew’s Amazon boot camp.

Read Also: Dropshipping Basics: 5 Easy Steps to Make $10,000 Profit a Month

Startup Capital

Dropshipping vs Arbitrage Tip: The difference between high-ticket dropshipping and retail arbitrage here is that, with arbitrage, you’ll need to invest more and more to see a greater return. With high-ticket dropshipping, there’s less of an up-front investment.

In our course, Instant Ecommerce Asset, we have a more in-depth breakdown of the startup costs, but we’ll give you an overview here.

Startup capital for retail arbitrage is extremely low. You may need to become an Amazon pro seller if you want to do FBA, which is around $40 a month. (There may be a free trial involved – we’re not too sure if that’s the case, though.)

When we started, it was on very little money. We went to clearance sections at places like Wal-Mart and Walgreens, and would sell those things.

We spent maybe around $50 for inventory, and within a week, we would get around $120 back. You’re essentially doubling your investment doing this.

With that cash coming in, you do what we call “feeding the beast.” You look for more stuff to buy whether online or in person, and you feed the beast with the cash you’re earning.

There are other small costs, too, like a label printer if you want one, but nothing too large with retail arbitrage.

The difference between high-ticket dropshipping and retail arbitrage here is that, with arbitrage, you’ll need to invest more and more to see a greater return. With high-ticket dropshipping, there’s less of an up-front investment.

Say you want to make a $2,000 profit in a month. You may need to spend a few thousand in advertising, but that will be over the course of the month and you’ll get that profit up-front as you make sales.

You’re investing more, but you’re getting paid first. So in terms of hard, cold up-front costs, it’s surprisingly minimal.

You can also start with free trials for many of the services you’ll need, like Shopify and Grasshopper.

When most people ask us about how much it costs to start, we assume they’re asking what the worst-case scenario is, how much it will cost if you absolutely fail. But it should never actually be like that.

You might imagine spending thousands on advertising and not make a single sale, but you can usually generate at least one sale every several hundred clicks. If you find this isn’t happening, feel free to reach out to us or take a look at our Instant Ecommerce course.

Want to hear a little more about our SEO strategy for ecommerce? In our podcast, we dive into our ecommerce SEO strategy for high-ticket dropshipping.

Read Also: Dropshipping Advertising Strategy – Why We Never Use Facebook Ads

Scalability

We’ll get right to the point with this one: we think high-ticket dropshipping is way more scalable than retail arbitrage.

Why? Well, once you start hitting $3,000-4,000 a month in profit with retail arbitrage, it’s more tedious to keep achieving that same level of profit or greater, because you need to keep investing in inventory.

Plus, when you get to that point, you start having to rely on others more and more. You’re relying on the retail stores, both online and locally, having the stock you need.

You also only have so much time you can spend packing and shipping your inventory. Sure, you can hire people to do that part for you, but then you’re eating away at some of your profits.

Retail arbitrage is a great low-risk way to earn some money, but when you’re ready to run a legitimate business, high-ticket dropshipping is the next step.

We should also mention selling either business here. You can’t really sell a retail arbitrage operation, because it can be inconsistent and it’s based on the luck of finding good deals to sell.

Unfortunately, you can’t put a price on that luck.

However, you can sell a dropshipping business. You can assume that your supplier will manage the stock for you, and you’re selling them at retail price, so you’re not dependent on finding deals.

The only thing that could vary is how much you spend on ads. In short, dropshipping is much more stable.

There are some critics to dropshipping. In fact, Ezra Firestone has said you shouldn’t do it, and we discuss why we think you still should in our podcast here.

Learned Skillset

What we mean by saying “learned skillset” is what skills you pick up doing either retail arbitrage or high-ticket dropshipping.

Here’s the bottom line: you’re going to obtain a far better skillset from high-ticket dropshipping than what you would gain from retail arbitrage.

In arbitrage, you’ll learn a bit about how Amazon works, and you can potentially apply those concepts to other businesses. For instance, you might learn about private label (FBA), which you can apply to Kindle publishing.

However, there’s one priceless lesson that retail arbitrage can teach you: that it is possible to make an income online.

We really should thank retail arbitrage. It did a lot for us, and we wouldn’t be where we are now if it weren’t for trying it out in the beginning.

That being said, let’s switch focus to examine the skillset you’ll get from high-ticket dropshipping.

With dropshipping, you’re learning a whole cast of skills that you could translate into any other business. You’re learning how to work with other people, how to make sales, and how to design websites.

These skills are invaluable. With what we’ve learned from dropshipping, we’ve started to expand into other business areas, like real estate.

Read Also: Dropshipping vs FBA

Wrap Up

 

Dropshipping or Arbitrage: You can look at opportunities and how to make them happen, or all the ways these opportunities could fail. So what are you going to look at? Are you going to focus on your opportunities, or are you going to focus on the potential for failure?

Before we close out this post, we’d like to take a little more time to discuss the mental block many people have when it comes to making an income online.

One thing we see everywhere is that people have a mindset built towards the negative. All they see is what they can’t do, what is too hard to do, or what can go wrong.

We don’t doubt that there are people who legitimately do have a lack of opportunity. However, this isn’t the case for many people, who are surrounded by tons of business opportunities…and they’re just blind to them.

There’s actually a term for this: reticular activation system. It means that you can program yourself to see things in a particular light.

Look at any top-performing athlete. Their reticular activation system is so focused on their objective, whether it’s scoring a goal or getting to a finish line, that they don’t see the other players or obstacles along the way.

Instead, what they see is how to get around any obstacle.

It’s the same thing in real life. You can look at opportunities and how to make them happen, or all the ways these opportunities could fail.

So what are you going to look at? Are you going to focus on your opportunities, or are you going to focus on the potential for failure?

The choice is yours.

Want to know what we think about affiliate marketing? You can read our comparison of dropshipping vs affiliate marketing. 

We have further resources for you, too. You can take a look at our full Instant Ecommerce Assets course or our free Online Assets Playbook.

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