What is the 1/3 rule in retail arbitrage?
How the Rule Works
In retail arbitrage, the 1/3 rule helps ensure profitability. If you buy an item for $10, you aim to sell it for $30. Of that $30, roughly $10 goes back to your cost, $10 covers Amazon or eBay fees plus shipping, and $10 is your profit. This is a simplified guideline, not a strict formula.
Actual fees vary, so many sellers adjust the rule. For example, if fees are higher, you might need a 4x multiple. The key is to always calculate your specific costs before sourcing.
- Cost: 1/3 of sale price
- Fees and shipping: 1/3 of sale price
- Profit: 1/3 of sale price
- Works best for items with predictable fees and shipping.
When to Adjust
If you sell on Amazon FBA, fees can be 30-40% of the sale price, so you might need a higher multiple. For heavy items, shipping eats more, so adjust accordingly. The 1/3 rule is a quick screening tool, not a substitute for detailed profit analysis.
Many arbitrage sellers use a minimum ROI (return on investment) of 30-50% instead. The 1/3 rule is a simpler way to eyeball deals.
Common mistakes
- Applying the 1/3 rule rigidly without considering actual fees and shipping.
- Forgetting that Amazon referral fees are calculated on the total sale price including shipping.
- Using the rule for high-cost items where fees may be a smaller percentage.