How to Make Money on Amazon FBA with Retail Arbitrage
Are you looking to make money? Have you considered earning extra cash with Amazon’s FBA service?
You may have heard that people are making thousands of dollars by buying and selling goods on Amazon Seller Central. While it may sound too good to be true, people can really make money as Amazon FBA sellers.
Practicing retail arbitrage is hard work, and there are some risks, however, by being selective about the items you choose to buy and sell and using our retail arbitrage tips ou can mitigate risk.
If you are looking to start your own Amazon FBA business, then you’re in the right place. Read on to learn about how to make money on Amazon FBA using retail arbitrage.
What is Retail Arbitrage?
Retail arbitrage is when individuals buy items in retail stores for a lower price than they can sell them online. Then, they resell items online. People who do this typically use large online marketplaces such as Amazon or eBay to resell their items for a significant profit.
When people find items to sell in stores, they are typically on sale or clearance, or they use a coupon that helps them to purchase items in bulk. This helps them to undercut online retailers and gives them the potential for higher profits when they sell the items online. The idea is that the more cheaply you can purchase an item for, the more likely you are to churn a profit. In other words, retail arbitrage allows individuals to buy things for a low price in stores and sell them for a higher price online.
Retail arbitrage fans can spend hours each week searching through online ads to find deep discounts on items. They may also frequent the clearance aisles at their local grocery stores and wholesalers. When a retailer finds a niche, they will try to sell similar items so that they can learn from their past experiences and create brand recognition with their buyers.
While most people sell their items on Amazon or eBay, people who do retail arbitrage can use websites like Craigslist, Facebook Marketplace, OfferUp, and more to offload their purchases. The most popular site to use is Amazon FBA, or Fulfillment by Amazon.
The FBA platform is rated as the most user-friendly and intuitive. Once users have acquired items, the FBA website allows users to upload them to Amazon. Then, you can box them up and send them to an Amazon shipment center. Fortunately, it takes part of the hassle of shipping off the shoulders of the seller, and it allows users to stop shipments until several items are being shipped to the same location to save on shipping costs. This way, Amazon fulfills the order even though an individual owns the stock.
If your items do not sell in a specified period, sellers have a couple of options. They can either pay storage fees to Amazon or pay to have them shipped back to you. Ideally, the entire stock would be sold every time, but this is not always the case. If you are considering selling on Amazon FBA, you may want to bear in mind that you could be stuck with several items that you can’t seem to offload.
Can you Make Money with Retail Arbitrage?
Profits are dependent on several factors. One of the most significant factors in how much money you invest in your business off the bat because it affects how much inventory you can purchase. If you start by purchasing 100 items at $10 each and sell them for $12 each, your profit will only be $200. If you can buy larger or more items, you will have a greater potential for profit.
Another factor is the sellability of the items you choose. For example, you may find a great deal on the old iPhone charger, but nobody will likely purchase them now that all Apple devices have been using the lightning charger for several years.
The process can seem complicated, especially at first. However, there are plenty of courses, books, and coaches who can help you figure out which products are the best to sell, how to sell them, and more. Soon, doing retail arbitrage will be like science to you, and that is when you will start to see large profits.
How to Get Started with Retail Arbitrage
Selling items online is a straightforward process. The following steps are in the context of Amazon FBA but can be replicated for nearly any online marketplace.
Register as an Amazon Seller
The first step is to visit the Amazon Services webpage and click the ‘start selling’ button. This will take you to a page that has a registration form. Fill it out and be aware that there is a $39.99 per month fee to be a registered seller regardless of your sales volume.
There is one way around the $39.99 monthly fee — sign up for an individual account. The individual account is free, but users will pay $0.99 per item sold.
Download the App
Once you’ve signed up for an Amazon seller account, you will be able to download a free app that will help you decide which products to buy and will aid in the selling process. While there are several retail arbitrage apps on the market, if you are selling with Amazon FBA, the Amazon Seller App is the best option because it will help you to navigate the intricacies of Amazon.
When you are shopping in stores, you can use the camera function on the app to scan the barcode of a product that you might want to resell. The app will show you what the item is selling for on Amazon, how much it will cost you in fees and shipping to sell the article, and will tell you how much you can likely profit from buying and selling this item.
Visit Local Retail Stores
Once you’re armed with an Amazon seller account and the app is downloaded on your smartphone, you’re ready to start visiting local retail shops to get started. You can start with whatever store is closest to you or one that you enjoy shopping at.
On your first trip, it is wise to keep an open mind about what types of products you are looking for and see it as a research trip. This way, you can begin to observe items that are on sale, the number of items you can purchase, and more.
You can purchase items at any store. The goal is to find an item at the deepest possible discount and sell it for the maximum potential profit. Some examples of stores were you may find retail arbitrage products:
Tip: Two of our favorite stores for retail arbitrage sourcing is Ollies and Tractor Supply Co. Also, check out all the Wal-marts within 150mile radius, each store might have different items on clearance.
Use the Amazon Seller App to Evaluate Products
When you’re in the store, you can use the app to help you decide which products to purchase. There are several strategies available online that can help you to figure out if you need a niche or should buy products that you know you can profit from. This can be one of the most time-consuming parts of the retail arbitrage process because there is no perfect formula for which items will make the most money.
When you find an item that you think you could make a lot of money on, you should scan it into the Amazon Seller App. The app will tell you the exact figures that you can expect to see so that you can make an informed decision about an item before you decide to purchase it.
It is important to note that this might be a perfect opportunity to cross-check items with different apps or selling websites. If one app is saying that an item is a red flag and another is saying it is a sure bet, you might want to do a bit more research on the item before choosing to buy.
Now that you have decided that an item is a good purchase, it’s time to buy. Ideally, you will receive a 50% return on investment on your items. The app will walk you through if you will be able to receive a return on your investment when you input the buying price of the item into the app. It will subtract fees and shipping to tell you how much you can earn per item sold.
Ultimately, you want to earn at least $3 per item sold and a 50% return on investment. You want to ensure that the buying and selling process is profitable for you and worth your time. As you become more experienced, you will develop a keen eye for deals and will be able to find and sell items more quickly. You will also be able to buy more of the items and make a healthy profit.
You can calculate the return on investment percentage by dividing the net profit by the cost of the item. For example, let’s say you found a water filter that costs $10 in the store. You can sell it for $16, so your net profit is $6. When we divide $6 by $10, we get 0.6 or 60%. This means that the return on investment is higher than 50%, and it is a good purchase.
You also want to be sure that you are eligible to sell the items that you are buying. The Amazon Seller App will tell you if you are eligible to sell the item on Amazon. You should also ensure that the sales rank is under 250,000. This will help you to rank at the top of searches.
The Amazon Sales Rank number tells you the item’s popularity in a category. For example, if you are thinking about selling a toy on Amazon, but its sales rank is 500,000, that means that it is not in high demand, and you will not likely make a lot of sales. Rankings go into the millions, so staying in the 250,000 most in-demand items will help ensure that your products are getting traffic.
- Make sure you are eligible to sell an item
- Make sure that the sales rank is under 250,000
- Make sure that your profit will be at least $3 per item sold
- Make sure that your ROI will be over 50%
The necessary steps to making a purchase that will likely be profitable are:
This will help you to buy and sell efficiently and mitigate the underlying risks of selling with retail arbitrage.
List Items for Sale on Amazon
Now, it’s time to list your items for sale on Amazon. You will be able to ship items to Amazon in bulk and not have to worry about shipping items to individual customers. The app will lead you through the process of shipping your items to Amazon warehouses and will even generate shipping labels for you.
The earning potential is nearly endless with Amazon FBA and other retail arbitrage sellers. Most successful sellers will tell you that it depends on how much time and money you can invest into your retail arbitrage business and the deals you can find. The key is to be a diligent shopper.
If you are dedicating evenings and weekends to retail arbitrage and find a few deals a week in which you can sell a few hundred items for $3 each, you could easily earn several hundred if not a few thousand dollars a month. The people who dedicate themselves to retail arbitrage full-time can make tens of thousands of dollars in profit each month.
How to Become a Successful Amazon Seller
If you think that you can put in the time and money to get started, several factors can lead to your success. Here are a few tips from the experts:
Do Plenty of Research
Most retail arbitrage gurus will agree that research is the most critical phase of a sale. You should have a keen understanding of all the information available to you. This includes understanding what your fees and profits will be.
You should also never make assumptions when doing your research. When first starting, scan everything you can. You should never assume that because an item isn’t on sale that it isn’t desired at a higher price elsewhere. For example, a candy available in your local grocery store might be someone else’s favorite in a different party of the country. If they don’t have access to this candy where they live, they might be buying it for twice the price on Amazon.
In doing your research, you might learn very specific information. For example, you might discover that your local Kmart marks items down on Tuesdays, so there will be new deals available to you each week. Research never ends, so you will continue to learn things by being diligent throughout your retail arbitrage journey.
Choose a Niche
Experts recommend choosing a niche after your first few retail arbitrages deals. Your several early deals will help you figure out which items you do or do not want to sell. By sticking to a niche, you can educate yourself on specific product sets, and it will help you streamline your process in the long run.
While most retail arbitrage superstars are scouring their local stores, you do not have to spend hours each day going through brick and mortar businesses to find a great deal. Many successful sellers purchase items online and resell them.
For example, Americans can purchase from Alibaba, a Chinese e-commerce site that is often compared to Amazon. You can use websites like this to research and find high-demand items at a low price. Be sure to continue to check all the shipping costs, fees, and other information that you need to have a successful sales process.
When sourcing in brick and mortar stores, be sure to check that the items you are purchasing are not expired, damaged, or otherwise undesirable. Always be diligent about the items that you are buying. If your buyers do not want your items and return them, it can cost you in the future.
Be Diligent About Pricing
Many apps will help you to price your items. It is important to note that these are guidelines, and you can choose any price when you list items. However, you do not want to get greedy and overprice your items.
Buyers have too many choices available when buying online and will not usually purchase the most expensive item. You can vet out how other sellers have priced their items by clicking the ‘used & new’ form on the Amazon website. It will show you how many people are selling the item and at what price. You can filter this section based on the condition, if it is Prime eligible, and more. You may want to use the same filters that your item will fall into so that you can get the best feel for what similar items are selling for.
Additionally, you want to be sure to price your item high enough to turn a profit. Use the guidance of apps and check out other sellers’ pricing before pricing your items.
Reinvest Your Profits
You should try to reinvest your profits as often as possible. If you are starting with very little money, you should try to build up the amount that you are investing in your business as much as possible before choosing to pocket your profits.
For example, if you are starting with $1,000 and earn $1,000 in your first month, then the second month you should invest the full $2,000 into your business. The people who are making tens of thousands of dollars per month in retail arbitrage are almost always also investing tens of thousands of dollars per month.
After you’ve found a great product and are ready to sell, make sure that you are getting the best possible outcome from your sales. Evaluate all the shipping options and vendors that you can sell-through. You may also need to create a listing, take effective photos, and establish a strong brand profile. This takes a bit of time upfront but becomes easier with each consecutive product that you sell.
Once you are in Amazon’s fulfillment network, you will need to ensure that your product is at the top of people’s search results. You are competing for millions of customers’ attention, so you will want your product to stand out.
Amazon has an advertising program called Amazon PPC (pay-per-click). This can be extremely helpful to sellers as it helps you to advertise to people who are searching for your keywords. This typically costs about $0.50 per click, and you are only charged once a potential customer clicks on your ad.
You may also want to run promotions on your items. By listing them at a specific price and then discounting them immediately, potential buyers will assume that they are getting a deal. You can also run a promotion to be at a slightly lower price point than your competitors. This will help you sell more quickly.
If you have a blog or online store, you might want to leverage your mailing list. This can be a powerful tool to drive traffic to the items that you are selling without costing you any advertising money.
How to Maximize Your Purchases
If you are low on funds but still want to get started doing retail arbitrage, there are a few options available to you. You can leverage cashback rewards to purchase more items, use your credit card points to buy things without having to invest funds, or use coupons to get things for an even lower price. Or, you can choose to try a combination of all three of these methods to amplify your purchasing power.
If you are searching for items, you might want to check out apps like RetailMeNot for coupon codes, free shipping, or other perks. It helps to keep costs as low as possible when purchasing items.
Some people leverage websites such as Rakuten or Ibotta, to earn cashback on their purchases. These websites allow users to shop via their platforms and earn cashback on purchases. These refunds can increase your profit margin. You may also want to use these apps to scan your receipts after purchasing items in-store with a coupon to double up on the savings.
Credit Card Points
Many credit card companies offer points rewards to their customers. This can be helpful in a couple of ways when doing retail arbitrage.
The first is that every purchase will help you to accrue points on your credit card. These points can be used for cashback and can decrease the overall cost of the items you’re purchasing by around 1%.
Additionally, you can use the points for either cash value or purchase gift cards once you have accrued enough points. You can use the cash value or gift cards to purchase items and resell them. With this method, you are not spending any cash, so anything you earn from the sales is profit.
Is the Retail Arbitrage Market Saturated?
When you search for information on retail arbitrage, videos have hundreds of thousands of views, and blog posts might have thousands of shares. It would be easy to assume that there are hundreds of thousands of people selling tons of products on Amazon and that there’s no way you could be successful. This isn’t true. Plenty of people are exploring the idea of retail arbitrage but never make their first sale.
Many people purchase a book or a course on retail arbitrage and still do not buy or sell any items, even after making the initial investment in their business. They might also buy something and choose not to sell or decide to stop before ever paying for the Amazon seller fee. That said, even if you decide to make your first sale, retail arbitrage is not easy.
Retail arbitrage can be very time consuming, and if someone doesn’t make a significant profit on their first items, it can be a mentally exhausting process. The time-consuming process can be a big barrier to entry and is off-putting for many potential retail arbitrators.
If you are willing to work through some of the challenges that come with learning a new skill and are willing to invest in yourself, then retail arbitrage might be a good fit for you. There are plenty of books, courses, online support groups, and more that you can leverage for support through the retail arbitrage experience.
If you do have several people in your area that are doing retail arbitrage, you might have a tough time finding great deals at your local stores. However, it is important to bear in mind that purchasing items on clearance isn’t the only way to get a great deal. You never know if there is a market for items that you might want to sell, so never make assumptions when going shopping.
If you are struggling to find items locally, you might want to explore online arbitration. It is essentially the same thing as retail arbitration, but instead of shopping in-person, you find great deals online.
Why Don’t Stores Sell Their Items Online?
You might be asking yourself why stores sell things so inexpensively instead of selling the items online. The answer to this lies in the supply chain and cost of ownership.
While you may look at an item and think that you can make a huge ($3 or more) profit from it, a store will look at the same item and try not to lose the investment that they put into purchasing and selling the item. In other words, a lot of money to an individual is not typically a lot of money to a store.
Stores think of items in terms of opportunity cost. They want shoppers to buy items at a markup from their shelves. If an item is not selling, they will discount it steeply so that people purchase the items. They get the items out of their inventory so they can make room for items to sell at a profit. Therefore, when stores sell items at a steep discount, it is not worth it for them to put more manpower into selling the items — they want you to buy them and do with them what you want.
Is Retail Arbitrage for You?
Amazon retail arbitrage is a time-consuming way to make some extra money, so it is not for everybody. It takes a lot of effort to get started but becomes more intuitive over time. If, after reading this guide, you think you want to get started, be sure to do your research before jumping in.
If you are considering joining Amazon FBA or other retailers, be aware of the fees included in both a professional and individual account and leverage the resources they give you to be as competitive as possible on their platforms. Understand the risks in purchasing a high quantity of an item, especially if the item is on sale and not able to be returned.
If you are using a credit card, be sure that you understand the risks involved if you do not sell your items. You might have hefty interest charges or take a credit score hit if you cannot pay back your credit card balance.
All in all, retail arbitrage can be very profitable for some but does take a lot of leg work upfront. If you are willing to put in the work and reap the benefits, then the effort can be worth it.
Originally published at https://yourmoneygeek.com on February 27, 2020.