The Retail Arbitrage process broken down + fees + materials you need
This chapter will go over everything that’s included in the retail arbitrage process. We’ll tell you what you need to do, and we’ll also give you the materials that you’ll need for each step. Often times, newbie retail arbitrage hopefuls won’t calculate the necessary costs, and he or she will get discouraged before he or she even starts – don’t be that person.
The first step: setting up your Amazon FBA account
It’s useless to start to source products before you even have an account with Amazon. Make sure that everything is in place before you jump in.This way, you won’t be sitting on inventory for longer than you need to.
There are two options with Amazon FBA accounts – the personal account and the business account.
- Personal account: no monthly fee, standard Amazon fees, 40 items or less per month, restricted categories
- Professional account: $39.99 monthly fee, standard Amazon fees, 40 items or more per month, all categories available (aside from ones requiring approval, such as apparel)
Grab a personal account by heading to Amazon Seller Central. With a personal account, you don’t have to pay upfront (so you can take your time sourcing items and not lose out on the monthly fee), and as soon as you’re ready, you can upgrade at any time.
Adding a debit/credit card
The only verification step required for your Amazon account is a valid debit or credit card. You’ll have to enter your number before you list any items or send any shipments – this is so that Amazon can deduct its necessary fees.
That’s it – for now
If you end up selling more than 40 products per month (which you can easily do if you put the work in), you’ll have to upgrade. But by then, you’ll be making so much in profit that $39.99 will be a drop in the bucket. Set aside $40 at the start so that you’re not hit with any surprises.
Current startup cost: $40
The second step: sourcing products
You now have the tool to sell any product at retail price – the next (and hardest) step is finding what to buy and sell.
Learning how to source products
Luckily, although it’s the hardest part, there isn’t a whole lot of skill involved in sourcing products. It’s just knowing what to do and making sure that when you buy something, you’re going to make a profit on it.
First thing’s first – get a barcode scanner app. Amazon Price Check is a free tool for iPhone and Android that will give you the bare minimum.
If you’re looking for a little more, check out Profit Bandit ($15) – it’s an app that scans barcodes and calculates all potential factors that will interfere with your Amazon profit. For example, if the item is exceptionally heavy, the shipping cost to one of Amazon’s warehouse will be calculated in real time and you’ll see your overall profit margin – not just flat price vs. price.
Once you’re ready with your app, it’s time to head into a store. This is the first (and least efficient) way to do retail arbitrage.
You’re going to meticulously scan the clearance shelves at the big brand stores – Walmart, Kmart, Target, etc. As we mentioned before, not all items will sell in each of these stores (even if they’re selling as a whole), so you can often find products will ample national sales volume for well under the retail price.
This is mostly a time investment – at the start, you’re going to be scanning everything and everything, so your profit margins per hour might not be all that great. But quickly, you’ll learn how to come into a store and pinpoint the profitable items, so the only time expense will be driving to each store and checking out.
Online retail arbitrage lends itself to more inventory and less profit per item. Many people prefer online retail arbitrage because of how drop-dead simple it is – you don’t have to drive anywhere, you can do it even when the physical stores are closed, etc.
And you get all of a company’s inventory to choose from. If something looks promising, you can order more than just what’s on the shelf.
As with physical retail arbitrage, online RA doesn’t take a whole lot of skill – but you do have to know what to look for. If you have no idea what you’re looking at, you’ll scour the entire catalog of a big brand, and it’ll be full with products that match the retail price perfectly.
You can go one of four ways – going to Amazon then going to big brand stores, or going to big brand stores then going to Amazon, or going to deal sites then going to Amazon, or using product sourcing tools which takes a good deal of the hard work out of sourcing.
Amazon first: you look at top sellers, most wished for, etc. If you see a product that looks promising, you check around.
Big brands first: you check out the websites of specific brands and search through the clearance section. If something looks particularly cheap, you compare it right on Amazon.
Deal sites: you look at deal sites, coupon sites, deal forums, deal-a-day sites, etc. to try and find something that can be resold at normal price.
Online Sourcing Software: you can search individual stores or categories to return results of items which will deliver you a profit on amazon, based on current trading price. It also calculates your seller fees and provides historic sales rank and pricing data.
Each one of these methods will be covered in the later chapter dedicated solely to product sourcing. For now, let’s assume that you managed to find a product through one of the above methods – here’s what comes next.
Making the purchase
Found your item? Great! At the start, paying cash is fine. Once you learn the ropes, you may want to consider getting a credit card that’s aimed at rewards – spending even $1,000 on a credit card per month can get you some impressive yearly rewards.
Total startup cost: $55
The third step: getting your products and sending them back
Take product, inspect it
As a reseller, the #1 thing for you to worry about is your feedback score. You’re going to be competing with other sellers who might have products at a similar price to yours. If you have 90% feedback and they have 100%, your potential customer might jump to his team, even if his price is higher. Peace of mind is worth money.
So you can’t afford to get any poor ratings. Because you’re doing FBA, this is relatively easy – you’ll never get a shipping or handling complaint. The only thing you really need to worry about is the product quality – even the biggest brands send duds once in a while.
Inspect each individual box, but don’t break any seals or open any plastic. This will mean that your item is used, and thus, worth a lot less money.
Labeling products for FBA (how to)
Luckily, labeling products for FBA is relatively simple. The first part is covering the actual barcode on the product and replacing it with a FBA barcode.
You’ll hear Amazon barcodes referred to as FNSKU numbers, and you’ll hear the product barcode referred to as a UPC or EAN code. (Tuck this away in your memory.)
To print the actual label, you can use a printer and tape the label on, or you can get a label printer. The label printer will run you $100+ if you get a really good one, but beginners can get by with a simple one like the Brother QL-700.
Shipping the product back
If you got the product online, you’ll get the boxed product(s) in another bigger box. You can just take the shipping label off, inspect the product, tape it back up, and put your own shipping label on. Amazon offers greatly discounted UPS shipping codes through the seller dashboard, so most of the time, you pay almost nothing to get your items to the FBA warehouse.
If you bought the item from a store, you won’t have a box, so you’ll need to get one of your own. Newbies can measure the dimensions and head to UPS for an individual box purchase. You can even bring the label and pack it up right in the store. But it’s cheaper to order boxes in bulk off of Uline (multiple sizes) and get some sort of packaging.
Don’t worry – you can send the shipments to FBA in multiple boxes, so you don’t need enormous ones.
Costs: tape, label printer, boxes, box stuffing
A label printer will run you right around $70. If you have a laser printer that prints in 300 DPI (dots per inch) or more, you can just tape the labels on. If you don’t have a printer, we’d recommend getting the Brother QL-700.
Boxes will be a one-time purchase of around $4 per item if you buy them individually. If you buy them in bulk, your costs will be much less. A decent amount of packaging is right around $10. So you can either buy the boxes individually to negate this startup cost, or spend $50 to $60 on Uline and get all of the materials you need. It’s impossible to know how big the items you source will be, so buy a few sizes of square boxes and some padding (bubble wrap recommended) to make sure they ship safely. A tape and a tape gun can be purchased from Uline as well for around $15, or you can go to CVS and get one of the small rolls for $5 or so. But just like buying individual packages, buying individual rolls of tape at retail price will cut into your profit margins for the convenience factor.
The fourth step: selling your product
Once your shipment is made to FBA, it will immediately become available for purchase on the Amazon page. But just because it’s available for purchase doesn’t mean that you’ll get a sale.
The Buy Box – what it is, why it’s important, and how to get it
The Buy Box is on the right side of the page for any Amazon item. It lists three sellers with their prices + shipping.
It’s important because by and large, no one looks anywhere else aside from the buy box for sellers. The three cheapest prices with shipping are listed. Be one of the three lowest prices to make sure that your product moves.
If you’ve done everything correctly…
If you’ve priced your item to be in the buy box, all of your inventory will be swept off of the shelves quickly. If you’re not competitive, you’ll be sitting on inventory, which, of course, isn’t ideal. Always make sure that when you’re sourcing items, you’re making sure that you get a profit margin while still being in the buy box.
Preparing for mistakes
Retail arbitrage is a game based on opportunity – you come in with a low price when everyone else is selling high, sell out fast, and make a profit as a result of that. However, prices for retail products are always going up and down, and many times, you’ll be competing with others who are doing the exact same thing that you are.
If someone else comes in a with a below-retail price, you’ll need to either wait for them to get out of the buy box or price your item below theirs. Which path you choose will depend on the particular item – if a big brand comes in with a low price, you better believe that they’re not running out of inventory quickly. (You can always check by seeing how much quantity they have.)
When the unexpected happens, moving items quickly sometimes means sacrificing profit. Source your products with a 40% profit margin or higher – this allows you some wiggle room. For example, if you’re buying a $20 product, make sure that you’re selling it for a net profit of at least $8
This rule isn’t set in stone, and you can break it based on your own calculations. It’s just a good guideline – the last thing you want with retail arbitrage is for your entire bankroll to be invested into something, and then have to sell it at a loss. A 40% profit margin lets you unload for a 10% or 20% profit margin, get your funds back in rotation, and still make a quick buck.
The Amazon FBA Process Summarized
- Set up an Amazon account correctly
- Source products (either online or offline) aiming for a 40% or higher profit margin
- Inspect the products you buy, then send them to Amazon
- Price your product so that you get the buy box, and thus, the sales
- Repeat, repeat, repeat
Like what you see? It’s not effortless. If it was, everyone would be doing it, and no one would make any money.
If you’re ready to jump in, bypass all of the newbie thrifters, and start your AZ FBA empire, read on.