Arbitrage — The Basics — Lesson 1 (Part 2 of 4)
Today’s blog post is Part 2 of 4 and will cover the basics of Arbitrage.
There are two types of Arbitrage — Retail Arbitrage and Online Arbitrage.
Retail Arbitrage, or “RA” is the art & science of finding items locally on retail store shelves that you can flip and sell for a profit online (i.e. Amazon, eBay, Craigslist etc.).
Online Arbitrage, or “OA” is the art & science of finding items that are selling online that you can flip and sell for a profit online (i.e. Amazon, eBay, Craigslist, etc).
So how does one get started? It’s actually a lot easier than you might think.
Here is a quick example of how Retail Arbitrage works.
Go to a local supermarket (think Walmart, Toys R Us, etc.) and find a “Widget” that is on sale for $5.00. The widget is selling on Amazon for $20.00. So if you bought this widget and sold on Amazon the gross profit before any fees would be $15.00.
The first question that comes to mind when looking at this, is Why. Why does this item sell for $20.00 on Amazon and only $5.00 locally?
There are many factors but here are some of the main ones.
Too many items on hand for the retail store. The store had too many delivered and they are now putting the item on clearance to make shelf space.
2. Local Supply
This item may be popular locally so the store carries it. However, across the country the item may not be carried in local retail stores. That means someone in California who wants the item but can’t find it locally goes to buy it on Amazon. Many customers are willing to pay the asking price for it on Amazon because they can’t find it locally.
3. The Trust of Amazon
Amazon Customers know they are protected by Amazon’s A to Z customer guarantee. Meaning if they buy the item and don’t like it they can return it with no questions asked to get their money back. Many people ONLY shop on Amazon, so the price they see is the price they know.
So how does someone get started? It’s actually easier than you might think!
The first step is to go to Amazon and set up a sellers account. Here is the link: https://services.amazon.com/
Click on the “Start Selling” button and follow the prompts as Amazon asks for information.
The second step is to download the seller app onto your smart phone. A smart phone (iphone, android, etc.) is the best option to get started. On your smart phone go to the App Store (iphone) or Play Store (android) and search “Amazon Seller App”. Once you find the app, download it to your smart phone.
After the App is installed you will be asked to enter your seller information. This is the email or mobile number plus your password that you signed up with. Once complete you are ready to start using your seller app to do Retail Arbitrage!
On your home page — click on “Add a product”. (You can also click the camera icon in the upper right hand corner
From the Add A product Page — click on the camera — this is how you will scan UPC’s (Item Identification bar codes).
Put the blue dots (Andorid) or white outline box (iPhone) over the upc (see picture). Once item scans it will take you to the product details page.
The product detail page give you an overall snapshot of the item. There are 3 main things to look at on this page.
1. Rank — The number at the top followed by category. The rank of the item tells us how fast the item will sell on Amazon. In this example — 63,270 in Toys.
2. Price of item and potential gross profits. This tells us how much the item is selling for on Amazon and potential gross profits
3. How many sellers. If you are fulfilling through Amazon — the total number of FBA sellers is important.
To get more information about this product so we can make a good buying decision — click on the box and arrow next to gross profits.
This screen gives us a detailed amount of information. Make sure the Amazon Fulfilled box is chosen (on the right). Low price in NEW will be auto-filled by Amazon. This is the going price of the item on Amazon. Below you will see Fees with FBA — this is what Amazon charges you to fulfill your item from their warehouse. Cost of purchase is how much you pay for the item (in this example $10.70)
The most important number is in Green — Your Profit. this is how much money you will make if you sell this item. ($8.41) in this example.
3 things to look at when buying items to sell on Amazon.
1. Sales Rank — How fast will this item move? Every item gets ranked on Amazon. The lower the number the better the item sells. They rank by category, and depending upon the number and the category, can tell you how fast an item will sell.
2. Price — How much is the lowest price on Amazon. To be competitive you need to be doing FBA and you need to be within 2–5% of this price.
3. Your Profit — This is how much you make when the item sells. Typically this number will be a bit lower as you have to send the items into Amazon to be eligible for prime shipping. You can account for that in the “Shipping to Amazon” part of product details page.
Everyone who sells on Amazon has different criteria for buying items. However, the one thing that ALL successful Amazon sellers know — Your profit is made in the buying phase. What does that mean? It means that the cheaper you can get the item the more profit margin. Profit margins can fluctuate and items can sell for much less than when you bought the item. You want to make sure there is enough room in the margin if the price tanks.
Want to learn more? Here are some recommendations:
One of the best Free Facebook pages for selling on Amazon: My Silent Sales Team
The Proven Amazon Course — teaching all things about selling on Amazon and well worth it’s very low price tag!
Our next blog post will discuss Wholesale and how to get started.
- About the Author -
Brad M. Clouser is the President of Touchdown Consulting. He has over 10 years of selling experience online and runs an Amazon business that ranks in the top 5% of all Amazon sellers. Touchdown Consulting assesses, coaches, and consults companies to success on Amazon.