[Guest Post] How I Learned From My Amazon Arbitrage Business
Hey there, my name is Ray. If you want to learn how to sell on Amazon, I want to share my experience. Over the past several years, I’ve learned a lot about running an arbitrage business.
However, I’m not what you would call a “success story.” I’m not making four thousand dollars a day and posing in front of a series of books in a garage. Much like you, I’m still learning.
If you are like me at the start of this, you have no idea what you are doing. That’s alright because nobody really knows what they are doing when they first start. So if you want to learn something before you get started selling on Amazon FBA, I’d love to help you out.
A Bit About Me (and My Family)
Before I get too deep into this whole thing, here is a bit about my family and me: My wife and I have been married for 39 years, and we have six children and 15 grandkids.
Before starting an Amazon business, We spent six months in Argentina and 14 years in Chile as missionaries. We love the people and places. Our youngest daughter was born there.
We left Chile in 2006 and came back to the States for our kids to attend college and a couple of them to finish high school. I became a teacher at a private school and did that for almost ten years. Due to some health issues in 2016, I could not continue teaching. Because of this, I had to find other ways to make money.
How I Started Selling
My daughter saw a Dave Ramsey Facebook Group post about selling on Amazon in August of 2020.
She shared that with me, and I followed through by joining the group. I also purchased a few courses, set up my Amazon seller’s account, and started doing retail arbitrage right away. Amazon arbitrage is when you buy cheap products locally and resell them on Amazon.
I sold whatever I could find in the Big Box Stores (Walmart, Costco, etc.). I quickly bought a few other items from outside sources after. As you can read below, I learned a lot from this experience.
Making My First Sale
I made my first sale at the very end of October 2020. As an Amazon newbie, that first sale was pretty exciting. Still, Amazon gated (preventing me from selling) me in most categories (possibly because of my new selling status). I had to overcome this by proving myself as a competent seller.
I had no specific niche, so I picked whatever I could find doing that was profitable, and I could sell. Thankfully, it was easy to scan and request permission using the Amazon seller app. I also started using Inventory Lab to scout products.
What I Had To Learn As A New Seller
When I started selling on Amazon, I struggled with these fears and issues:
My wife and I did not have a large amount saved, so I started with a limited investment.
I had no prior experience in online selling (but did have some direct sales experience)
I had not factored in the time it would take to prep and ship the item to Amazon.
All the unknowns about doing business with and on Amazon
Making sure we always complied with their TOS to avoid an account suspension
That last one was one of the more painful lessons, as it was a letdown when waiting for products to get through Amazon’s system. There was also a lot of fear of getting an account suspension, as I was new to this form of online sales.
However, I supplemented this knowledge gap through reinvestment. All of our ‘profit’ & ‘earnings’ were put into courses and tools. I made a few mistakes with overspending on apps, classes, and extensions during the first year. However, this second year has enabled me to narrow down to just a few that I’m learning how to use to be more productive and successful. But finding the right tools was only half the battle.
My Retail Arbitrage Product Research Process
Our initial efforts were Retail Arbitrage, physically scanning clearance at the Big Box retail stores for items. That is a very hit-or-miss process because you never know if you will find anything or find a cartload of product.
My usual process was to do the following:
Visit Clearance sections in Big Box stores (I often used Brickseek to find these clearance items)
Scan using Amazon App, Keepa, and AMZScout (typically looking for a decent margin on the purchase price)
Comparing the discounted clearance price and the retail price found on Amazon
I would purchase the items and prep them to ship to Amazon (assuming I wasn’t gated)
How I Understood if a Product Was Worth Selling
My quick decision (at the time) was to see if there was at least a 4 to 5X markup. That worked, but now I realize there is much prep time to remove labels, scan, bag, label, then pack to send to the nearest FBA warehouse.
So this meant I had to set a minimum cut-off point for products. You can’t sell cheap items with retail arbitrage. I have moved my purchase price up to $25 or more retail. To help identify these products, I use AMZScout.
I started with AMZScout because of the free webinars where successful sellers shared their success stories and processes. Those helped to see how they were doing it and several ways to do it.
I have used AMZScout to find profitable products to sell or get ungated in. My long-term plan is to create bundles, and I have done much more research using AMZScout. While I’m still working on the process, it has helped me research.
I use AMZScout every time I land on a product page now. Today, I compare these factors when choosing products:
Average sale price
The number of sellers
By using these criteria, I’ve got a pretty good idea of good potential products. Below, I will show you how that process has provided me with some good products.
How My Process Has Helped Me Find Successful Products
My family and I originally sold electronics, office supplies, and home improvement items. Some of our greatest successes resulted in some lovely birthday and Christmas gifts along the way, so our friends love us. Granted, we don’t typically “sell” these Christmas gifts.
Still, we’ve found some real success. Our best product has been in the electronics niche, specifically a hard drive on clearance at one of the Big Box stores. I sold all 20 in just over a day, making about $1200 total.
The best sales we got included these areas:
A small number of sellers
A profit margin of (at least) 50%
Clear resale popularity (high number of sales)
An average sales price that is relatively higher
The Challenges I Had To Overcome
Challenge #1: Gating
Some of our more frustrating moments involve struggling with Amazon’s inconsistent gating. While it isn’t too often, we’ve run into situations where we purchase inventory, send it via FBA, and be told later by Amazon that we suddenly don’t have permission to sell it.
This situation doesn’t happen often, but we’ve had to resell these items through other means (flea markets and garage sales). These are all considered failed products, so I tend to avoid anything that seems gated.
Challenge #2: The Buy Box
The buy box is Amazon’s featured offer. Your goal to win the “box” is to have the lowest price. This raises another challenge: trying to overcome businesses that set impossible margins.
How do I handle this? I would look at all the listings for FBA and try to price mine just above the lowest price. During my experience with hard drives (see above), I found this strategy to work when inventory levels of the lowest-priced items are scarce.
Challenge #3: The Prep Time
I realize now how much prep time there is to take labels off, scan, re-tag, and pack to send to Amazon. That is causing us to look into private label selling and using prep services.
That being said, the prep time is longer than you might think. These time limits are incredibly taxing if you expect fast profits right away.
With this in mind, my family and I have learned a lot in the first few years. However, the results of our efforts are a bit less spectacular than other stories.
The Results of My Amazon Business (and Future Plans)
My wife and I haven’t made any money to speak of, but we have learned that this takes time to understand and develop. It won’t be overnight, but we are moving forward towards developing this business.
Still, we are somewhat profitable as far as return on money invested. But, not profitable when I factor in my travel time, prep time, apps, purchases, and anything else missed.
I’m still not that experienced on Amazon because I have worked full-time this past year and didn’t have time to improve our Amazon business.
I plan to continue to work on understanding AMZScout. The most recent, and best for having some basic system, help has come from this Dan Rodgers’ video.
Ultimate Guide for Amazon FBA Product Research 2021 (AMZScout)
We are also going to work on developing bundles. So, we haven’t given up; we are just trying to refocus our efforts on what we believe will be more profitable. The struggle comes from understanding what categories to use.
Ideally, we will go across multiple categories. My family and I believe there is a lot of potential for profits from bundles.
My wife and (at the time of writing this) I will be in Atlanta for three days attending a wholesale bundle training workshop. Granted, it has been a challenge.
Tips For Newbies
Despite not coming up with the money to buy five Ferraris, you learn a lot from the struggle. With this in mind, our combination of successes and failures has led to some tips you can take home:
Tip #1: Use Your Tools (But Not Too Many)
Do not overspend on Apps and other tools. The mistake I made while starting on Amazon was using too many tools. Most of them ended up to be not that useful, so be picky with what you pay for.
A few basics are needed, and I like these tools to get started:
Amazon Seller App.
If you take the time to learn how to use the tools, you will find that each one has some essential features and benefits that aren’t always so obvious. You also need repricing tools that help with setting up your prices to win the Buy Box.
Tip #2: Avoid Gated Items
I’ve already told you about the few times I ended up with unusable inventory because of “gating.” It is a frustrating aspect that isn’t so obvious for new sellers. However, it can be devastating to find out you cannot sell products.
To avoid this altogether, use your available tools (like AMZScout’s Online Arbitrage & Dropshipping extension) to determine whether an item needs special permissions or has other limitations. The extension is part of your browser and pops up on any product page, making it easy to remove many risk factors.
Tip #3: Make Sure You Have Time
If you’ve got a big and busy family like mine, you don’t have all the time in the world. However, it would be best if you had some time set aside for the process of retail arbitrage. We underestimated this need, which is part of why our profits were essentially eaten.
Arbitrage requires you to remove the old label, add a new tag, and ship it according to specific Amazon requirements. Not meeting these requirements will get your items shipped (at your expense). So, instead of doing that, educate yourself on Amazon’s process and set aside time so you can do it right.
Conclusion – Learning From My Experience
You might ask yourself why it’s worth listening to someone who didn’t get the “Amazon Retail Arbitrage Best Seller” trophy. However, our journey is still in progress, and you can learn a lot from people who struggle.
Anyone who tells you that you can jump on Amazon and become an overnight success is lying. However, you can grow your business and experience to new heights with determination and patience.